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The last couple of years haven’t been kind to former disruptive poster-child Sony. Yet the company has taken a series of actions that could position it to return to disruptive prominence.

What has Sony done? Is the company about to introduce new products or services that could be the building blocks of billion-dollar businesses? Not exactly. Sony has done something more prosaic—it got its core businesses under control.

It’s odd to suggest that this has anything to do with innovation, but in fact it's a vital part of the process. As we discuss in the first chapter of our new book The Innovator’s Guide to Growth, a core business that is in control is one of several necessary precursors to innovation.

Why? Well, when your core business isn’t in control, unexpected crises inevitably pop up. When those crises hit, managers necessarily and appropriately divert attention from growth initiatives toward making sure that the core business doesn’t go down the tubes.

That's what happened to Sony. From the mid 1950s to the early 1980s, Sony was an unstoppable innovation machine. It systematically launched about a dozen disruptive product lines, including the transistor radio and the Walkman.

But since the 80s, Sony’s innovation engine has suffered a long, gentle decline. It introduced innovative products like its Vaio line of notebook computers and its PlayStation line of video game consoles, but it rarely pioneered new markets.

Read the rest at Scott's Harvard Management blog.

In an Atlanta Journal Constitution article last week, Marty Nemko, an education consultant, career counselor, and author, argues that traditional colleges are over-promising and under-performing for a large group of students in the United States. The students he has in mind are those who graduate in the bottom 40% of their classes and then attend traditional 4-year colleges. After 8 ½ years, two-thirds of this group have not yet earned their diplomas.

Nemko argues that dropping out of college devastates self-esteem while generating burdensome debt, all just to land an income and a job the student would have been qualified to earn with a high school diploma. Even when these kids beat the odds to earn their degree, they are more likely to be among the bottom-performing college graduates competing for jobs upon graduation, a recipe for disappointment. Colleges are selling the promise of bigger salaries and fast-trajectory careers, but failing to deliver a better post-high-school career outlook to the bottom 40 percent.

Colleges should do a better job of preparing students to compete in the global economy for high-skill careers by investing less in research, campus beautification, or sports, and more in providing quality teaching and mentorship Nemko suggests. Another alternative -- why not encourage the least academically prepared high school graduates to set their sights more realistically and just avoid college? The service sector is the fastest-growing job segment in the US and there is absolutely no shame in pursuing a trade.

Nemko proposes a solution for colleges: Through government mandates, create standardized and transparent performance data on every accredited institution of higher learning. He cites several examples of the type of data that might colleges might be required to report.  These include:

• Standardized testing. Administer an exam that measures skills important for career success, such as the ability to draft a persuasive memo, analyze a financial report or use online research tools to develop content for a report. A school's results would be public information.
• Retention data. Institutions should reveal the percentage of students returning for a second year, broken out by SAT score, race, and gender.
• Graduation rates. The four-, five-, and six-year graduation rates, broken out by SAT score, race and gender.
• Employment data. Show the percentage of graduates who, within six months of graduation, are in graduate school, unemployed or employed in a job requiring college-level skills, along with salary data.

However, this solution assumes that the primary goal of graduating high school students is to optimize their future financial position. Assuming that's correct, one way students could achieve this goal is to develop a high level of skill through an advanced degree. Another way is to simply avoid the high probability and high cost of failure and avoid college altogether.

Nemko’s recommendation for more data transparency addresses both options. Low-performing colleges would come under public and embarrassing scrutiny…the kind of pressure that might shame them into reforming their own business model so they can show better outcomes. Low-performing high school graduates would have compelling and dissuasive data on their true odds of acquiring an education and achieving their career goals.

Although Nemko makes a classic case for low-end disruptive innovation, his proposed solution would stifle innovation. Mandates would force all accredited institutions into a sustaining competitive battle on exactly the same career-oriented performance dimensions. While a few institutions might change their game, it seems more likely that this approach would simply thin the ranks of traditional colleges and college students in the US.

For example, what might such scrutiny do to disruptive business models like that of the University of Phoenix, which has removed barriers such as access and wealth to make education available conveniently at home to those who otherwise might be nonconsumers? Does it matter that the University of Phoenix's four-year graduation rate is below 10 percent? Not to its students, who happily make the trade off between a time-structured physical classroom curriculum and the opportunity to study at very low cost, on-demand through the Web.

