Current affairs

“Leaders of industry avoid disruptive innovations”, Marc Sansó, Professor and Master Director

Monday 27th November, EAE held a session of the Focused Programs entitled “Multidimensional Innovation: from the product to go-to-market”. Innovation was the focus of the session, which analysed its different facets.

Thursday, 30 de November, 2017

The expert in competitive strategy and Director of EAE’s Master of International Business, Marc Sansó ran the session that aimed to share some insight into the concept of innovation. Nowadays, it has become a crucial factor in the development and market positioning for most brands and companies. But what exactly is innovation? What does innovating involve? These questions, among others, were analysed and answered by the lecturer over the course of the session.

The concept of innovating is closely linked to strategy. Both aspects have to be managed effectively, “because effective innovation is the innovation that earns”, highlighted Professor Sansó. Many companies have an inadequate understanding of the concept of innovation, as they wrongly assume that the simple fact of innovating in itself gives you the ‘winning move’ that will let you beat your rivals.

By way of an anecdote, Sansó analysed the famous case of the company Sony, which, in 1976, launched the Beta video system to take on the well-known VHS, with the innovative gamble eventually being a complete failure. “What does it matter if BETA was technically better, more advanced or a completely innovative product? What happened? VHS offered its technology free of charge to manufacturers of video players, while Beta demanded extremely high fees to offset their R&D costs”, explained the expert. This case underlines the importance of effective strategy management combined with innovation.

In order to manage innovation properly, companies have to incorporate the concept within their competitive model. “From an internal perspective, innovation must be seen as a variable of competitiveness”. This will certainly generate three kinds of costs that must be assumed in order to achieve business success. The first of these, the friction cost, is “associated with the difficulties that exist between the value agent and the target market”. Meanwhile, the search cost refers to the “efforts made by a customer to obtain information on a product or service to buy”. Lastly, the purchasing cost is based on the “confusion with respect to the real reason behind our customer’s purchasing decision”.

Disruption is another factor that innovation has to overcome. Sansó analysed this problem reflected in the market: “Industry leaders face problems to maintain their competitive position in the long term, as well as the fact that drivers of disruptive innovations are rarely industry leaders”. This is caused by a disruption in segments at the top and bottom end of the market.

The top segment of the market “is comprised of customers who require a certain level of product performance and who are willing to pay a higher price”. These niche markets are not of interest to the big players, who have a consolidated customer base. At the other end of the spectrum, the bottom segment is “made up of customers who need a lower price for the product and who, in exchange, are willing to except lower performance”. This niche is also ignored by the big players. The factors that create this market division are based on the fact that “industry leaders avoid disruptive innovations”, explained the speaker. Companies depend on customers and investors for their resources and small markets do not resolve these problems, with respect to growth, as well as the fact that “the level of technology supply rarely equals the market demand”.

To finish off, Professor Sansó analysed the competition that is current taking place between the big players and challengers, both crucial actors on the market. As mentioned earlier, the former avoid disruption and market niches, applying, while, in contrast, the challengers take advantage of these minorities. “They focus on unserved market segments, applying innovation to meet unfulfilled needs”. This new figure is bringing about the creation of new businesses based on innovation. The correct approach involves “combining incremental and disruptive innovation to maximize profits and guarantee a sustainable future”.

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