Disruptive innovation: Xs and moonshots (GIF)
When I heard the news that the NASA astronauts had reached the International Space Station ISS with a SpaceX spaceship, my heartbeat twice as fast. But not only the possibility to sniff the air in space as a ground-based cosmonaut arouses my curiosity. But also the “X” in the title of the whole mission.
Why the X?
Alphabet Inc.’s “X”, better known as Google’s Moonshot Factory, is probably the most famous example of an X initiative, with an impressive vision:
We create radical new technologies to solve some of the world’s hardest problems.
In an interview, CEO Astro Teller explains that in the beginning, the (x) was a place holder — Google (x). From the place holder, two visions emerged among the employees of the Moonshot Factory:
1. The search for solutions that are better by a factor of 10 or
2. To develop technologies that are 10 years away from having a major impact.
Why do companies like Alphabet Inc. need an “X”?
I think the answer to this question can be explained with the theory of disruptive innovation. It describes a process in which a company successfully attacks an established company in two ways — at the lower end of the value chain and within a new market (1).
In the first approach, the disruptor identifies those customer segments whose needs are poorly served by the competition. Thus, incumbents often focus on the upper profitable customer segments and tailor their product portfolio accordingly, but forget the mainstream consumers, who either cannot afford the product or are not competent enough to use it. The disruptor uses this gap to target the neglected customer segments of the competitor with a low price model for a sufficiently good product. Established companies usually do not react to this first threat. After the disruptor has learned about the needs of the mainstream customers, the second step is to bring a better product to market than the competition. As soon as mainstream customers make extensive use of this offering, disruption occurs as the disruptor makes competitors’ existing products, services or business models obsolete.
In the second approach of the disruptive innovation theory, the disruptor finds a non-existent market or turns non-consumers into consumers. Usually, established companies overlook this type of disruption because the disruption is not immediately noticeable as it is a process that takes time. When Netflix Inc. launched in 1997, its DVD delivery service attracted 300,000 subscribers within the U.S., with a $57 million loss compared to its competitor Blockbuster with $4.96 billion in revenue. When Netflix decided to serve a broad customer segment with a new business model, technology-based on-demand online video streaming and binge-watching without economic disruption, Netflix became a disruptive force in the TV and DVD rental business (2).
Why do established companies not react to the threat?
There are three reasons for this. Lack of knowledge about
- The development of sustainable and disruptive technologies.
- How often a product or service needs to be improved so that users understand the improvement and are willing to pay for it.
- The profit and revenue structure of the incumbent (3).
According to a study by Innosight, half of the S&P*500 companies will be replaced within the next 10 years.
The urgency to react quickly to external challenges is today a “must” for a company’s survival. However, despite the deep fear of being disrupted, companies do not invest in measures to protect themselves, for example, by investing in breakthrough, radical or disruptive innovations and new technologies.
41% per cent of executives say in a 2018 CBInsight survey that their companies are at risk from emerging technologies. Yet, they remain focused on incremental innovation and improve existing products, reduce costs and improve productivity. They leave the field of disruptive innovation to the others, the “not yet tangible” competition that is in the starting blocks or already unnoticed on the fast track.
But how should established companies react to disruption?
Steve Blank recommends:
- Co-operate with external start-ups to pick up speed.
- Make external innovators a part of the established company and thus use the strengths of an incorporated company, and work with the speed of disruptors — The Corporate Start-Up Way
- Copy the disruptive innovation while maintaining the established business model of the company.
- Innovate better than the disruptors.
That is why even those companies that are considered masters of innovation and were once disruptors themselves, such as Alphabet Inc. are not immune to disruption. Unlike many other companies, however, they take their fate actively into their own hands. With the “X” initiative, they combine, in my opinion, two strategies to counteract disruption: Better to innovate than the disruptors and the corporate start-up path.
And what does the X in Space X stand for
According to Elon Musk, the X stands as a parable for a rocket trajectory — simple as that.
Do you have something to add?
Or do you disagree? Your feedback is important to me and helps me to become better — 24/7 experiment mode — build/measure/learn and repeat.
Do you want more? This article is about the term #innovation itself:
Analogue sources:
(1) Bower, J.L. & Christensen, C.M. (1995). Disruptive technologies: catching the wave, Long Range Planning, vol. 28, no. 2, pp. 43–53.
(2) Rothaermel, F.T. & Austin, G. (2017). Netflix, Inc., McGraw Hill Education.
(3) Christensen, C.M. & Raynor, M.E. (2003). The innovator’s solution, Harvard Business School Press, Boston, Mass.