In the US, there are more than 2 million students pursuing occupational curricula at career colleges that specialize in preparing students for careers ranging from culinary arts to automotive technology.  Enrollment has grown by 17 percent in these programs over the last 2 years, in line with the 19 percent growth in jobs requiring two-year degrees.  But these students number far fewer than the 17 million enrolled in four-year colleges estimated by the census in 2006. Why aren’t more of the “bottom 40” who go to college choosing these programs, which demonstrate very compelling graduation rates and career metrics?

The plausible reason is that students have a whole slew of other jobs-to-be-done that have nothing to do with landing a high-paying career:

• Mature as an adult in a relatively controlled environment for a few years before being released into the wild
• Find out what they enjoy doing
• Discover strengths and weaknesses
• Have some fun for a few years before buckling down
• Develop a new skill
• Meet a new and diverse set of people who broaden their network and perspective on the world

We expect that the most innovative and disruptive approaches to preparing the “bottom 40” for the work world will come from outside the traditional university system, and even from outside the education sector. While the traditional four-year institutions are locked in a sustaining battle to compete for the best pool of applicants they can attract, disruptors like University of Phoenix and others can hone their business models on nonconsumers and the lowest-performing students.

Can you imagine Facebook U.? 

Attendees of the Mobile World Congress in Barcelona earlier this year might have easily overlooked what could become a huge success. Modu, an ultracompact cell phone launched by the Israeli technology start-up modu mobile, might be the first truly modular phone – a technology with significant disruptive potential in the mobile communication devices category. However, highly relevant questions on consumers’ jobs-to-be-done and the business model need to be thoroughly considered for modu mobile to be successful in the marketplace.

The technology

In essence, the 1.41 oz., 2.8 x 1.4 x 0.3 inch device is a no-frills cell phone with a small screen and just a few buttons that can be wrapped in one of multiple “jackets” to become a more advanced cellphone (e.g. with a full QWERTY keyboard, a bigger screen, or individualized design). When merged with a “mate,” the modu becomes the core of an entirely different compound device with different performance dimensions such as a portable music player, a car radio, a GPS-system, a bike computer, a camera, or an alarm clock with a docking station that displays incoming text messages. The modularity of modu’s hardware and software allows its processor, memory, and wireless technology to run the compounded devices. 

The job

The modu is set for success only if it precisely targets consumers’ jobs-to-be-done and does not get distracted by the technological possibilities. Instead it should focus on specific circumstances consumers face during their day where the modu could be a winning solution: “Help me enjoy my commute” when getting to work and back, “help me access my emails while on the go” during the work day, and “help me become available for communication” when going out at night might be examples. Now, each of these jobs is already addressed separately by illustrious products such as Apple iPod, RIM Blackberry, and small form-factor cell phones by Nokia, Motorola, Samsung and others. 

At the moment, modu mobile’s answer to these competitors seems to be a lower price. The anticipated price of $200 for a modu bundled with two jackets that range in price from $20 to $60 each might differentiate modu from its respective nonmodular competitors. Yet, competitors could simply decide to sell for less, cutting their margins to outcompete modu.

The true power of modu’s technology lies in its modular architecture. Modu mobile can create a competitive edge by translating the device’s customizability into two distinct performance dimensions. First, modu's modularity can facilitate the individualization of consumer electronics -- a trend that predates its most common and unfortunately popular example, the personal ringtone. The second performance dimension follows the broad job “help me make my daily life easier.” This might sound more straightforward than it actually is, but figuring out how precisely to align communication technology with cross-architectural usefulness will be key for modu to challenge the iPods, Blackberrys and Nokias of this world. In this context, swapping the modu between multiple jackets and mates per day needs to be as quick and easy as its teaser suggests.

The business model

Modu mobile plans to launch its device with support from major cellphone carriers in Italy, Israel and Russia this October, followed by the U.S. and other European countries in 2009. Modu's business model focuses on selling the phone while licensing the technology to third-party manufacturers, who will build jackets and mates on their own. Manufacturers could profit from licensing modu’s technology by launching their products without a slow and relatively expensive licensing process with the Federal Communications Commission, because the modu is already a phone.

Modu mobile, in turn, keeps full control over the core component of what they hope will become as standard as flash data storage devices, the last undertaking of modu founder and CEO Dov Moran, who was formerly CEO of msystems inventor of flash data storage devices that was acquired by SanDisk Corp for $1.6 billion in late 2006). The two main advantages of licensing technology to other manufacturers for modu mobile are that with an increasing number of jacket and mate manufacturers the modu would be more and more cemented as a standard, and as other companies also strive for success, modu mobile hedges its risk of failure by potentially not getting the job quite done for consumers.

