3.2 Literature Review: Environment
The nature of innovation has changed. It is faster, more open, and more disruptive than ever. It transforms the environment where disruption comes not from traditional competitors but from “garage” projects created by passionate entrepreneurs who might not even want to make money and who design their product out of cheap components to simply as the most expedient means of solving their problem. The well-known examples are Google, Facebook, Airbnb, etc.
Big Bang disruption theory by Larry Downes and Paul Nunes (2014) characterizes this phase as The Singularity, with multiple experiments often seeming odd and unpromising. This is a home of unencumbered development, where “thanks to the sudden adoption of Big Bang Disruptors, time to market now regularly exceeds time in market” (Downes and Nudes 2014, p. 109). Now all provocateurs of disruption make experiments driven by open-source components in co-working spaces, hackathon brainstorming events, accelerators’ programs and venture-backed incubators.
Since experimentation has become cheaper and the risk of failure lower than before, the chance to turn the idea into a market disruptor has become greater.
Big Bang Disruptors don’t follow the traditional rules of competition and don’t see a company as a competitor, because they don’t share its approach to customer service and don’t target the high-end customer segments with the premium alternatives.
This theory presents three characteristics that defines a Big Bang Disruptor:
1.Undisciplined Strategy. Disruptors enter the market simultaneously better and cheaper, and more customized than the products and services of incumbents. For decades a strategic planning focused on only one «market discipline» — to offer products that were either better or cheaper than those of competitors, or customized to a narrow market segment.
2. Unconstrained growth. Thanks to social networks and other platforms for information exchange, in every segment now have instant access to nearly complete intelligence about new products and services, much of it provided by other users. Big Bang markets exhibit winner-to-take-all results and short provided lives. So there’s little point to carefully timed marketing campaigns addressed to different customer groups over a controlled product release. Today two kinds of buyers gradually replace Everett Roger’s classic bell curve: trial users and everyone else. The adoption curve has become closer to a vertical line then falls rapidly when saturation is reached or new disruption appear.
3. Unencumbered Development. Big Bang Disruption is rarely the result of expensive proprietary research and development. Instead, innovators launch series of low-cost experiments supported, when necessary, by third-party infrastructure partners. These product tests are carried out directly in the market, with real users co-opted as collaborators and funders (human-centered approach).
For incumbents the Singularity is perhaps the most dangerous stage of Big Bang Disruption. These experiments and tests with customers are often the best sign that disruptors are closing in step-by-step on the most disruptive combinations of technologies and business models.
Twitter, for example, began its commercial life in humble fashion at the South by Southwest conference. It had been invented at a hackathon event and then perfected with internal users.
In the Big Bang phase a sudden customer adoption happens and then the winner-take-all markets that disruptors create. This phase shows the sad reality for incumbents. Nearly 74% of companies responded to digital disruptions only after the second year of their occurrence. 38% of incumbents responded to the emergence of a disruptive company after the fourth year (Bonnet et al., 2015). This is the phase when the disruption starts to move more mainstream and there is an increased likelihood of an incumbent’s value chain to be replaced by one emanating from a disruptor.
In the Big Crunch phase, once the market is saturated, the disruptor enters its own mature state and then is level of innovation becomes more incremental. The value created during the big bang phase dwindles and disruptors should bring manufacturing and distribution rapidly or lose their value and fall victim to disruption in the next cycle.
Finally, in Entropy disruptors that ignore the Big Crunch phase find themselves in this last, dying stage. To salvage value, remaining assets need to be smashed together in experiments to launch new disruptors. Some incumbents at this phase need to develop a road map to relocate to more promising markets in order to bring the project to the next Singularity.
The main twelve rules of Big Bang Disruption which split into four main phases are presented in the Figure 5. The goal of these rules to facilitate in surviving the next round of disruptive change and in someway to create a response to a single disruptor with the next disruption.
The Singularity phase — translates roughly to the condition of mature industries, where stable supply chains become increasinly threatened by rge pressure of new entrants having disruptive technologies. The disruptors appear first as failed experiments taking place directly in the market and often originating from innovators outside the industry. Though they appear to be random, failed experiments actually signal the change that is about to arrive.
- Rule 1. Consult Your Truth-Tellers — Find industry visionaries who see the future more clearly than you do, and who won’t sugarcoat it even when you want them to.
- Rule 2. Pinpoint Your Market Entry — Learn to separate the little bumps from the Big Bangs,choosing just the perfect moment to enter a new ecosystem.
- Rule 3. Launch Seemingly Random Market Experiments — Practice combinatorial innovation directly in the market, collaborating with suppliers, customers, and investors — who may be one and the same.
