Radical Innovation and the Blue Ocean

Risk

Risk (Photo credit: The Fayj)

In all forms of business ventures, returns are typically accompanied with a level of risk. Radical business innovation, likewise is a step out of the boat onto the waters of the unknown. No matter how much calculation has been done to mitigate and contain the risk, there is always the element of the unknown which cannot be contained simply because it is either out of one’s control or that one did not know enough to prepare sufficiently for it.

Gary Hamel recognises that the level of risk is dependent on 4 things:

  1. Irreversible commitment – the greater the irreversible commitment (financial), the greater the risk
  2. Level of departure from existing base of products/services/knowledge – should Starbucks for example, venture into doing computers? Should KFC venture into military R&D? The idea is that while one can stretch the product line into areas that are not already in one’s business, the further the stretch (i.e., less associated with core areas), the greater the risk.
  3. Uncertainty about project assumptions – every plan is always filled with assumptions about what should ideally happen in order for the project to succeed. The uncertainty surrounding those assumptions are beyond one’s control, and therefore, the greater the uncertainty, the greater risk.
  4. Timeframe – the longer the timeframe taken to ramp up the effort, the greater the risk

Technology bringing about economies of scale and scope, and speed is critical in this day and age and it behooves for established companies to continue to working at building up core capabilities but keeping an eye on the horizon for disruption innovation that may change the game. For smaller firms without the capabilities of larger ones, radical innovation is the way to compete against the bigger players. They cannot afford to continue playing a follower’s game in a rapidly evolving landscape with fleeting loyalties and a myriad of products and services to choose from. Market share for big smartphone brands for example, can fall by as much as 30-40% in a year!

It is in the face of this that firms must not just use radical innovation to enter the blue-ocean but continuous radical, disruptive innovation to stay on the cutting edge of competitive advantage. There is always an aspect of difference in a product or service that will lure consumers. It does not need to be an entirely different product. It just needs to be different. Of course, the new breakthroughs will always garner greater attention, and there is where the R&D team has to dare to venture out and be prepared for writeoffs. Pharmaceutical companies researching on breakthrough drugs are just the case in point of Truman Capote’s quote, “Failure is the condiment that gives success its flavor”. All they require is one successful drug after thousands of failures and the payoffs typically come in hundreds of millions of dollars.

J.CJ

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