The Innovator’s Dilemma And How You Can Overcome It

Where are the opportunities to grow through innovations? Which innovations are defensive in character? And which innovations will kill the business if they are not addressed? These questions can pose quite a dilemma because doing the right thing can be the wrong thing and doing the wrong thing can be the right thing.

During the keynote presentation “The Future of Enterprise Applications,” Prof. Dr. h.c. Hasso Plattner, founder of SAP and Chairman of SAP Supervisory Board, and Christensen discussed the need for knowing when innovation is building growth and responding to the needs of the customer at the right moment.

Welcome to the innovator’s dilemma

According to Clayton M. Christensen, Professor at Harvard Business School and author of the Harvard Business Review article “Meeting the Challenge of Disruptive Change,” there are three types of innovations companies can choose:

1. Sustaining innovation. In this case, companies make good products better – ranging anything from incremental and dramatic breakthroughs. Although this approach is critical for survival, it enables just that – survival. It doesn’t create any real growth because the resulting innovations are easy to replace. In other words, when a consumer buys a new product, they tend to not purchase an older version of it.

2. Disruptive innovation. This approach doesn’t necessarily need to be dramatic or game changing. Companies can transform a complicated, expensive product into a product that’s more affordable and accessible – allowing more people to buy and use them. To respond to demand, business operations need to scale to reliably manufacture, distribute, and sell these products – creating an engine for new business growth.

2. Innovation that can be used by customers immediately. Almost always, a company’s ability to improve products outstrips the customer’s ability to use them. For example, a company that offers a product that isn’t good enough for what customers need at that point of time may run the risk of refining that product to the point where a customer cannot realize its full potential. Because all the wrong decisions were made for all the right reasons, this mismatch can mean that the company may miss out on disruptive innovations in the future. To create innovations that drive growth, companies must ensure that innovations can be immediately and fully used by customers.

Drawing from his own experience, Plattner mentioned, “The innovator’s dilemma is everywhere. There’s significant change in the environment and the world, and companies must react to it as quickly as it arises. Companies may try to catch up with sustainable innovation and hope for a few leaps with technological breakthroughs – but again and again, they fail.”

So here’s the challenge: Executives must figure out when it’s time to move from sustainable innovation to disruptive innovation and manage the disruption. To what degree do companies really need to change?

How much innovation is too much?

Christensen alluded that some companies are good at responding to evolutionary changes in their markets. But, they run into trouble when handling or initiating revolutionary changes in their markets or dealing with disruptive innovation. One way companies go wrong is by using the customer as a unit of analysis. “There may be a correlation between a customer’s attributes and characteristics, but these factors don’t necessarily cause them to behave in a certain way. It’s not our characteristics that make us purchase – it’s the job at hand. With aggregated analysis, we lose our ability to understand an individual customer,” Christensen commented.

Developing a product to nail a job and become successful is the name of the game. To be successful in almost every case, you have to understand the inner workings of a job and design a product around it. But to accomplish this task, you need to create a structure that promotes innovation – and that takes time.

Christensen stated, “Companies tend to aggregate things into boxes and assign metrics to them to determine if they’re successful. In the end, they end up with an organizational chart that has nothing to do with getting the job done. And this makes everyone lose focus on the job and any sense of differentiation.”

Rather than having people buried inside an organizational chart aggregate, information about people, customers, and technology should be one layer thick. Doing so helps ensure full transparency. Plus, this method enables the ability to reorganize on the fly in response to jobs that need to be done can transform the way companies can innovate.

Plattner advised, “Simplicity beats complexity. I’m not saying we should reduce the functionality of systems, but the primary objective is to be simple. It’s not a marketing slogan to be simple. It’s a necessity to that we fight the complexity and build-up we have experienced over the last 25 years.”

With simplicity in mind, companies can deliver innovations much faster to market when they’re not hampered with an organizational chart based on aggregates. “If a company understands what customers need to get the job done, it can then determine what needs to be integrated and how to link it all together to provide the right experience,” Christensen explained. Rather than having a static organizational chart, companies can deliver processes and flows designed to perform the job perfectly.

Plattner continued Christensen thoughts by reflecting on the need for meaningful insights. For most companies, they have the data – but now they have to redesign how that information is used. Plattner noted, “Companies still need to define the insight and controls we want, but not relegate them to a predefined system. They have to build models and feed them with transactional data to get insights. And then they have the option to predict and simulate. The freedom to arrange information differently gives team the insight they need and work differently.”

Check out this informative keynote featuring Hasso Plattner and Clayton Christensen. You can also find the entire library of SAPPHIRE NOW keynote replays here (registration required).

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