Disruptive innovation is a hot topic these days. What exactly is it? Why is it happening? What’s driving this phenomenon so relentlessly? How is it that some people, and initiatives disrupt entire industries while other efforts fall flat?
We are living in times of exponential change. Most people have heard of Moore’s Law – the doubling of processor power every 18 months while staying at the same price point. In 1970 there were 2,000 transistors on a CPU (Central Processing Unit) – or computer chip. Today there are 20,000,000,000. A gigaflop is a measure of computer speed – it’s a billion transactions per second. In 1961, one gigaflop cost $153 billion; in 2018 a gigaflop cost two cents.
That means that today computing is 1) free and 2) is happening at the edge. In other words my $1,000 smartphone has more raw computing power than IBM’s Deep Blue which was a $100 million project in 1997 that beat Gary Kasparov in chess. And I carry it around in my hip pocket at all times. Moore’s Law is just one law that is exponentially improving in price performance. There are dozens more.
And when these technologies intersect and compound one another – 1) things that were once impossible be come possible; and 2) industries can get blindsided. Alexa, Siri, and Google Home all became possible because of voice recognition, voice to text, artificial intelligence (AI), and cloud computing. The exponential price performance improvements of all these technologies combined enabled this. Star Trek fans will remember Universal Real Time Translation (URTT). Well, now it’s a reality. The Google Translate App for smartphones will translate English into 100 different languages – and vice versa – in real time as long as you have access to the web.
CHARACTERISTICS OF A DISRUPTOR
The most important characteristic of a disruptor is understanding exponential change and its trajectory. Most large, traditional incumbent organizations follow the trajectory of the blue line. Incremental top line growth every year. The orange line represents an exponentially improving price performance of a technology and the growth of the company that is built on it. Both the technology and the company stay below the radar for a very long time. And by the time the incumbent organization can perceive the threat it’s too late – the new company explodes onto the scene. At the time the green line crosses over the grey, there is chaos and amazement.
For instance, Elon Musk of Tesla understands the relentless price performance improvement of Lithium Ion batteries for electric cars. Here’s how the costs have declined: (the pink box highlights how the price of 2016 moves from the end of one graph to the start of the next) Figure 2 and figure 3 analysis are from Bloomberg New Energy Finance (BNEF):
Despite a decade of dramatic price declines, even in 2016 the largest cost of an electric car (48%) was the battery. BNEF predicts that Li-ION battery prices will continue to fall in cost to a point in 2025 where electric vehicles (EVs) become cheaper than the average gas car price in America.
But at the Tesla shareholders meeting in 2018, Elon Musk pointed out that with Tesla’s Giga factory in Nevada producing battery cells and packs, that the price performance would hit $100 per kWh at the cell level by 2019 and at the battery pack level in 2020. That would mean that EVs would be cheaper than traditional gas cars in 2020 (figure 4). In the mid 2000s Musk looked out into the future and anticipated that by 2020 to 2025 the improving price performance of battery technology would mean that electric cars would become cheaper than gas powered cars. Then he spent a decade building Tesla, because it takes time to build a company – the people, the technology, the infrastructure, the capital, the partners – to a point where it can rapidly scale.
Here are some key characteristics of disruptors. They:
Jim Harris // Disruptive Innovation Speaker
Jim Harris is the author of Blindsided which focuses on disruptive innovation. It is published in 80 countries worldwide and is a #1 international bestseller. He speaks internationally at more than 50 conferences and seminars a year.
In this episode, JIm joins host Adam Markel in conversation to break down the cycle of disruption and innovation in the speaking industry and why businesses must equip themselves for change.Continue reading