The future

Modu mobile has the potential to disrupt the mobile communication devices category. It can target overshot and/or nonconsumers (an interesting occurrence of a potential low-end and new market disruptive innovation), if it is able keep the low-price promise along with increased ease of use, or by introducing a new performance dimension around the device’s modularity and striving for increased customizability. The business model appears promising, if the self-reinforcing mechanism of initial success results in a large base of third-party manufacturers.

These are all big ifs, and I am really curious to see what the future will bring for modu. 

Our own Scott Anthony was featured in the HBR IdeaCast podcast series, talking about Disruptive Innovation. We've just now added the link to our Innovation Resources section. Enjoy!

Lillian Zhao

When I first was told that Mocospace was getting VC backing in early 2007, I skeptically thought: “Who’s going to use another social networking site?!”

Eighteen months later Mocospace has grown to become the leading mobile social networking site in North America. With more than one billion mobile page views per month, it’s holding its own against incumbents like Facebook (which has more than 300,000 mobile page views per month).How did Mocospace become so popular?

What I didn’t realize when I first heard about Mocospace was that it has a powerful, disruptive business model that has successfully targeted a new distribution channel (the mobile phone) and a new customer base (non-consumers of existing social networking sites). This disruptive business model has propelled it to a leadership position in mobile social networking.

New Channel

Mocospace was one of the first to create a social networking site specifically designed the mobile phone. There is a subtle though distinct difference in how people use social networks on the PC vs. the mobile phone that stems from the basic differences between the PC and the mobile phone –- the PC is a static, multi-function device, whereas the mobile phone is an always-on, always-connected, communication device.

Mocospace realized this early on, and optimized its features for the jobs-to-be-done of a mobile phone user: instant communication, quick entertainment, killing time, and staying socially connected. Mocospace offers every type of communication (chat, IM, mail, messaging, micro-blogging and even voice-messaging) in one place. Other entertainment options include games, rating other people’s photos, watching videos, contributing to forums (my personal favorite are the ‘yo mama jokes’ in the jokes forum). Mocospace’s “friend finder” application also serves members’ job-to-be-done of meeting new friends and staying connected with existing friends.

Mocospace’s strategy is different from the incumbents, Facebook and MySpace, which emphasize content rich user pages and graphic-intensive applications –- all awesome features that work great on a PC’s screen, but are too cumbersome to navigate on the phone. As such, they’ve naturally chosen to use the mobile to extend a subset of their online features. However, MySpace’s initial strategy was to charge users an annual monthly subscription, shared with the carriers, to use their mobile site. That strategy was not overly successful and has now been de-emphasized.

In contrast, Mocospace’s site is extremely mobile-phone user-friendly, as all functions have been optimized for the small screen and numeric keypad input. For example, it leverages icon-based navigation and limits the amount of words and excess visual distractions per page. The results are clean, easy-to-navigate pages.

Meeting the needs of nonconsumers

Mocospace’s functionality serves the jobs-to-be-done of a previously untapped market: nonconsumers of existing social networking sites designed to be accessed on the PC. A large portion of the US population doesn’t have constant, private access to a PC with a broadband connection, for a variety of reasons that could include on-the-go lifestyles, economic limitations, and/or remote locations. However, most of these users have a mobile phone. Some use unlimited data plans from carriers like Leap Wireless and MetroPCS, in lieu of a PC. This eclectic group of urban youth and mobile workers were the early adopters of Mocospace. They didn’t have PC access 24/7; but they had mobile access 24/7.

While Mocospace has clearly done extremely well to date as a mobile social networking site, I still wonder if it can sustain its leadership position. Despite impressive monthly growth, will it be able to continuously grow its user base to solidify its dominance in the mobile social networking sector? Or will incumbents Facebook and MySpace, or even a new start-up, take the mobile lead away from Mocospace? If so, how will Mocospace’s strategy’s change?

Time will tell. And, I am scheduling an interview with the founders of Mocospace soon, and I'll be sure to ask about these issues.

Watch for the “Voices of Disruption” interview with Mocospace co-founder, Justin Siegel, in the July/August edition of Strategy & Innovation. 

