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Breakthrough Innovation – What is it ? How Do You Create it ?



Breakthrough and Disruptive Innovation are commonly used terms. And like most other innovation terminology or emerging trends, with “ The New “ there isn’t clear consensus on what the word means, context, or how to interpret it – to determine the best way forward. Given the huge number of enterprises with Innovation Groups and many startups also pursuing innovation with new products and opportunities, there is high awareness of the need to “ Innovate for Impact “ to meaningfully improve business outcomes. Further, it’s critical enterprises make innovation more rewarding given the importance of creating new value while prudently managing change and risk – for the organization to successfully increase relevance and revenue. To innovate for impact includes having – strong look ahead skills, an entrepreneurial culture, the ability to quickly create – deliver – evolve new digital services, provide a great User Experience, be a very agile and opportunistic organization, be sophisticated in applying metrics, can innovate with insight and inspiration as well as the traditional process and predictability model, can scale / pivot / kill projects quickly, etc.

What is Breakthrough Innovation ?

While recognizing breakthrough and disruptive innovation can mean many things, the bottom line it’s about meaningfully improving business outcomes from growing current markets and revenue streams, successfully entering new markets, reducing costs, achieving greater efficiencies, etc.

Breakthrough and disruptive innovation is about making a fundamental change in the dynamics of an industry, market, organization or buyer behavior.

The following diagram depicts the different forms and nature of innovation. Interestingly, most of the time breakthrough innovation isn’t a single event or eureka moment. While it’s usually based on a bigger radical or disruptive innovation, breakthrough innovation is frequently combined with a number of incremental and sustaining innovations – that reshapes a market, industry or organization.

Why are Breakthrough Innovations important ?

Innovation today is typically associated with new digital services or new technology-based “innovation platforms”.  When combined with easy access to information and capital, as well as a better understanding of the need to evolve the business model with new digital services and having the enterprise more sophisticated in technology, the time is ripe for breakthrough innovation to reshape mature industries. Because of the growing importance of these concepts and capabilities to win, most industries are being impacted by breakthrough innovation – which will be even more pronounced in the years ahead. The following chart provides a perspective on various breakthrough innovations triggering paradigm shifts and fundamental change. This is good for entrepreneurial organizations looking ahead – but a hugely challenging situation for those looking through the rear view mirror or wanting to maintain the status quo !

 

Examples of Breakthrough Innovations

Source: ARK Invest, used with permission.

However, the interesting part here is that while there have certainly been big winners that pioneered many of the technologies indicated in the chart above, a huge part of the economic value actually comes from the compounding effect of these big, disruptive innovation platforms being applied to reshape industries and markets.

To confirm, the key to understanding breakthrough innovation is that it’s not just one innovation – but the combination of many innovations to tackle a specific challenge or opportunity. The reason for this being the case is that it often isn’t possible to solve a truly meaningful problem without combining a number of novel ideas or approaches.  And even when it is, there is still a need for additional innovations for competitive advantage.  For example, having a technological advantage based on a specific innovation is great, but if you combine that with a new business model and a number of process innovations, you can achieve a much bigger and more sustainable competitive advantage.  If you’re familiar with value innovation from the Blue Ocean Strategy, or the Ten Types of Innovation, this is the phenomenon that both of these great frameworks are actually built upon, even if they approach it from slightly different perspectives.

Breakthrough Innovation Examples

Some examples of breakthrough innovation include –

Airbnb

Airbnb is a classic example of disruptive innovation. The service started off in the very low-end of the travel and hospitality market by just renting out air mattresses for the night, and eventually climbing up-market to eventually surpass all traditional hotel chains. Their peer-to-peer service couldn’t compete with the big hotel chains in terms of amenities or many of the other characteristics hotel guests are accustomed to, but they are able to offer a more personal experience, better able to showcase the local culture instead, and at a more affordable price.  However, that disruptive core business model innovation is only a part of the story.  In addition to redefining what an authentic travel experience can be like, they also gradually made the whole customer experience incredibly smooth end-to-end, far surpassing the traditional competition. Also, as the whole concept of staying with a complete stranger is fundamentally slightly intimidating for many, they had to build in many novel mechanisms for ensuring trust between the parties. What’s more, Airbnb requires a critical mass of both guests and hosts to function properly. This is the part where most companies that are looking to build a platform business actually fail. However, in addition to having a great service experience at just the right time for their market, Airbnb was able to overcome the challenge by figuring out and using dozens and dozens of clever marketing innovations to ultimately gain traction, such as their Craigslist integration. While certainly not disruptive in themselves, various innovations played a significant part in the breakthrough success that Airbnb has been able to achieve and creating a paradigm shift in the hospitality industry.

