Will RFID Disrupt Your Business?

The reason that understanding the distinction between sustaining and disruptive innovation is so important is because the best way to manage each is very different.

Sustaining innovations are, by definition, consistent with the established business model of the organization. As a result, in any successful firm, established processes for evaluating and implementing sustaining innovations are entirely up to the task.

For example, it’s unlikely that Wal-Mart needed to do anything special when it came to evaluating the potential of RFID. The firm has a long history of making the right choices no matter how radical the technologies or how material the changes to processes, systems, structures or procedures.

On the other hand, disruptive innovations demand a radically different approach, primarily because they require organizations to do what they (the good ones, at least) are genetically programmed not to do: ignore their best customers. In practice, this requires that established firms seeking to exploit technology in a disruptive way have to set up independent business units that can focus on the foothold market and find a viable beginning for the upmarket march.

As it turns out, Dexit, the Canadian payments provider, is owned in part by TD Canada Trust, one of the country’s largest banks and an issuer of credit and debit cards. This suggests strongly that TD sees the disruptive potential in RFID-enabled payments and has created the organizational space required to see this potential to fruition.

For new entrants in the RFID vendor space, the key will be to focus on the customers incumbents don’t want and the technologies they scorn. Startups that bank on having “better technology” might make money for their investors, but only if they find a way to sell out in a timely fashion. History is littered with the corpses of startups founded on the basis of having a better mousetrap—only to be crushed by established companies that, once roused, proved indomitable foes.

For incumbents, the critical element, as TD Canada Trust seems to have realized, is to create autonomous business units focused not so much on different technology as on different customers. And not just any old different customers: worse customers that demand worse products and services.

It’s all about the customers . . .
Business success must be based on meeting customers’ needs. Disruption theory is a different way of thinking about innovation and competitive success, but it doesn’t violate any laws of economics: Only firms that have paying customers can survive and thrive.

But what disruption theory emphasizes is the ways in which different customers set organizations on different trajectories of product and service improvement. Inevitably, the firms that do successfully address the needs of a given customer segment are the ones that see their future lying in serving those customers ever better.

This isn’t a bad thing: Successfully appealing to the increasing needs of a given customer group lies at the heart of profitable growth in any company. But unfortunately, every such trajectory of improvement eventually runs out of headroom. Consequently, persistent, profitable growth requires finding a new trajectory of improvement.

Finding these new pathways to growth is what disruptive innovation is all about. And the source of new growth trajectories almost always lies with new customer groups. The fact that so few organizations grow profitably over any meaningful period of time seems to show that deliberately and repeatedly finding disruptive growth trajectories is enormously difficult. But repeated, purposeful disruption has been rare in the past perhaps in large part because a comprehensive theory of disruption—what it is, how to identify it and how to implement it—has been missing. The hope is that recent advances in disruption theory will make it possible for some organization—perhaps yours—to achieve what so few companies have.