Perform an Amazon search for INSEAD professor Philip M. Parker and you’ll see that he’s authored over 85,000 books. No, that isn’t a typo. The actual number, in fact, might even be higher (this New York Times story put him over 200,000). He hasn’t written each and every one in the traditional way, of course; to do so would take a person sixty years of writing nine books a day. Instead, he’s developed a system of computer algorithms that use publicly available information to author his works.

As this video demonstrates, many of his works are economic or market analyses and forecasts, but he also uses the technology to write about obscure medical topics – both genres that he’s able to succeed in because they are underserved by traditional authors.

Take the first Philip M. Parker work that comes up on an Amazon search: "The 2007-2012 Outlook for Lemon-Flavored Bottled Water in Japan". I can’t imagine that more than a few dozen people and/or firms on the planet are interested in this work (at most). No author or market research firm is going to write this book with such a low potential for sales and even if they did, the time and effort involved would make it expensive.

Mr. Parker, however, creates his books, on average, in half an hour and at a cost of about twelve cents (excluding printing). He can sell a single copy for $495 and make a handsome profit. If he doesn’t get any orders, he loses almost nothing. Multiply this opportunity by 80 to 200,000 books and it isn’t hard to see how he can be successful. It’s a great example of a technology facilitating a successful low-cost business model.

In her previous post, my colleague Kathleen considered the implications of disruptive innovation as it applies to the business of charity. In making her point, she mentioned CK Pralahad's 2004 book, The Fortune at the Bottom of the Pyramid, and one of the success stories cited within, that of the Hindustan Lever Limited (HLL).

HLL's success is a great story of a company creating a business model customized to the local market; it is also a great story of an incumbent reacting to a disruptive startup. However, HLL almost failed to spot the disruption until it was too late, and the story of their success partially obscures the achievements by the true innovator -- a company called Nirma.

Nirma was founded in 1969 by Dr. Karsanbhai Patel, a science graduate and government chemist. Patel had been experimenting with ingredients in his back yard to make a detergent. After discovering a simple recipe, he founded Nirma to sell his product door-to-door in the neighborhood. In interviews, Patel has discussed the company's origins saying, "It all started to earn a side income, and at that stage, I had never imagined this kind of success."

Nirma retailed at only a fraction of the price of competing products, costing only Rs.3 per kg instead of Rs.13 per kg charged by the competing brands. The product was a great success not only because of its low cost and high quality, but also due to the unique door-to-door distribution model pursued by Patel.

Initially, Patel had a great deal of difficulty in persuading the local shop owners to stock his product. It was only when he recruited local housewives to help sell and create demand for the Nirma product that he stumbled upon a compelling and scalable business model.

By the early 1970's Nirma had appeared on the radar screen of executives at Hindustan Lever Limited. HHL was the manufacturer of Surf, one of the best-selling detergents in the country. However, their reaction was dismissive, saying, "That is not our market”,and “We need not be concerned."

Their perspective was that Nirma was an inferior quality product being sold to people who weren't currently purchasing Surf, and that their sales would be unaffected by any growth in Nirma's popularity.

Luckily for HHL, they soon recognized the disruptive threat posed by Nirma, and were able to adapt their own strategy to compete, launching Wheel detergent to try and stem the (ahem...) tide of Nirma into the low end of the market.

In developing their strategy to fend off Nirma, HHL’s wheel product was created specifically for low-end consumers. HHL noted that the primary source of water for washing was river water, and so created Wheel with a high percentage of oil relative to water. HHL also created entirely new production, distribution and marketing capabilities in order to deliver and sell Wheel, investing heavily in creating entrepreneurial door-to-door programs aimed at driving sales at the village level by tapping into the networks of local rural women, just as Nirma had done.

So, what lessons can we draw from this case?

1. Target disruptive products at non-consumers: By targeting non-consumers of existing laundry detergents, Nirma was able to stay 'below the radar' of Hindustan Lever, giving them time to experiment with their sales strategy, refine their business model and then grow rapidly - all while avoiding competition.
    
2. Create a compelling solution by considering Gives and Gets relative to existing solutions: Nirma offered a compelling solution allowing consumers to make a simple trade-off relative to existing products. Get a far cheaper alternative to Surf, but Give up a fraction of the cleaning power, which was already more than sufficient for most laundry occasions.
    