Reusable Rockets

One of the most celebrated advances of the last decade was the rise of a new wave of commercial space companies, such as SpaceX, Blue Origin and Virgin Galactic. The biggest, and certainly visually most stunning innovations in this sector has been the ability to land and reuse rockets that have been to orbit.  This technology will continue to dramatically decrease the costs of space launches, which is one of the big reasons for a number of new space related technologies and businesses, such as Starlink, becoming feasible. While reusable rockets are quite widely considered to be a breakthrough innovation, it’s actually not a single innovation. To make them a reality, these companies actually had to come up with quite a few new technologies and innovations. The list of the most notable technologies SpaceX developed for this purpose is quite lengthy, and most of the mentioned technologies are actually “systems”, which means that they can be comprised of even more novel technology.

Tesla

As electric vehicles have gradually started to have a more noticeable impact on the car market, mostly thanks to Tesla, the somewhat academic debate about what kind of innovation the company actually does has picked up in the last couple of years.  Tesla is often cited as being a disruptive innovation for the incumbent automakers. However, Clayton Christensen and his followers have argued that Tesla isn’t actually disruptive but sustaining innovation. Still others have claimed the company to be a prime example of radical innovation. This article by Jay Gerhart does a great job of explaining these different points of view.  Looking at the core technologies of Tesla’s vehicles, both electric motors and lithium-ion batteries have been around for quite some time and an argument can be made that even though Tesla has clearly refined these technologies, the innovations have been incremental in nature.  However, you could also argue the way they’ve put together these innovations and constantly and rapidly kept improving them so that they’ve been able to challenge and surpass internal combustion engine cars in many ways is certainly radical innovation, not to mention some of the advances they’ve made in self-driving technology.   Further, Tesla’s full self-driving technology has a lot of potential to become a disruptive innovation for many branches of the transportation industry. If, on the other hand, you look at Tesla vehicles as just a part of the overall market for new cars, Teslas are indeed sustaining innovation since they are competing in the high-end segment using basically the same value drivers as the existing competitors, such as luxury, safety, and performance. However, their vertically integrated business model, combined with the reduced need for maintenance of electric vehicles is certainly disruptive for car dealers and service stations since it threatens to make their existing business models irrelevant over time.  Putting it all together, Tesla has innovated on many fronts, and in many different ways that it just doesn’t fit in neatly with most of the innovation theory. As such, this is a great example of how breakthrough innovation actually comes about.  As proof of their innovations being a breakthrough for the industry, Tesla’s electric vehicles have actually surpassed the unit sales of their rivals in the segments they’re competing in, which has forced the rest of the automotive industry to follow. Now virtually every large automaker is working on their own electric vehicles, and some, such as Volkswagen, are already betting the future of their companies on it.

Other examples of breakthrough innovation are –

Some of the attributes to achieve breakthrough innovation include people in the organization –

A.  Being very entrepreneurial and opportunistic

B.  Learning fast and can quickly expand comfort zones

C.  Looking for new ways to look at things and deliver value

D.  Delivering a great User experience

E.  Be an explorer

F.  Expect change

G.  Able to communicate, communicate, communicate

H.  The organization having extensive digital competencies

I.  Realize offence is the best defence

J.  There is a need for theory and a model

K.  Understand causality

L.  Are very good at recognizing and prudently managing risk

M.  Have strong look ahead skills and the ability to pivot

N.  Are highly competent at monetizing value creation

Because these are typically very rare attributes in enterprises and there is a trend of technology based company disrupting established industries and businesses, if there isn’t paranoia about the future in large organizations, there should be ! And a failure to do breakthrough or disruptive innovation means they are a candidate to me marginalized or disrupted. Because of this, it’s imperative enterprises need to innovate for impact.

