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Innovation Race: Most disruptive technologies are brought to market by startups (blue). But established companies (red) are responsible for a growing percentage. Above, we compare the origins of over 250 significant innovations, from Bell’s telephone to Napster, by company type.

We define disruptive technologies as those that offer “good enough” solutions to new groups of consumers, and often at radically lower prices. For just that reason, disruptors often fly below the radar of incumbent businesses, which have strong short-term incentives to deliver better-performing, higher-margin products to their most demanding customers. They initially view disruptive innovations as undesirable for their customers—if they see them at all. But then the performance of the disruptive technology keeps improving, to the point where it can topple a corporate giant. Just think about how inconsequential e-books were to brick-and-mortar bookstores three or four years ago. Then came the price and performance improvements of Amazon’s Kindle, and the introduction of Apple’s iPad, and suddenly Borders was forced into liquidation.

However, analysis we have done at Innosight suggests that a growing number of long-established market leaders like Xerox are turning disruption from a threat into an opportunity. Throughout the 1980s and 1990s, only about 25 percent of disruptive innovations we tracked in our database came from such incumbents, with the rest coming from startups. But during the 2000s, 35 percent of disruptions were launched by incumbents.

In other words, the battle seems to be swinging in favor of the Empire, as the following examples confirm.

·         General Electric preëmpted competitors by developing low-cost electrocardiogram devices to sell to doctors in rural India and China, who historically could not afford more complicated devices.

·         Whereas startups like Tesla Motors have introduced high-priced electric cars, it is incumbents like General Motors and Nissan that developed affordable models, potentially disrupting the business of oil companies.

·         Dow Corning expanded a self-service, Web-based distribution channel called Xiameter to market low-cost silicone materials, disrupting its own commission-based sales force.

·         Microsoft came out with Kinect, the gesture interface system that appeals to new classes of consumers who see joystick gaming controls as too complicated.

There seems to be something important going on. Empires are striking back at rebel forces. Why is this happening? And what does it mean?

One explanation is good old-fashioned survival instincts. After seeing so many corporate icons toppled, companies finally recognize that their competitive advantage can disappear quickly. Just consider how technology companies such as Nokia and Research in Motion are cratering, while Hewlett-Packard has gone through wrenching leadership changes and even considered leaving the personal-computing business. Today’s tightly interconnected markets make it harder for a company to be deaf to the roar of change.

The increasing pace of disruptive threats isn’t merely anecdotal. Turnover among the world’s largest companies is accelerating. Consider Fortune’s bellwether list of the 500 largest companies in the United States. The list would seem to change slowly; after all, in 2011 companies needed close to $50 billion in revenue to make it to the top 50 (up from $30 billion in 2001). But in the past 10 years, 40 percent of the top 50 companies have changed. Some high-flyers, like Compaq and Sun Microsystems, fell off the Fortune 500 list entirely because they were acquired, and still others, such as Enron and Kmart, essentially disintegrated. Other recent victims of technological disruption: Blockbuster, Unisys, Tribune Co., and CA Technologies (formerly Computer Associates).

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Credit: Innosight

Tagged: Business, Business Impact, Xerox

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