3. Think expansively about how you define your market. Rather than categorizing it along traditional dimensions, consider definitions using a jobs-based segmentation. Had HHL thought of their market in this way, it would have been far clearer that Nirma was a disruptive threat at an earlier point in time.

Alasdair Trotter is a venture leader at Innosight Ventures.

I've spent some time recently exploring the blogosphere to find reviews of various online money management services, including Mint, Wesabe, Geezeo and others. The interest is personal - Ive been a Mint user for the past few months and though Im relatively satisfied with the experience, Ive been wondering how Mint stacks up against the competition. As someone who could never get into the habit of using Quicken or Microsoft Money (although one program came with my computer and I bought the other a couple of years back in order to fulfill a short-lived New Years resolution to keep better track of my finances), I was a bit surprised by some of the criticisms I read:

"You cant import data to Mint in any way other than through your financial institution, meaning that if youve got years worth of financial data [on your computer], dont count on importing it

"Mint doesnt export data

"Without double entry book-keeping, you will not detect bank errors! Theres no forced monthly reconciliation, and no way for you to notice, Hey, wait a minute, I didnt shop there, unless you scrutinize each item yourself

I wasnt surprised by these criticisms because they werent valid or true, or because I couldnt see a rationale for the features mentioned. What surprised me was that I didn't care about these features at all. I realized that feature-filled programs like Quicken and Microsoft Money overshot my needs. And if they overshot my needs, they likely overshot the needs of others (e.g., students or anybody with a relatively simple financial picture). This spurred a question: What, if anything are Microsoft and Intuit trying to do for the customers they are overshooting?

Turns out that the folks at Intuit are on top of their game (not too surprising, since they'd had previous success with low-end disruptive products like QuickBooks). They launched an web-based solution, Quicken Online, this past January. A stripped-down version of their stand-alone Quicken product, Quicken Online allows users to keep track of all of their accounts and transactions in one place that is easy to access and has a simple interface and auto-tagging features similar to would-be disruptors like Mint or Wesabe.

Of course, Quicken Online's success isnt guaranteed. This is a crowded space. Mint, Wesabe, Geezeo, Buxter, Expensr are all fighting to manage money online. And Quicken's biggest differentiator isn't a good one: while the other sites I've just listed are free after the 30-day trial, Quicken Online charges users $2.99 a month. Not a lot to today's stand-alone Quicken user (who pays at least $30 for the software, plus $5-10/month for automatic bank account transaction downloads), but a price that is perhaps infinitely higher to the young twenty-somethings with simple financial pictures, who only want to see snapshots of money in and money out.

Quicken Online's simplicity demonstrates that Intuit understands the disruptive threat posed by web-based money management solutions and is taking action to defend itself, but Im not sure it shows that they truly understand the jobs-to-be-done and objectives of their target customer. It is hard for me to see myself paying $2.99/month for Quicken Online when Mint can meet my needs for free.

But I guess I have a 30-day trial to find out. Look for an update in April.

Here at the Innoblog we often write about the concept of good-enough and how it is the most appropriate way for companies to go after low-end markets. In essence, good-enough is about crafting products or services that meet minimum thresholds of performance along traditional dimensions while delivering new performance along other dimensions. Recently were finding that some disruptive technologies designed for the developing world are making their way back to the United States. One in particular worth noting is the One Laptop Per Child XO laptop.

The non-profit One Laptop Per Child Foundation based in Cambridge, Massachusetts, is attempting to bring enhanced educational capabilities to children in the developing world (we previously wrote about it here). According to their website, "OLPC is a non-profit organization providing a means to an endan end that sees children in even the most remote regions of the globe being given the opportunity to tap into their own potential, to be exposed to a whole world of ideas, and to contribute to a more productive and saner world community. OLPCs means, the XO laptop, is inexpensive and optimized for conditions faced by those children, including the lack of electricity and network infrastructure. The XO has received rave reviews for its design and technological advancements, with the caveat that consumers in the developed world would likely find the machine lacking. This product, which is good enough (and even great) in the developing world, wont cut it in developed nations or will it?

Birmingham, Alabama, may soon be embracing the concept of good enough to better meet student's educational needs. The AP recently reported that the Birmingham City Council has approved $3.5 million to supply every child in grades 1 through 8 with the XO laptop and address technical issues. Although the school board still needs to agree to this venture, the City Councils actions spark interesting discussion.