How to create breakthrough innovations ?

Now that you we have a better idea of what breakthrough innovation is, the next question is how to make it happen. The process has three steps.

1. Identify the Right Problem or Opportunity

Every breakthrough innovation starts either from solving an existing problem in the market, or by tackling a business opportunity in a fundamentally different way.  Breakthroughs are often enabled by significant advances in technology, such as the proliferation of lithium-ion batteries in laptops made the first Teslas feasible but can also be simply based on unmet needs of the market, such as Airbnb.  Either way, the problem or opportunity has to be big enough so that an innovation could lead to a proper breakthrough, and your approach to address it has to be contrarian enough to really transform the way things have been previously done.  As with innovation in general, it’s notoriously difficult to really evaluate innovative ideas in the early stages. However, if you’re really shooting for breakthrough innovation, a good rule of thumb is that people need to think of the plan as ambitious or very crazy.  This is certainly true for all of the companies mentioned in this article.  For example, almost all prominent investors thought Airbnb was a terrible idea, and Elon Musk indicated  “Starting a car company is idiotic and an electric car company is idiocy squared”.

To create a breakthrough innovation, if you don’t already have a technology advantage, it’s probably better to try to find unmet needs from the market. Even though it doesn’t sound all that glamorous, and might sometimes not lead to as big of a competitive advantage, you are more likely to succeed by focusing on the market, as opposed to researching and developing new technology.  A great way to come up with such innovations is to use a systematic approach like the “Jobs to Be Done” framework (JTBD) to help you look at existing markets differently and focus on what really matters.

2. Address the Opportunity with a Key Innovation

Once you’ve identified an appropriate problem or opportunity, the next step is to address that with a key innovation. This innovation will then be the backbone and the platform on which you can then build your business on. For example, for Tesla that is an electric drivetrain, and for Airbnb it’s the online platform that enables peer-to-peer accommodation and travel experiences. An example of achieving breakthrough innovation is with a framework for this part of the process.

3. Scale the Breakthrough Innovation for Impact

Innovations, no matter how great, never occur overnight. It always takes years of relentless focus on improving the solution as well as building and scaling a business around the innovation before having major impact. What’s more, scaling usually involves a lot of “firsts”, with nearly all breakthrough innovations requiring supporting innovations. For example, the lightbulb needed an electric grid to become mainstream and illuminate cities. Personal computers really took off after standardized components and operating systems with graphical user interfaces made them viable for the masses. More examples are in the Breakthrough Innovations chart at the beginning of this article.

While some companies (ie: Tesla) do supporting innovations themselves, in most cases this isn’t necessary.  For example it’s common to use other products to build your solution or enable others to build on top of your innovation. This can lead to a stronger network that not only helps you achieve breakthrough impact faster, but also serves as a great way to protect the business from competition later on. This is what made Android a pervasive smartphone platform.  Since this is the part where you’re really shaping the eventual business and operating models, it is also the phase where you can still try to build a bigger moat and more sustainable competitive advantage for your business with additional innovations. This is where the Ten types of innovation framework are helpful, as summarized below –

 

Next Step ….

While creating a breakthrough innovation is quite simple on paper, it’s anything but in real life ! It is typically the result of a lot of work over a long time – by a team of very talented and ambitious people having a new vision with a new way of doing things. Because of this, breakthrough innovation tends to occur when it’s the focus – not part of something else. This explains why startups tend to be much better at breakthrough innovation than enterprises. However, with enterprises having significant resources and much to gain from successful innovation, is why organizations are changing their culture, business models, etc. This is essential to win in digital in an on-line, real-time, all-the-time world.

If you’re looking to increase the rewards from innovation to meaningfully improve business outcomes with breakthrough innovation, you’re welcome to view  the extensive guide or contact Viima or CAIL.

 

Feb 25, 2020                   Viima / CAIL  Innovation commentary                       info@cail.com

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