Disruptive Innovations Call for Disruptive Marketing

Developing and taking innovations to market should be simple. Conventional wisdom might suggest the solution is to be found in marketing. After all, marketing looks after markets. However, companies experiencing rapid transformation (e.g., technology and new media) find that if marketing is focused on fighting incremental battles in existing markets, disruptive opportunities in new markets are lost.

Disruptive innovations are associated with disruptive markets. Disruptions significantly alter existing markets. Initially, as the new market is yet to be created, potential customers are difficult to identify. Even in cases where customer profiles can be identified, the input received needs to be analysed cautiously, as a lack of familiarity with the innovation might limit the usefulness.

Critical to grasping the issue of successful marketing in the context of disruptive innovation is understanding and adopting a new approach to marketing management. Orthodox marketing dictates a linear process of 1) seeing the opportunity for innovation, 2) acting so as to develop the innovation, and 3) taking the new innovation or innovative product to market. In other words, conventional wisdom points towards addressing the “see” problem with a very systematic approach to identifying disruptive opportunities vis-à-vis business intelligence capabilities. The “act” phase is dealt with by allocating funding specifically for development of innovations, thereby providing adequate funding, while avoiding issues related to the cannibalisation of budget allocated to the company’s core business. The “launch” of the new product is managed by a strategic initiative directed at building the market a niche at a time. Concerning disruptive innovation, such a piecewise approach to marketing is unlikely to succeed. Traditional approaches emphasizing techniques focused on exploring the past in order to interpret the current business environment and extrapolate into the future are not likely to work in the face of radical market disruption.

The fact that disruptive innovations give rise to markets that previously did not exist means that marketing must engage in market creation. Focusing on the “see” and “act” phases is paramount. Market creation is an iterative process that requires a combination of vision or “seeing” and market involvement or “acting.” Companies that “see” tend to do and companies that do tend to “see.” The dynamics of market creation begin with the innovator, who is the provider of new concepts for products. The innovator tries, through entrepreneurial actions, to bring new products to end-users. The innovator’s knowledge is primarily tacit and is based on assumptions about what potential users want from a disruption. On the customer side, there is no existing demand per se. That is, end-users have revealed preferences for products that are likely to meet current needs. They have expectations and a willingness to try new things. From the innovator’s initial actions and through the customer's initial trials, an iterative learning process occurs that results in the emergence of supply and demand. The dynamics of this process are characterised by the considerable volatility during the early period of interaction; in fact, some attempts at disruptive innovation might fail to result in a formal market.

Consider the actual case of a small start-up company referred to here as Telasoft, which is active in the field of software for mobile telephones. Looking back at recent history, at its inception, Telasoft did not intend to target the mobile phone market. The company evolved gradually. Initially, software products were introduced into another market. While early product launches were well received, demand was very limited. Customer feedback pointed toward other markets where existing knowledge and technology might be applied. The iterative process of introduction and end-user feedback—“see-act“ iterations—occurred over a period of three years. In the end, the evolved offer was adopted by a major telephone service provider.

In market creation, the distinction between “seeing” and “acting” is blurred. In fact, they are essentially two sides of the same coin. The implication is that in an emerging market, where the learning process evolves, managers cannot follow a piecemeal approach to marketing. They cannot wait until they have all the relevant information before moving forward. Action must be taken long before the “see” phase is complete. In addition, only early involvement in the emerging market can yield useful insights. In short, “seeing” and “acting” reinforce each other.

Consideration of marketing and disruptive innovation as an iterative process of market creation involving dynamic interaction between “see” and “act” leads to six imperatives:

• Manage “see“ as a process, not a one-time event. Disruptive innovations occur coincident with rapidly changing business environments. Information becomes available over time. New entrants appear, new technologies develop, and new concepts are tested. When the disruption occurs, most of the information that exists is implicit on both sides and can remain so for a very long time until the effects of the disruption become explicit. Companies engaged in disruptive markets deal with imperfect information. “See” cannot happen at one point in time, and seeing is not about aiming for a “Eureka!” or epiphany moment. “See“ must be managed as a continuous learning process, spotting the disruption as soon as possible and following it in order to understand the environment and adapt in real time.

• Act to see, donot be passive. Traditional market research does not work. Primary research becomes a necessity. Companies must go out and find the information themselves. Early and active engagement with lead users brings key insights on future markets. Even when the initial vision is incorrect, as it often is, engagement provides opportunities to quickly change and adapt the action. In disruptive markets, if you want to “see,“ you have to “act“ and be engaged.

• Foster vision plurality. It is dangerous to rely on one single individual or group for the “vision.” In disruptive times, a firm can experience different “see” situations. Maybe the CEO sees an opportunity while the rest of the company is blind. Perhaps a middle-level manager struggles to convince skeptical top managers about a new opportunity. Perhaps a senior manager pushes for a market that has no potential. It is well-known that, initially, Intel senior management did not perceive the microprocessor as the company’s core business. Middle management initiatives led to development of products contrary to corporate strategy. When times are uncertain, do not strive for a unique, official view of the market, as it is far too early to “freeze” it. Nurture internal diversity and manage alternatives, even conflicting views about the company’s environment.

• Institutionalize the vision. Having visionaries in the company is often of little use if the individuals cannot communicate vision to the organization. For example, consider the case of Microsoft. In 1993, a Microsoft employee noticed that the company was ignoring the Internet. An e-mail to Chairman and CEO Bill Gates brought about recognition and significant changes for the company. The “see“ process is not complete until it has been institutionalized.The vision must be shared by the company as a whole, or at least by a significant part of it, not just by a few managers.

• Stage commitment with iterated actions. While big bang “all or nothing” approaches might have worked in the past (e.g., the Boeing 707 or Amazon.com) and might still work in some situations where the first mover advantage exists, the uncertain nature of emerging markets and the small size of expected revenue in the first few years call for more progressive involvement in the market. Initial actions should aim at developing information and insights, initiating the “see-act“ loop, and at developing and refining concepts and products. With this approach, the company can stage its commitment over time as information becomes available. The direct implication is to reduce the dramatic importance of the “launch” step. Rather than being the centerpiece of the action, the product launch becomes just one additional step at the end of many otheractive steps.

• Reach out to new networks. When new markets emerge, they will most likely reside outside the existing environment of the company. Almost by definition, managers have to reach outside their environment and establish ties to new, emerging networks. A typical way of doing this is to work with so-called “lead users” and trendsetters who, if appropriately selected, can offer an accurate glimpse of things to come. Another approach is to create partnerships. If properly managed, they can quickly immerse the company in the new environment. Get involved actively and early in the emerging market, even when the direction of things is not yet clear.

To conclude, understanding the “see-act” interaction as a dynamic and iterative process has implications for a transformation of the marketing function. Marketing in the case of disruptions must forego the comfort provided by marketing intelligence reports. Marketers must confront marketplace ambivalence, discomfort, and uncertainty. Applying orthodox marketing procedures in the face of disruption will only lead to classical failures. The challenge is to move away from description to develop market insights in the context of incomplete, yet evolving, market understanding. Only when marketing can grasp disruptive innovation as a creative process involving iterative trial and error will it be able to claim a chair at the table based on creating and winning new markets.

By Phillip A. Cartwright

This article is adapted from Phillip Cartwright and Philippe Silberzahn. “Acting to See: When Disruptive Times Call for Disruptive Marketing.” European Economic Forum. Forthcoming, June 2007.