Can a major city in a developed nation benefit from a technology designed for children who might be living in huts without electricity in the Sahara? At first glance, the technology doesnt seem to meet the threshold to be good enough. Computers are prevalent in homes, schools, and libraries across the United States, but there are still many areas that dont have the resources to give children consistent access to computing. Wealth and access barriers are certainly significant and in a society that is shifting towards reliance on computer literacy, this good enough solution may be better than nothing at all. For a school system in which the vast majority of students (~80%) qualify for free or reduced-price lunches, the XO laptop might be the right answer. While the XO laptop lacks hardware typical in most computers, like a hard drive and CD drive, and has been reported to be slow in startup, it lets students get familiar with keyboards and typing and allows them to access a world of possibilities through the internet. The XO laptop has the potential to enhance education for children here in the United States as well as the developing world.

On March 10, the Boston Globe carried the news that Greyhound Lines Inc.s and Peter Pan Bus Lines low-cost BoltBus service would commence carrying travelers between Boston and New York City in April. According to the article, BoltBus targets "students, commuters and travelers seeking express service between [Boston and New York][with] extra legroom by having 51 seats per vehiclecompared to the industry average of 54 seats, and will have WiFi access, [AC power outlets], and bathrooms.

Of particular interest, however, are BoltBus fares - tickets are advertised as being available for as low as $1 one-way. BoltBus will initially launch service between New York City and Washington D.C; a visit to BoltBus website revealed that
tickets for a few of the first trips between those two cities in late March are indeed available for $1. BoltBus cautions that availability of the $1 fare is contingent on demand with high demand expected to push fares as high as $25, according to the article.

This is a new chapter in a classic story of disruptive innovation and incumbent response. For years, Peter Pan and Greyhound dominated the Boston to New York bus transportation market, charging fares as high as $42 each-way. Then, in the mid-1990s, "Chinatown buses operated by entrants Fung Wah and Lucky Star began to offer discounted bus service on the same route for between $15 and $25 each way.

It was a story of gives and gets. In order to get such low prices, travelers had to be willing to give up: drivers fluent in English, ticket counters, bus stations, customer service, assured televisions and restrooms, a guarantee of spotless maintenance records, and according to some news reports, safety one report noted that the Fung Wah drivers, for example, "have a tendency to treat the New Jersey Turnpike like Germanys high-speed Autobahn and Fung Wah had checkered maintenance and incident histories.

But for many travelers, the low price get far outweighed the gives. In recent years, one-way ticket fares decreased to $10 before rising and settling at $15. Business was booming. Able to be profitable, or at least remain in business at this fare level, Fung Wah and Lucky Star fit the mode of classic low-end disruptors. Offering good enough travel to customers valuing price above virtually all else, these entrants forced Greyhound and Peter Pan to eventually drop their fares to $20 each way to be more competitive.

Now Greyhound and Peter Pan are introducing BoltBus, attempting to co-opt the disruptive low-cost business model introduced by Fung Wah and Lucky Star. By selling tickets online, rather than at ticket counters, BoltBus is able to markedly reduce its costs and thus maintain such low fares. With gas prices rising, BoltBus expects to compete aggressively with Fung Wah and Lucky Star for rising tides of students, business travelers, and tourists looking for low prices. MegaBus.com, a bus service similar to BoltBus operated out of Chicago (which we wrote about here), has enjoyed substantial success in recent years by offering some $1 fares and an online-only ticket sales strategy. MegaBus.com now offers 30 routes compared with only 7 when it launched in 2006.

The principles of disruptive innovation teach that entrants leveraging low-cost business models can successfully disrupt incumbents when those incumbents are unwilling or unable to respond directly. Similarly, these principles also teach incumbents to respond to entrant attacks by replicating or co-opting the entrants business model if possible. In the case of the Boston to New York bus market, Greyhound and Peter Pan have finally become motivated to respond to the low-cost attacks by Fung Wah and Lucky Star and may even be able to outpace the entrants with even lower prices and more frills. Also, consider the subject of this previous post - might BoltBus have a market research revenue stream on their hands?

Last week I attended a lecture by Boston Globe innovation columnist Scott Kirsner entitled "New Englands Innovation Economy: Understanding the Strengths and Challenges. Among the many recent innovative ventures mentioned throughout the lecture, Kirsner highlighted the enormous potential of Zipcar, the Cambridge, MA-based pioneer that is re-defining the concept of car rental. Drawing from disruptive innovation theories, he posed a question in passing:

Why have large car-rental companies not moved to replicate or acquire Zipcar?

