Understanding innovation

‘Understanding innovation’ is the first in a five-part series on digital transformation. It draws heavily from research coming out of the Harvard Business Review, particularly the seminal work of Clayton Christensen. Christensen is a Professor of Business Administration at the Harvard Business School and was dubbed by Forbes as ‘one of the most influential business theorists of the last 50 years’.1 It should be noted that innovation comes in many shapes and forms. This article, however, is specifically focused on digital technologies within the Architecture, Engineering and Construction (AEC) industry. ‘Innovation’, as used in the article, refers to a change in one of these technologies. It will be argued that most AEC innovations are sustaining in nature and not disruptive as often claimed.

If I had asked people what they wanted, they would have said faster horses.

-Henry Ford2

Introduction

Over recent years, the AEC industry has ridden a continual wave of inflated technological expectations. From BIM to 3D printing, virtual and augmented reality, generative design, blockchain, and most recently, digital twins. At each turn, claims are made about game changing innovations that are going to disrupt the industry. I’ve always found this troubling as in our experience, particularly at industry events, too many presenters who speak of ‘disruption’ use the term loosely to invoke the concept of innovation in support of whatever it is they wish to do. The problem with conflating a disruptive innovation with any breakthrough that changes an industry’s competitive pattern, as Christensen describes3, is that different types of innovation require different strategic approaches.So, what does ‘disruption’ really mean? How do we separate marketing hype from reality? And, are the innovations really that disruptive or simply transformational?

Hype or reality?

To differentiate marketing hype from reality, it is important to understand what is known as the ‘hype cycle’. The hype cycle represents the stages a technology goes through from conception to maturity and widespread adoption. Two of the key phases in the cycle is the ‘peak of inflated expectations’ followed by the ‘trough of disillusionment’. So, in effect what we have is a sudden rise in visibility (marketing) about all the possibilities that the new technology may enable, followed by an equally steep decline in visibility once we realise all the limitations and challenges associates with implementing the new technology. This phenomenon is somewhat reassuring in that what it suggests is not so much a question of whether a technology is ‘real’ or not, but where on the spectrum of visibility/time it lies.

Hype cycle, Gartner

Sustaining versus Disruptive

In order to differentiate between transformation and disruption, we must first identify that not all innovations are created equally. By definition, all innovation produces change. Most commonly, these changes are mis-characterised based on an incremental-versus-radical distinction. For example, using generative design to design a new building is radically different to manually designing a building – therefore, some might categorise this technology as disruptive. However, this method of categorization is misleading as innovations can be transformational and radical without being disruptive.

In the work of Clayton Christensen, he makes a clear distinction between what he calls ‘sustaining’ technologies and those that are ‘disruptive’. Sustaining technologies foster improved product performance. They may be incremental or radical in nature. However, what they have in common is that they ‘improve the performance of established products, along the dimension of performance that mainstream customers in major markets have historically valued.’4

Disruptive technologies on the other hand are innovations that result in worse product performance, at least in the near-term.5 They are often cheaper, simpler and more convenient to use and they bring to a market a very different value proposition than had been available previously. Disrupters start by appealing to low-end or unserved consumers and then migrate to the mainstream market. Typically, customers are not willing to switch to the new offering merely because it is less expensive. Instead, they wait until its quality rises enough to satisfy them. Once that’s happened, they adopt the new product and happily accept its lower price.

The impact of sustaining and disruptive technological change5

In the context of Christensen’s disruption theory, I would argue that most AEC innovations fall under the sustaining technology category. Why? Because quite simply they are responding to existing client demands and the services that they have historically valued, be it better coordination (BIM), better visual communication (AR/VR) or faster ways of doing the same thing (Dynamo automation). They all enable firms to sell more products to their most profitable customers. In order to be classified as ‘disruptive’, the innovative technology would need to bring to market a very different value proposition than hadn’t been available previously. So why does this even matter? Surely any innovation in our under-digitalised industry is good. Quite simply it matters because different types of innovation require different strategic approaches.

