How to be disruptive and sustainable at the same time
Disruption sounds exiting, while sustainability is boring, right? Bear with me.
First of all, we are not talking about sustainability in the broadest sense of the word. We are talking about sustainable business innovation, as opposed to disruptive business innovation. I’d like to move away from the classic juxtaposition that can be traced back to Clayton Christensen’s seminal book The Innovator’s Dilemma.
My point is: We need both. And obviously, that’s no easy task.
Let me start with, well, Apple. You can always learn at least something from the best and greatest. Apple is the champion of both disruptive and sustainable innovation. Founded in 1976, the company has managed at least two major pivots and is now the most valuable public company in the world. As a pioneer of the PC era, their first product was truly disruptive. At that time, the disruptive potential of the PC was realised in full not by Apple, but by Microsoft, with some help from IBM and Intel.
As a pioneer of the mobile era, the iPhone was as disruptive as it can get in the business world. In the meantime between these groundbreaking successes, the company got almost disrupted itself by Microsoft and the Wintel platform. While still recovering, Apple developed some minor disruptive products like the iPod (2001), now almost forgotten, but still on sale.
Apple does both: They develop truly disruptive products, launch them, and then iterate on a more or less yearly schedule of evolutionary steps. The iPhone is now in a boring orbit of annual updates, but Apple doesn’t launch new disruptive products every year – quite the contrary. After the iPhone (2007) came the iPad (2010) and the Apple Watch (2015), but the jury is still out whether to call these truly disruptive products or not.
The tremendous success of the iPhone overshadows everything else Apple does or could possibly do.
One thing we can learn from Apple: Don’t be shy to disrupt yourself. The iPhone clearly disrupted the iPod, at the time one of Apple’s blockbuster products. But the iPhone also disrupted the phone market, created the mobile era and a platform business (now dubbed services) that generates more revenue than the Mac or the iPad.
Another thing we can learn: Even disruptive products don’t turn into blockbusters overnight. It took years of sustaining innovation to get the iPhone from where it started more than a decade ago to where it is now. The same is true for the Mac (1984) and macOS (2001, then named Mac OS X).
The destructive forces of friendly fire
This brings us to the 1 trillion dollar question: How can the same company do sustaining innovation and disruptive innovation at the same time? In Apple’s case, there was always a culture of secrecy, even inside the organisation. When Steve Jobs set out to develop the first Mac, he gobbled up a small core team for the task, moved to a separate building that no one else had access to. Thus he minimised not only distraction but also the rejection reaction of the corporate immune system.
Disruption is something every business has to fear all the time. To avoid disruption, companies develop powerful immune systems. The downside is: this also destroys disruptive innovation inside the corporate organism. Disruptive products must be developed in a safe environment, shielded from the destructive forces of friendly fire.
What Apple seemingly doesn’t do is MVP, or minimum viable product. Well, in retrospect we can see the first iterations of their products, be it the Mac, the iPhone or the Apple Watch, as MVPs, for a very high-end definition of minimum. Just think of all the features Apple left out first and added later. The first iPhone had no 3G connectivity and no App Store, for example. Apple starts the public test-and-learn cycle later than your typical start-up does. They show high confidence in their first product iterations, but obviously do a lot of secret test-and-learn before launch.
The holy grail
The combination of disruptive and sustainable innovation seems to be the holy grail. Companies that manage to develop a pipeline of potential disruptive, innovative blockbuster products, while at the same time continuously improving their existing blockbusters, set up themselves for sustainable growth. The product pipeline needs to be sustainable as well. This probably means higher R&D expenses, thus lowering the bottom line. (Apple’s R&D expenses are steadily rising and reached $3.75 billion in the fiscal 2018 fourth quarter alone, which amounted to 6% of revenues. For comparison, Volkswagen spent €4.8 billion on R&D in 2017 – that’s an R&D ratio of 6.7%.)
You need funding for both sustaining and disruptive innovation, and you need to carefully allocate scarce resources. Even Apple neglects their minor products – some of them don’t get an annual update. Innovation costs money. A lot. And money can’t buy innovation. At least there’s no guarantee. But if you don’t invest in innovation, in today’s world chances are dim that you’ll survive. 52% of the companies that were included in the Fortune 500 in the year 2000 no longer exist.