Google started as only a search engine. It is now the biggest Internet Company in the world. Almost every internet technology existent today has more often that not, a very successful Google counterpart, from email system to advertising and social networking to a Brower, Google offers the best. Coincidence? It is unlikely.
Christiansen offers a three-step method to approach innovation for existing companies (incumbents) like Google as well as new startups (disruptive innovators). It starts with understanding your present consumers and their needs. Christiansen argues that the biggest signal of an impending requirement of change is a dissatisfied consumer or a large non-consumer. Before Google launched Google Analytics, most reporting on website traffic and online trends was done by running large complicated SQL queries by data analysts who had to be highly trained and thus were expensive. This of course was an unsatisfactory process. Google’s introduction of Google analytics made it easy to do a complicated task at a much less cost. Therefore, the product was easily adopted and widely used. Various other companies then launched platforms that were similar to what Google’s product did but since Google kept reinventing the product and adding features, it has been able to retain a large segment of its initial users or non-consumers. Therefore, it is necessary for any innovator or an incumbent to ask these most important questions, when they launching a new product or thinking of adding to the existing one.
• How does this product or service serve the market?
• How does it integrate into the current industry ecosystem? What will be the integration process be like? Are their rules that are required for smooth integration?
• What other external factors will affect the business?
The second step for innovation is to see how the incumbents react to disruptive innovation. In most cases they will do one of the three things- flee, ignore or fight to retain customers. When Google entered the Internet search business, AOL was a preexisting player in this segment. It chose to ignore Google’s superior search system and thus allowed creation of a sustaining-up market innovation, which eventually overtook AOL’s market share. Thus AOL chose not to retain its customers and decided to “flee” and give up its share to Google. In most cases, to understand and estimate the incumbent’s reaction, it is necessary to have an understanding of the competitor’s strength and weaknesses and thus to succeed, it is necessary to be able to do what the competitor cannot do or will not do. To do so, it is essential to identify incumbent’s resources and processes while keeping in mind that incumbents have access to the best technologies and they have the ability to buy smaller companies (disruptive innovators) to reduce competition to their product. They may not use the technology provided by the innovators until it really integrates well into their profit making system.
The final step in Christiansen’s theory is to make strategic choices to best position yourself in the industry. These choices alter the natural course of evolution of a company. Christiansen advises on three important choices when making decisions about innovation. They are strategy, hiring and sourcing investment capital.
This theory indicates that understanding of the current ecosystem and competitor positioning will provide the most efficient data to calculate the strategic positioning and entry point required to conquer the market. Thus the important questions that need to be asked when making business innovation choices are
• Is there dissatisfaction with the existing product? Is the consumer ready for change?
• What are the competitors doing about the consumer dissatisfaction?
• What strategic choices would be necessary to introduce this product in the existing market? Will it be profitable?