The question was left unanswered, and has lingered on my mind ever since. Could it be that car-rental companies dont recognize Zipcar as a competitor? After all, Zipcar targets a different customer: someone who could benefit from the convenience of a car in their day-to-day lives but not so much that theyd be willing to own one, rather than the travelers who typically rent from traditional shops. The job-to-be-done is different, too: Zipcar customers need a car for a couple of hours to avoid carrying heavy grocery bags on a bus or subway, whereas Avis customers need a car for a couple of days while they are out of town on business.

I felt it unlikely that car-rental companies could fail to see that they are in the same business as Zipcar: the business of lending out cars. A quick web search confirmed this suspicion: Enterprise Rent-A-Car recently partnered with Metro-North railroad to place cars in train stations outside of New York City. Travelers can take the train out of the city and pick up a car for a few hours to complete their journey. The same service, in the same location, was previously offered by Zipcar.

But this is the only recent instance I could find in which car-rentals and car-shares are swimming in the same waters, although the Boston Globe suggests that other competitors are piloting Zipcar-style programs. While Zipcar is building scale (recently acquiring competitor Flexcar), it is business as usual for Avis, National, Hertz and Budget. Why are these incumbents seemingly slow to move?

The answer has to do with a key feature of the disruptive innovation model asymmetry of motivation. Zipcars car-sharing concept has true disruptive potential not just because it addresses key barriers to consumption (cost, access and time), but also because it addresses customers and jobs that appear unattractive to its competitors. While incumbents invest in gas-pumps at their brick-and-mortar stores, Zipcar invests in modifying its fleet to fit a remote-management information system. Incumbents buy and lease large plots of plants near airports, while Zipcar rents parking spots in congested city streets. Incumbents differentiate with car seats, GPS systems and at-home pick-up, while Zipcar differentiates with convenience at a low price.

Asking established rent-a-car companies to operate a business like Zipcars is like asking Starwood and Hilton to operate New York Citys new street toilets. Im not saying it cant be done but can you blame them for not wanting to?

We here at Innosight have followed the development of Tata Motors one-lakh "people's car with great excitement for the last few years (weve written about the development of the car numerous times in Strategy and Innovation and elsewhere, and interviewed the Tata Motors management team a year and a half ago in preparation for a feature presentation at a conference on business model innovation). The car, now dubbed the "nano, was officially unveiled yesterday to great fanfare.

Do we buy into the fanfare? Well, Tatas peoples car matches the pattern of disruptive innovation to a T. It uses an ingenious new business model the supply chain has been thoroughly reconfigured, to the point where risk is distributed among suppliers and dispersed dealerships will participate in final vehicle assembly combined with clever and unorthodox product innovations, such as a hollow steering wheel shaft, reimagined body, and plastic panels. Furthermore, Tata Motors engineers made critical tradeoffs, sacrificing many of the performance characteristics that most drivers take for granted the trunk is in the front of the car and holds just a briefcase, the instrument panel features only a speedometer, odometer, and fuel gauge, there is no radio in order to deliver a basic but critical value proposition to a new customer set: safe and affordable transportation for the emerging middle class in the developing world that is still priced out of the automotive market.

This vision is at the core of the development of the Nano. Since first unveiling the idea and challenging his engineers to realize it, Tata Group Chairman Ratan Tata has been firmly focused on the goal of serving the underserved, of giving the families that crowd onto motorbikes in Indias crowded cities a better, safer, and more comfortable transportation option. He is competing against motorbikes and the non-consumption of cars, rather than any segment in the auto world that already exists.

This is brought home in competitors reactions, as captured by The New York Times:

Jagdish Khattar, a former head of Maruti 800 manufacturer Maruti Udyog Ltd., says its too early to say whether the Nano will overtake the original.

"Its a good product but its still too early to say whether it will overtake the 800 because it caters to a totally new market segment, he said while watching a live telecast of Tatas press conference after unveiling of the Nano.

But clearly, at least one other manufacturer was worried.

An official of Hyundai Motors, which unveiled an LPG version of its Santro Thursday, was more circumspect.

"We definitely see it as impacting our sales, he said in halting English, preferring to maintain anonymity.

Anand Mahindra, managing director for Mahindra & Mahindra, Tata Motors primary competitor, said before the unveiling, "I think its a moment of history and Im delighted an Indian company is leading the way.

