Changing the Rules: Evolution or Revolution

Monday, August 23, 2004

Gregory Ruff, G.L. Ruff & Company, http://www.ibdnetwork.com

Changing the Rules: Evolution or Revolution
By Gregory Ruff, G.L. Ruff & Company, A Chasm Group Affiliate
IBDNetwork’s Dealmaker Monthly

In the high-tech world we tend to think of innovation almost exclusively as disruptive: a new technology or process that immediately obsoletes the old way of doing things and creates wholesale changes in the markets for the previous technology. However, in examining opportunities to change the rules of competition, we need to consider a much broader list of innovations.

My associate, Geoffrey Moore, in an article in the latest Harvard Business Review, details a list of techniques for innovation that as "rule changers" we need to bear in mind:

Disruptive innovation: The high-tech "favorite" as its impact generally changes whole markets and/or creates new ones. It's typically based on some form of new, discontinuous technology, and it creates whole new value chains, solutions, and wealth. This type of innovation is typically the most costly to pursue as it requires successful development of technology breakthroughs.


Application Innovation: Applying existing technologies or processes in new markets and in new ways. This approach to changing the rules is very powerful as it opens up new market opportunities without the high risk of technology innovation.


Product Innovation: Enhancing or improving current products in existing markets in relevant ways. The next-generation microprocessors from AMD and Intel or the new 2005 C6 Corvette are prime examples. The opportunity here lies in making highly valued enhancements that can shift the balance of competitive advantage.


Process Innovation: Changing current processes for whole product delivery. Amazon revolutionized the process of selling books and E*TRADE revolutionized the process of stock trading. By first characterizing the existing process and value chain and then asking "what if?" questions for each link in the chain, we can often find opportunities for process innovation.


Experiential Innovation: Innovation in the user experience that delights satisfies or reassures, e.g. custom skins for cell phones, no-waiting programs at banks, and package tracking from Fedex. The key to innovating experience is customer intimacy and deep understanding of extended customer wants and needs.


Marketing Innovation: Innovation in customer interactions, either marketing communications (e.g., interactive advertising and product trials) or consumer transactions (e.g., on-line auctions that identify related items). Marketing innovation can be an effective and simple way to create customer-valued advantage.


Business Model Innovation: Changes in the established business model that yield market relevant benefits. For example moving to the ASP model for software and electronic distribution for music. Business model innovation can create advantage almost as dramatic as discontinuous innovation in technology.


Structural Innovation: Innovating by restructuring industries and relationships. The shift to fab-less semiconductor companies and foundries is an example of value creating restructuring in an industry disrupted by the drastic increases in capital costs. Taking advantage of market discontinuities and regulatory change can result in significant structural innovation and advantage.
In the next issue we'll look more closely at each of these sources of innovation and their contribution to changing the rules of competition.

Greg Ruff's consulting practice focuses on helping clients "change the rules." He was a management consultant for 17 years at Booz, Allen and Hamilton, Regis McKenna Inc.'s Market Strategy Group, and now his own practice, affiliated with Geoffrey Moore's Chasm Group since 1995. Prior to consulting, Mr. Ruff spent 13 years at Hewlett-Packard in systems, sales, and marketing. Mr. Ruff can be reached at gruff@usa.net.

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