Entrepreneurial Strategies to Manage Disruptive Innovation

Disruptive innovation is becoming the new rule rather than an exception as new entrants into various markets sweep aside category incumbents. While business history is replete with examples of flourishing disruptive innovation from the past decades, it has nonetheless focused on the nature and characteristics of innovation with little attention paid to how and why disruptive innovation occurs.

At most, scant attention is paid to what CEOs and their boards of directors can do to better cope with disruptive innovation. Given the long list of erstwhile companies that missed opportunities to leapfrog to the next level of innovation such as Blackberry, Blockbuster, Borders, Kodak and Polaroid, it is clear that most business leaders are not prepared for the challenges of leading through prolonged periods of uncertainty.

The term “disruptive innovation” describes new technology that renders an existing dominant design obsolete through both lower cost and higher performance (Christensen, 1993; 2006). For example, the advent of mobile telephony versus traditional fixed line telephones. The fundamental features of disruptive innovation can be summarised as affordability, simplicity and unexpected replacement of large incumbents by new and smaller entrants. Other classical examples include replacement of cassette tapes by compact discs and then replaced by the MP3 and silver halide films for digital cameras.

Scant research
Importantly, there have been little research and definitions conducted on entrepreneurial strategies that guide CEOs and boards of directors in creating disruptive innovation to mitigate their businesses against being disrupted in the markets. I believe that knowledge, understanding and capacity to cope with disruptive innovations are key for corporate resilience, especially for those companies that operate in fast changing environments. Scholars and practitioners argue that disruptive innovation cannot be defined from a standpoint of technological success alone but should include exceptional commercial success. The foregoing argument brings a fresh perspective to conflicting definitions and focal points of prior research by replacing earlier incumbents of disruptive innovation with relatively newer ones, namely new product, unexpected encroachment for periphery of a market and thirdly, the breakthrough in markets or commercial success rather than technological success alone.

An analysis of extant literature on disruptive innovation suggests that key articles in this field contain elements that are strongly relevant to entrepreneurial strategies. Such themes range from trade-offs between effectuation and causation to managing the markets, resources and developing capabilities; entrepreneurial advantage of cross-border trade and entrepreneurial dynamics via trial-and-error sense making.
To this end, there is good reason to think entrepreneurship may offer significant contribution to disruptive innovation.

Entrepreneurial ecosystem components of disruption:
Disruptive innovation is viewed from an entrepreneurial perspective as a form of entrepreneurial opportunity that is radical rather than incremental in nature (Shane and Venkataraman, 2000). This has a strong bearing on product, service and business modelling as well as the definition adopted for this article. In the current research of disruptive innovation, a lot of questions have been left unanswered such as where do opportunities comes from or what exactly are the sources of entrepreneurial opportunity in disruptive innovation? What kind of entrepreneurial opportunities lead to disruptive innovation? Uncertainty is a key element of entrepreneurial action, hence understanding the nature of uncertainty is crucial since each and every risk type calls for a different entrepreneurial action.

It is generally considered that consumers are lead-users whose minds, behaviours and decisions are ahead of the market, possess certain advanced technological know-how and involvement in user-innovation communities for pecuniary and non-pecuniary motives. Individuals and communities who co-create or experiment with new ideas and new products such as open source software, juvenile toys and even mountain biking are classical examples of early adopters. The fact that linkages between small businesses (SMMEs) and large corporations exist to co-innovate needs to be reconciled with extant theory of disruptive innovation.

Causal and effectual logic as key drivers of disruptive innovation:
Causal logic focuses on predicting aspects of an uncertain future under conditions of low complexity and low time pressure (Rahman and De Feis, 2009). The underlying principle of this logic is that if we can predict the future, we can control it too. In the same vein, companies conduct strategic planning, develop formal business plans and perform competitive analysis. Whereas, effectual logic assumes a set of means (who you are, what you know and whom you know) as given and unalterable. Thus, the focus goes to selection of possible combination of effects that can be created with that set of means (Sarasvathy, 2001). This approach advocates affordable loss as opposed to expected returns. Exploring collaborations rather than competing and exploiting contingencies rather than exploiting pre-existing knowledge.

Sony Corporation
Failures of many erstwhile ‘innovative’ market leaders of the past could be seen as a result of their CEOs and their boards of directors’ myopic views. An often cited case is one of Sony Corporation which is said to have fallen into the trap of becoming overly driven by causation rather than effectuation strategy. Companies can leverage the communities of lead-users or early adopters of their products and learn to distinguish and reward top ideas through company-based initiatives.

An example here is an online platform developed by Eli Lilly called Innocentive that allows companies to ask people in the communities of experts to solve a technological problem in return for a financial reward. Leaders who recognise surprises as inevitable are best able to actually use surprises as a strategic tool that renders them more agile and effective in capitalising on unforeseen events.

*O’Brian M’Kali (PhD, MBA, MSc, MEd) is an expert in enterprise development, innovation, SMME development, policy development, capacity building, monitoring & evaluation and turnaround strategy. He lectures at Botho University. Among others, he is a 2022 recipient the Wadhwani Foundation’s Gold Award at the Start Me Up Global Facilitation Ceremony. He can be contacted on 71860308 (WhatsApp).