INCREMENTAL INNOVATION VS.

DISRUPTIVE INNOVATION

INCREMENTAL INNOVATION

Companies that are embracing an incremental innovation approach. Improve their

product and services by adopting the latest practices of the industry. The problem with
that is sooner or later the companies’ competitor will adopt the same best practices.
Therefore this generates head to head competition in the industry. It also has a
standard path which can summarize the product life cycle.

We can understand incremental innovation through the work of specialists and

technicians. As hikers walking the long trail, experts spend their lives learning, refining
and mastering the best practices in their field. Their work is essential, and many nations
lack of a sufficient number of specialised workforce.

Knowledge is the primary source of incremental innovation.

By knowing their product and the processes required to manufacture it, experts apply
and adapt new technologies to improve efficiency and reducing errors and defects.
Incremental innovation aspires to perfection.

DISRUPTIVE INNOVATION

Is something instantaneous, and most likely to happen when we are not

'consciously' thinking about our product or service. Furthermore, I would suggest that
the more we know about our product or service, the more difficult is for us to stumble
upon disruptive innovation.
The fundamental differences between incremental and disruptive innovation are their
starting point and their desired outcomes.
EXAMPLE IS THE “NETFLIX”

This is exactly what Netflix did to Blockbuster. Its original mail order service
didn’t provide the instant gratification that Blockbuster did, but it was far
simpler and less costly (no late fees). And as Netflix did to Blockbuster,  the
usual disruption model is a startup disrupting an established player . What we
see far less often is a company disrupting itself . Doing so goes up
against all the established instincts of the existing business.
But that’s what Netflix has done with its streaming business. Compared to
DVD delivery, streaming underperformed on the predominant performance
criteria for the business: availability of first run movies. But it was simpler,
faster and less costly, attractive to new users or existing users who were
overserved by the DVD business.

The question I raised back in 2011 was: would it be successful? It didn’t

seem so clear back then. Reed Hastings, Netflix CEO and Co-founder,  had
just separated the two businesses and was widely  criticized for doing so  (my
personal viewpoint is that the move made total sense from a management
standpoint—it’s much easier to disrupt oneself if the two businesses are
more separate—but it wasn’t a good move from a customer service and PR
standpoint).
The results since then demonstrate that  Netflix is one of the rare
companies that has successfully disrupted itself.  In the third quarter of
2011, Netflix had 14M DVD subscribers. By the third quarter of 2015, that
number was 5M. That looks like an incumbent being disrupted . But from 2011
to 2015 , Netflix’s annual revenue rose from 3.2B to 6.7B. This growth
demonstrates that it was successfully able to create the new market and
disrupt itself without being displaced. But doing so has come at a cost.
Netflix’s 2011 net income was $226M. In 2015 it was $122M. This doesn’t
surprise me.
Do you believe Netflix has been successful?
Netflix is running two business models simultaneously (a costly endeavor)
and is also fighting off a slew of competition (Hulu, Google,  Amazon , etc.) in
its new market. One might be tempted to look at the profitability numbers and
say that Netflix hasn’t been successful in disrupting itself, but compared to
the alternative—having its DVD business disrupted by one of these new
entrants and then going bankrupt—it doesn’t seem so bad.
Innovation is hard. Disruptive innovation  is even harder. And disrupting
oneself is the hardest of all. But Netflix shows that its possible. The example
should be an encouraging lesson. If you are a manufacturer starting down the
tracks as the IoT locomotive, or you are a service company threatened by
digital upstarts, take heart.  It is possible to imagine and reach an exciting
new future.