Executive Thought Leadership

Disruption and Innovation

As organizational leaders, we are often told to fear periods of disruption. We hear that disruption can shift markets and displace incumbent vendors. To make matters worse, we hear that the innovator's dilemma—in which powerful forces inside even successful companies tend to resist innovation during times of disruption—will turn our past successes against us.

Disruption, we are told, could mean losing our jobs to some yet-unknown startup in India, China, Silicon Valley, or somewhere else. But it is also true that disruption can sometimes create once-in-a-generation opportunities. In every disruption, new markets are created, and occasionally moribund markets are revived. In the technology business we have seen major disruptions occur at least once every decade. During these times, some companies reinvent themselves, rising to the challenge and creating value, while others fall by the wayside, unable to innovate when it matters most. Hewlett-Packard was a successful enterprise computer manufacturer that was able to innovate during the disruption caused by the PC to create a multibilliondollar printer division.

Our industry is currently in the midst of another major disruption: the rise of the networked home. In the networked home, consumers will be able to get what they want, when they want it, on any device they want, all over a wired or wireless IP network. Like previous disruptions, the networked home offers incumbent companies both threats and opportunities to innovate. Today, global service providers are in a race to provide broadband to the networked home. New and emerging content and services companies compete to fill the needs of the empowered consumer by creating new programs and services delivered over the network, while creative manufacturers are developing new devices for consumers to take advantage of these trends.

In periods of disruption, organizations that innovate—and, moreover, have the ability to bring their innovations to market—stand the best chance of accelerating growth. Not too long ago some questioned Apple Computer's ability to survive. Today Apple stands at the center of a multibillion-dollar global music market thanks to its innovative iPod devices and iTunes service. In other markets, new entrants such as Google and MySpace have emerged to provide consumers with new types of services.

The pace of innovation is ever-increasing. This is due in large part to the network becoming both a source of and a platform for innovation. As Eric Von Hippel observed in his book, Democratizing Innovation, product development is no longer confined to corporate labs. Instead, using the reach of the network, companies are more aware of customer needs and better able to respond to them, resulting in increasing adoption rates for technology. New devices and services reach millions of users quickly, and companies have less margin for error when launching new products and services.

Today, the fact that the network itself is rapidly becoming a platform for innovation is changing the industry. When the Internet first entered the corporate world, innovation came from the universities. From there it moved into the banking centers, then out to the rest of the corporate world, and finally into service providers. Today innovation follows a radically different path. Innovation goes from universities to consumer-related companies, then to service providers and corporate enterprises. Both Yahoo and Google have launched a series of networkbased applications (such as e-mail, news, messaging, and other services) that depend on the network to scale to reach massive numbers of users.

For the content creation, device manufacturing, and service provider industries, the disruption of the networked home is profound and will lead to value creation throughout the value chain.

Today, large investments are going toward the development of new devices that enable consumers to store, manipulate, and view content. Internet equipment companies are making large investments in managing bandwidth to support the anticipated flood of video traffic across the network. Some incumbents will be at risk, while others will invent their versions of the desktop printer or digital music player and thrive through innovation during this period of disruption.