The innovator’s dilemma

There is a believe among many companies that you should always listen to and respond to the needs of your best clients, and that you should focus investments on those innovations that promise the highest returns. But as Christensen’s research demonstrates, these two principles, in practice, has repeatedly sowed the seeds of every successful company’s ultimate demise. He terms this the ‘innovator’s dilemma’ in which doing the right thing is the wrong thing.7

Well-managed companies, he claims, are excellent at developing the sustaining technologies that improve the performance of their services in ways that matter to their clients. This is because their management practices are biased towards:

  • Listening to customers;
  • Investing aggressively in technologies that give those customers what they say they want;
  • Seeking higher margins; and
  • Targeting larger markets rather than smaller ones.

The problem with this approach is that the threat of disruptive technological innovation is often overlooked until it is too late:

As incumbents focus on improving their products and services for their most demanding (and usually most profitable) customers, they exceed the needs of some segments and ignore the needs of others. Entrants that prove disruptive begin by successfully targeting those overlooked segments, gaining a foothold by delivering more-suitable functionality—frequently at a lower price… Entrants then move upmarket, delivering the performance that incumbents’ mainstream customers require, while preserving the advantages that drove their early success.8

Conclusion

Everyone has an opinion about the next big technological disruptor. Hopefully, however, this article provides some context to disruption theory to enable you to better understand innovation and sort fact from fiction. The point here is not to prioritise one innovation type over another (we’ll come to that in the next article) but rather that companies need to recognise the type of innovation they are pursuing and take distinctly different approaches to implementation. So, while it may be tempting to mock under-developed AEC technologies, of which generative design comes to mind, keep in mind that this is at the very essence of disruptive innovation – they underperform established products in mainstream markets but offer a very different value proposition.

In the next article, we’ll be discussing how companies can identify innovation opportunities and how they can manage their innovation portfolio.

Interested in finding out more about how Parametric Monkey can help define your digital transformation strategy? Contact us via our website.

References

1 Whelan, D. (14 March 2011). Clayton Christensen: The Survivor. Forbes.

2 Despite this quote being attributed to Henry Ford, there is no evidence that Ford ever said those words. Refer: Vlaskovits, P. (29 Aug 2011). Henry Ford, Innovation, and That “Faster Horse” Quote. Harvard Business Review.

3 Christensen, C. et al. (December 2015). What Is Disruptive Innovation? Harvard Business Review.

4 Christensen, C. (2016). The innovator’s dilemma: When new technologies cause great firms to fail. Harvard Business Review Press, Boston, p.XIX.

5 Christensen, C. (2016). The innovator’s dilemma: When new technologies cause great firms to fail. Harvard Business Review Press, Boston, p.XIX.

6 Doctored image from Christensen, C. (2016). The innovator’s dilemma: When new technologies cause great firms to fail. Harvard Business Review Press, Boston, p.XX.

7 Christensen, C. (2016). The innovator’s dilemma: When new technologies cause great firms to fail. Harvard Business Review Press, Boston, p.X.

8 Christensen, C. et al. (December 2015). What Is Disruptive Innovation? Harvard Business Review.

3 Comments on “Understanding innovation

  1. Very cool, thanks Paul. Looking forward to the next article on how to make faster horses!

  2. I think there is also a categorical difference in processes as well between the two. Sustaining innovation may affect the process by improvements and automation, Disruptive innovation may remove the process completely.

  3. Paul, These concepts and now realities are really pushing the boundaries. One boundary that is prevalent is the “Comfort zone”, including “we don’t do it that way”. The next is “Sharing”, in order to address redundant efforts because we work in a Project Team, and the industry in a wider context. The improvements in performance, efficiencies and better practice need to be absorbed across the industry. I’m sure that people will adjust to accommodate the benefits while ensuring profitability and addressing the most important resource, People. I agree with Otto that these processes could be removed completely by the disruptive innovation. Its a heady task. Well done.

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