The Big Bang phase. Larry Downes and Paul Nunes describe this phase metaphorically as the heat and pressure grown inside which led to explosion of matter and created our universe. When early experiments give just the right combination of technology and business model, they create new markets characterized by rapid adoption by customers across all segments. Users make a switch abandoning older products, services and brands — older values, to be more precise, — causing massive disruption to existing industries even as new, more dynamic ecosystem are formed. The old industry implodes, then rapidly reforms into new, but more unstable, forms.
- Rule 4. Survive Catastrophic Success — Prepare to scale up from experiment to global brand in the space of months, if not weeks, and to redesign your technical and business architecture even while running at full speed. Watch for emerging standards that signal the maturing of winning technologies
- Rule 5. Capture Winner-Take-All Markets — Sacrifice everything, including short-term profits, to ensure victory in winner-take-all markets, especially when success with one disruptor can be leveraged into follow-on products that can be created and launched even faster than the original.
- Rule 6. Create Bullet Time — Judiciously employ litigation and legislation to slow the progress of disruptors, even as you proceed with your own experiments, partnerships, and well-timed acquisitions.
The Big Crunch phase. After the big bang, the universe’s energy began to dissipate; dramatic expansion slowed. The implosion of Big Bang Disruptors happens considerably fast. Immediate adoption by the known universe of potential buyers leads to market saturation in record time. The disruptor enters its own mature state, where innovation becomes incremental and growth slows. During the Big Crunch, the industry experience a kind of death, because value created during the Big Bang disappears.
- Rule 7. Anticipate Saturation — When consumers adopt and then abandon new products and services all at once, it’s essential not to be caught with excess capacity or inventory. You need to anticipate saturation before it happens and to scale down as quickly as you scaled up. Poorly timed purchases — whether of raw materials, inventories, or of companies whose value is about to peak — can wreak havoc with your balance sheet.
- Rule 8. Shed Assets Before They Become Liabilities — As one generation of disruptors fades, related assets — factories, distribution networks, and intellectual property — can lose value, gradually and then suddenly. Knowing the right time to sell, and to whom, can mean the difference between your ability to develop the next disruptor and bankruptcy. Knowing which assets to keep for the next cycle of innovation is equally important.
- Rule 9. Quit While You’re Ahead — Even if — especially if — you’ve dominated your industry for decades. The replacement of core technologies with new disruptors can wipe out all your retained earnings quickly if you allow it to. Courageous executives accept the inevitable, and announce their exit from current markets while they are still strong. Doing so gives you more time to move to a new ecosystem. Even better, it forces competitors to change on your schedule.
Entropy phase. According to the big bang theory, the matter and energy of the collapsing universe will eventually regroup, combining to take on new forms. Entropy reflects the last phase of dying industries, where remaining assets are smashed together to create new Singularities.
- Rule 10. Escape Your Own Black Hole — As the lone remaining incumbent, it may seem as if there’s no more competition to worry about. But beware the deadly behavior of your older products and services once better and cheaper alternatives are readily available. Legacy costs, legacy customers, and legacy regulation make it harder, not easier, to compete.
- Rule 11. Become Someone Else’s Components — As humbling as the idea may sound, companies trapped in Entropy often find their best hope is to shut down retail business and transform into a supplier of parts and other resources for innovators in markets emerging elsewhere. When you’re losing the war, in other words, become an arms merchant.
- Rule 12. Move to a New Singularity — Co-opt the tools of the disruptors and their investors, and use them to relocate your remaining assets to a healthier ecosystem. Sponsoring hackathons, opening innovation centers for entrepreneurs, and excelling at corporate venture capital can often buy you the access and equity you need to catch up for lost time and missed opportunities in the early stages.
Disruption in the Singularity and Big Bang phases occurs because market incumbents do what comes natural and what they believe the market wants, and because they often define the market as existing customers for a product and service, and what competitors offer.
The disruptive innovation model in Figure 6 illustrates how challengers with innovations that are yet inferior to incumbents gain a market by competing against non-consumption while simultaneously changing the existing market’s values, and then improve over time until they are good enough to become the new market incumbent.
There is no precise measuring-stick as to when something happens that disrupts a market, because it is a process that occurs over time, and therefore has a beginning, middle, and end. In other words, it is a disruption life-cycle — a natural extension to Disruption theory. “It is important to understand that most digital disruptions don’t happen suddenly. They take place over time,” Rita Gunther McGrath, a professor at Columbia Business School says (Garcia et al., 2015).
