There are two broad types of innovation: incremental and disruptive.
Incremental innovation involves making improvements to existing products or services. Most organisations incrementally innovate to some extent, often introducing new features or product designs, that create additional value for their customers.
Where as disruptive innovation introduces new products or services that either create new markets or transform existing industries. Far fewer organisations are disruptive innovators, but those who do it successfully can have a massive impact.
Both of these broad forms of innovation are happening in today’s rapidly changing and highly competitive business environment.
Technology, in particular, is creating new opportunities and potential threats that all organisations should actively monitor. Organisations need to innovate to gain a competitive advantage or to survive against innovators who disrupt their markets.
Whether you’re a startup founder, entrepreneur or member of a corporate innovation team, you need to understand the importance of creating an innovative culture in your organisation.
Let’s take a look at what can happen when you innovate successfully, as well as what can happen if you don’t.
Netflix: a disruptive innovation success story
In the 1980s, 1990s and early 2000s, video rental stores like Blockbuster had international chains of franchised stores that generated enormous revenues. But now they have all been wiped out by video streaming services like Netflix.
Netflix began in the late 1990s with a subscriber model largely based on mail order DVD rentals. At the time, the home video rental industry was worth about $6 billion globally. Netflix’s initial disruptive model differed from the traditional ‘bricks and mortar’ model of video chains like Blockbuster in two key ways:
- They didn’t require the customer to come to a store to pick up and drop off their rental movies.
- Their monthly subscription model allowed for a flat fee to be paid for unlimited movie rentals, instead of the traditional single title video rental fee model.
Netflix made inroads into the market and within three years had attracted 300,000 subscribers.
Initial cash flow problems
However, they were losing money due to high postal costs.
The market-leading Blockbuster video chain rejected the opportunity to buy Netflix and eliminate them as a competitor. Netflix continued to focus on building their subscriber base for DVD rentals and sales for the next few years and in 2003 recorded their first profit.
Then came the game-changer.
In the mid 2000’s, increased online data speeds and lower bandwidth costs made online movie downloads and streaming services a commercially viable option for Netflix to offer its large subscriber base.
The rest is history
Netflix capitalised on this opportunity to completely disrupt the video rental and sales industry globally. In 2010, the once dominant Blockbuster organisation filed for bankruptcy. Netflix, on the other hand, now have more than 100 million subscribers globally.
Blackberry and Nokia: the impacts of hesitation
Blackberry and Nokia were early pioneers and market leaders in the mobile/smartphone industry.
In 2007, before the launch of Apple’s disruptive iPhone, Nokia had almost a 50% market share, but within six years that had fallen to 3%.
They were swamped, by both the enhanced features of Apple’s iPhone and later by Samsung (who aggressively competed with Apple in the smartphone market by releasing comparable models of their own).
Putting focus in the wrong place
In the pre-smartphone era, Blackberry had been the phone of choice for business professionals because of its then innovative email, messaging and keyboard functionality. After the launch of the iPhone, Blackberry continued to focus on the corporate market instead of the growing consumer market. That was a flawed decision, because the smartphone innovations in the consumer market quickly became the expectations for business users.
Blackberry smartphones simply couldn’t compete.
Both Blackberry and Nokia were slow to add enhanced and innovative features to their smartphones that have proved so popular for their rivals, like touch screens and the once-popular clamshell designs. They were also slow to respond to new operating system developments like Google’s Android. Android was incorporated by companies like Samsung in their attempts to compete successfully with Apple.
How you can learn more about innovating successfully
Netflix co-founder Marc Randolph is speaking at two events hosted by StartCon in September 2018, one in Sydney and one in Melbourne. At these events you can hear first-hand about innovation from one of the world’s most successful entrepreneurs. You’ll also have the opportunity to ask Marc questions or even participate in an exclusive small-group meeting with him.
Although best known for founding Netflix, Marc has founded more than half a dozen successful start-ups over the past four decades, with his ability to recognise and exploit opportunities for innovation being pivotal to his success. He has also mentored hundreds of early-stage entrepreneurs and invested in many successful tech ventures.