’The Innovator’s Dilemma’ explains why succesful companies often fail – due to their success!

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Af Morten Suhr Hansen

At Subscrybe, one of the most common tasks is the development of entirely new subscription concepts, often in larger companies that currently do not operate on a subscription basis but have recognized the potential benefits. They have realized that to reach future consumers, a subscription model is one of the most effective methods.

These are companies that are already successful, capable of efficiently targeting their market today with a traditional product and transaction focus. However, they also see opportunities for further growth and anticipate future competition from new or existing players who may adopt a subscription-based approach.

Some of these companies succeed in successfully transitioning towards a subscription model. However, there are certainly companies that fail to get their new subscription business off the ground. Why is that? What are the challenges in creating successful subscription innovations? And why do some companies succeed better than others?

One gets a strong insight into this by studying ‘The Innovator’s Dilemma,’ as described by the Danish-American business thinker Clayton M. Christensen. I was reminded of this recently when we completed yet another innovation project with a large Danish company. I will return to that project later, but first, let’s delve a bit into the dilemma itself.

Sustaining innovation or disruptive innovation

Clayton M. Christensen fundamentally distinguishes between two types of innovation: Sustaining innovation, which enhances the performance of the product in accordance with established market demands, and disruptive innovation, which often begins as small and less sophisticated alternatives but over time has the ability to challenge or surpass established products.

Established, successful companies often focus on maximizing returns on existing products, thereby overlooking disruptive technologies or business models and their potential for evolving and capturing a larger market share. This happens because the value placed on innovation often follows an ‘S-curve’. It can take a long time for the value of innovation to manifest, and therefore, sustaining innovations often ‘win’ too frequently because their value (due to the size of the existing business) is much greater in the short term.

Netflix og Spotify succeeded, because big companies overlooked disruption

Clayton M. Christensen’s classic example is Kodak, which for far too long underinvested in digital cameras and their potential, favoring the traditional business of printed photo development. But there are also good examples from the subscription world.

Netflix disrupted the movie rental market, while Spotify did the same in the music industry. In both cases, they could have been shut down if the companies they ultimately outcompeted had focused more on challenging themselves and creating new business models rather than protecting their existing operations.

Many large companies are afraid that new innovation will cannibalize their existing business, but perhaps it’s better to cannibalize oneself than to be eaten by others.

Adopt a dual strategy and set the disruptive innovation free

Fortunately, Clayton M. Christensen also provides strategies for how to address the dilemma and ensure that a company has the ability to challenge its own business. One recommendation is to adopt a ‘dual strategy’ – a strategy that focuses on both improving current products and experimenting with new business models and technologies.

He also argues that when it comes to innovating new business models and technologies, it’s advantageous to place the disruptive business within a separate organization. This organization can be driven by and rewarded for small gains and a low number of new customers. It should be an independent entity where repeatedly failing (before eventually succeeding) becomes part of the culture. Moreover, this ‘disruption organization’ should be allowed to utilize all of the company’s resources when necessary, without being bound by the company’s other processes and values.

Nordic Film Cinema is the next big subscription innovation in the Nordics

Why all this talk about how large organizations succeed with radical innovation? I was reminded of Christensen in connection with yet another major innovation project we’ve been involved in: The Cinema Experience Subscription in collaboration with Nordisk Film Cinemas. (Bioplus Unlimited). Here, too, the challenge will be to balance between the existing ticket sales business and the new subscription model.

How do they plan to solve it? That’s something a few colleagues and I had a good chat with them about in our latest episode of the podcast ‘Subscription Talks’ (In Danish). So if you’re hungry for more insights on subscription innovation and how to succeed, you can tune in there, where you usually find your podcasts.