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All Disruption Is Innovative; Not All Innovation Is Disruptive

Doug Collins - Tuesday, June 27, 2017

The New Yorker ran an article, “Power Brokers,” on how start-up companies—some homegrown, some from Silicon Valley—are offering for the first time a reliable source of electricity to people living in remote parts of Africa. Ghana. Tanzania. The Ivory Coast.

The startups have created simple kits that include a solar panel, batteries, installation, and basic house power to run a couple lights, a television, a refrigerator, and maybe a small fan for at least part of the day. The article describes how the startups advanced in fits and starts their knowledge of what the people wanted and how they calculated the return in their heads as to whether to switch from kerosene to solar. The electrical grid, as we have it in the U.S. and the Western World, is either spotty or nonexistent as a choice in this part of the world.

It’s a fascinating story. The author Bill McKibben describes how, early on, the solar alternative tended to break down and be less reliable than kerosene, given the demanding environment and the constant use. Over time, providers began to police themselves in terms of making sure they delivered a quality product and service. The industry fundamentals favor solar, long term, in terms of cost, performance, and reliability, enabling the startups to make slow but steady progress in gaining customers.

It’s at this point that one often hears the startups described as pursuing “disruptive” innovation.

But what exactly are the startups disrupting? The darkness? The nonexistent grid? The kerosene?

Disruption in this context—the context of innovation as a discipline—is a reference and a nod to Clayton Christensen who elaborated on the concept in his capstone, The Innovator’s Dilemma.  Dr. Christensen set disruption in the form of a theory—a management theory. It was his intent that strategists could apply the theory to predict with confidence outcomes from their firm’s activities around introducing new products, services, and models to the market.

The theory has a couple tenets, which I attempt to outline here.

Established firms seek ever-increasing growth and profitability. The owners demand it. The leadership team is incentivized to deliver it. Small, no-growth, limited profitability opportunities become harder and harder for the firm to pursue, no matter how promising they may seem in the long run. Management is instead motivated to chase the market up the price-to-value curve.

Their pursuit opens the door, potentially, to disruption at the lower end of the market. There, firms without the overhead and expectations may, either by design or unwittingly, begin to serve some neglected part of the market with an imperfect substitute. They help the consumer complete a job or two of the many jobs they want to be done. The consumers accept the imperfections considering lower costs. The market size increases as a non-consuming segment, lured by the low price point and other factors, begins taking on the newcomers’ solutions. The incumbent firms welcome the newcomers to the space. The latter are in effect unburdening them from serving a relatively unattractive segment.

Over time, the newcomers find themselves chasing the incumbents up the price-to-value curve with a maturing, better solution. The creative destruction that defines capitalism asserts itself.

Back to the distributed solar in Africa example: Is it characteristically disruptive?

  • Does distributed solar enable the consumer to accomplish one or more jobs that are important to them—jobs that kerosene or the grid help them to accomplish? Yes. The solar delivers comfort, safety, and a connection to the world at large. The refrigeration that solar enables offers cold water in the tropics for the first time.
  • Does distributed solar enable the consumer to accomplish one or more jobs, albeit in a clumsier, imperfect way than alternatives? Yes. The early systems were of poor quality. The local support systems—sales, post-sales support, payments—were spotty at best.
  • Does distributed solar compete against non-consumption (i.e., people with no source of power)? Yes, in some cases, according to the article. Bill McKibben gave no indication of why this group was not using kerosene.
  • Does distributed solar offer a radical cost advantage such that the consumer can overlook solar’s deficiencies? No. At least, not today, although the long-term fundamentals favor distributed solar. The startups are competing on the relative advantages that solar offers. It’s cleaner. People are not coughing in their huts from burning kerosene. It delivers electricity, which can be used for many things beyond light and heat. It’s more convenient and safer than handling petroleum products in the home.
  • Are the suppliers of kerosene, the primary alternative to sitting in the darkness, happy to cede this part of the market to distributed solar? No. Bill McKibben gave no indication that the people working on the distribution network for the retail petroleum service in the region had welcomed distributed solar as a means by which they could unburden themselves of their least profitable consumers.
  • Is it foreseeable that the providers of distributed solar will chase the incumbents up the price-to-value chain in their own pre-ordained search for greater profits? Yes, most likely. One of the startups, for example, anticipated a day when their systems would be used for commercial purposes, such as processing cocoa. It’s likely that those plants get their power from the grid, today.

In sum, one might accurately describe distributed solar in rural Africa as a compelling competitive alternative to kerosene, to an intermittent grid, and to non-consumption. Further, the fundamentals that drive the maturation of distributed solar put it in an increasingly attractive spot, relative to the incumbent network of drillers, refiners, and shippers that comprise the kerosene value chain.

At the same time, distributed solar today offers a limited price advantage. Every sale is hard won. And, the petroleum industry is most likely not happy to cede an inch of ground to the newcomers.

Will distributed solar displace the incumbent? Most likely. Is distributed solar “disruptive.” No.

In closing, it’s useful to take a step back and ask why it’s important to be careful as innovation practitioners in our use of the words that define the practice. Why not assign every promising new development with the attractive name, “disruptive?” The cool factor that comes with that designation can’t hurt, can it?

The reason why is because, as with all theories, the theory of disruptive innovation applies in some circumstances but not others. In mastering the theory, we master the practice. In mastering the practice, we learn how to connect strategy with tactics. The risk of indulging in dogma around theory exists, always. The risk of being rudderless—a death sentence in the Digital Age for firms—is far greater, however.

If you, as the sponsor of corporate entrepreneurship, for example, put out a call for “disruptive innovation,” and the members of your firm, taking you at your word, come back with a cheap, flimsy solution that hardly seems to work—and that would likely embarrass the firm if it saw the light of day, then consider yourself lucky. Someone at the firm has been doing their homework with the intent of mastering their craft. Someone studied Christensen. On the other hand, if they came back with a better mousetrap, then they missed the mark. Authentic transformation, in the way you may have envisioned, will elude you.

The main point that Christensen makes in his writing on this subject is that innovation can be a planned activity with predictable outcomes if the practitioner understands the causation that defines the theory. He then proceeds to offer one theory that predicts the shortened life expectancy of established firms who fail to make the connection. Understanding the cause and effect is the first step towards putting it to good use in your own firm. 

Comments
Henry commented on 20-Jul-2017 06:57 PM
It's really interesting that you say these projects 'advanced in fits and starts' Doug.
I'll admit an interest here, as we're developers ourselves, but I wanted to pick up on your point as it's actually a really useful way of developing an idea into a working product - one that we picked up from web design agencies.

In that world it's known as building a Minimum Viable Product - the cheapest and quickest way to take the core idea or functionality of a new invention for example - and testing it with users to validate what you have before going in to full development.
ernest irmiren commented on 25-Mar-2019 11:44 PM
Am a fully qualified commercial plumbing and heating engineer based in London. I can tell you right now from experience that solar systems is along way away from being accepted by businesses and home owners. It's not just the fact that it doesn't generate enough electricity and you also have to rely on the weather to be good. And it just doesn't look appealing on top of houses. I have never had customer asked me to fit a solar panel on their room. But i have been called out to carry out repairs on solar systems on new build houses. These new inventions break down a lot, there very unreliable and not enough expertise in the field in to carry out the repairs. In order to push green energy there has to be an incentive as people are just not interested. Electric cars have been invented, but the masses are still buying diesel and petrol cars and vans. There just isn't a demand for solar in the western world. The demand is in Africa, Asia and other 3rd world countries, but the people in these countries just do not have the cash to spend on solar panels.

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