Existing Businesses

Why Existing Businesses Shouldn’t Disrupt

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NOT Name a company that does not aspire to create a break in the form of a radically new market, allowing it to both enrich itself and enrich its shareholders. Identify a CEO who doesn’t dream of being called a visionary for their ability to lead their organization into uncharted territory, updating new and exciting technologies, products, and markets. We all aspire to become the contemporary Christopher Columbus, the pioneer, the inventor, the adventurer who discovers the industries of the future.

We explain why we are making such a bold and controversial proposal in this article. But don’t take our word for it: all you have to do is look at how the radically new markets of the 20th century were born to understand how those of the 21st century will arise . One fact is obvious: radically new markets are almost never created by large, established companies.

Researchers have studied these radically innovative markets over the past fifty years, leading to in-depth knowledge of these markets. For example, we know how they are created and by whom. We know who “colonizes” them and who benefits from them. We even know how they will evolve and die. But despite all this knowledge, most of the recommendations made by researchers or consultants about creating radically innovative markets are wrong. This advice seems to be given without empirical basis, without reference to the facts and realities of these new markets (or perhaps in spite of them).

In this article, we’ll explore why existing large companies can’t and shouldn’t seek to create radically new markets. We will then explore the implications of this analysis, showing that rather than seek to create such markets, existing large firms would be better off positioning themselves to exploit efforts initiated by others.

1. Existing large companies cannot create radically new markets

The probability for an existing firm to create radically new markets is very low, because the process of innovation which leads to the creation of such markets is difficult to reproduce within the contemporary firm. In order to understand why, it should never be forgotten that this type of innovation is disruptive for both the consumer and the producer. They are disruptive for the consumer because they introduce products and value propositions that strongly alter the pre-existing habits and behaviors of consumers.

Faced with new products and services based on radical innovations, consumers must learn everything, not only what they are but also how to use them and sometimes become aware of their usefulness. Consumers must break with their habits and change the way they buy and consume. Sometimes they have to make expensive investments to learn how to use the new product. Among other things, this can lead them to assume major risks (can my investment in this new product be lost? what will this new product do for me, insofar as it works well?). In sum,

These observations also apply to producers. Radical innovations often come from the discovery or development of new technologies, and require the development of new know-how and new operating methods. These changes affect not only producers of old and new products but also other firms offering complementary products or providing related services. Such changes often affect upstream and downstream by transforming supply, distribution and logistics processes. It is sometimes said that each product has its own infrastructure Radical innovations also involve changes in the value of assets and know-how and in the behavior of producers, their suppliers, distributors, wholesalers and resellers.

In summary, radical innovations create new markets and destroy old ones. In a way, this helps to understand why radical innovations are disruptive: they introduce major changes in our lives. No one likes change unless they are sure it brings about improvements. But there lies the problem: for firms that have built everything around existing products, new products represent a threat. They cannibalize existing activities and require new (often rather risky) investments in order to do new things (or do old things in a new way).

Moreover, the way in which producers and consumers generally assess these risks frequently creates new problems. It is in the nature of radical innovations that the new products and services introduced are new and not usual. This is why it is often very difficult for anyone (producer or consumer) even to assess what the benefits are. The costs of change, however, are much more immediate and are generally much easier to assess. Thus, when truly innovative products or services hit the market, they come with promises that are difficult to assess and threats that are generally much easier to sense and assess. This is why the initial reactions are not always positive. Under these conditions, it is not always clear who should be seriously interested in launching such disruptive innovations.

This is an important point to assess, since it generates a headache: since radical innovations require major changes for both consumers and producers, and since the benefits of change are difficult to assess at the outset, neither consumers nor producers would be encouraged to encourage radically new markets! But who then introduces these new innovations into our lives?

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