The impact of the car figures to be enormous, in India and throughout the developing world. But what about its impact on the businesses and society in the developed world? The Times puts forth a compelling theory:

Some analysts are predicting that just as the Japanese popularized kanban (just in time) and kaizen (continuous improvement), Indians could export a kind of "Gandhian engineering, combining irreverence for conventional ways of thinking with a frugality born of scarcity. Or, as Indian auto executive Ashok K. Taneja describes the philosophy, "When I need silver, why am I investing in gold?

Gandhian engineering, or appropriate design, could be a terrific mechanism for forcing product and business model development to cleave to the need profile of a target segment. After all, there is no greater predictor of disruptive success than products and business models that are designed around important and unsatisfied jobs to be done.

NYT coverage of the Tata Nano here and here

The New York Times reported yesterday that mobile phones are opening up banking opportunities in developing countries. The article focuses on how mobile-based devices are allowing microfinance institutions to extend their reach and how mobile phones can be used as platforms for a disruptive payment service.

Microfinance is itself a disruptive innovation that weve mentioned in the Innoblog before. (You can find Josh Suskewiczs entry on microfinance here). What Id like to focus on is the potential for disruptive, mobile-based, payment services. The story of how Vodafone went from developing one innovation (a microfinance service) to another (the payment service M-PESA) is a great example of how disruptive innovations are developed and refined through trial-and-error.

In 2005, Vodafone and the UK Department for International Development jointly funded a project to develop a mobile-based microfinance solution, and partnered with Faulu Kenya, a local microfinance institution, to do so. Vodafone used the six-month pilot to study, essentially, consumer jobs to be done. The results surprised them.

"The idea was to reduce the cost of loan disbursal and recovery, said Nick Hughes, Vodafones head of international payment services, "but what we found is that customers were using it for person-to-person transfers.

This learning allowed Vodafone to refocus the service on customers jobs to be done. At launch, M-PESA allowed customers to deposit cash at a local agent (an affiliated mobile phone dealer, gas station, supermarket or other shop), to send and receive money from other mobile phone users by SMS, and withdraw cash at any agent. M-PESA turned potentially any shop into a bank and eliminated physical barriers to cash transfer. Breaking down barriers to consumption enabling access in new contexts, catalyzing the decentralization and democratization of critical services is a key hallmark of disruptive innovations that signals massive opportunity.

Vodafone has had incredible success in Kenya (through a jointly-owned subsidiary, Safaricom). Three months after launch, M-PESA had 175,000 customers and was signing up 2,500 a day. Over 7.5 million dollars was moved over the service during this period and Safaricom is counting on M-PESA to help it continue its record profitability. Vodafone is now looking to take the service international. The Consultative Group to Assist the Poor (CGAP) estimates that more than five billion of the worlds people live without a bank account, but more importantly for Vodafone, two billion of those unbanked have mobile phones. Based on those numbers, it looks like this disruption has considerable upside potential.

Yesterday Google announced the acquisition of GrandCentral Communications, a California-based "telephone management company that promises simple solutions for those underserved by current telecom offerings.

The idea is simple: GrandCentral links all of your voicemail boxes and telephone numbers together. You get one number. You have one voicemail box. You lose the limitations imposed by location.

A call to your new GrandCentral number rings any or all of your phones work, home, or mobile (their website allows you to set up rules that control how calls are routed). And you can bounce calls between phones, if say, for example, you want to keep a conversation going while you leave work, hop in your car (switch to your mobile) and arrive home (switch to your landline to save on airtime). The service offers a plethora of other features too including visual voicemail (one of the iPhones touted features). David Pogue of the New York Times wrote an excellent review of GrandCentral not too far back, you can find it here.

GrandCentrals service is disruptive on its own it pushes voice services to a new level of convenience and offers useful services that have been largely unavailable previously. But if Google can combine GrandCentrals features with its own Gmail and Google Talk offerings, an integrated "GoogleCom service could position itself very well on the disruptive edge, offering innovative communications features even to those who lack any shred of tech savvy.

Clearwire, the potentially disruptive WiMax pioneer supported by Intel, Motorola, Bell Canada, and others, went public today to much fanfare and skepticism. It priced at the high end of its range, netting some $600 million, but finished the day 10% lower than where it started.

Investors are entranced by the massive transformational potential of its technology wireless broadband, essentially, that is more powerful and has greater range than wifi and therefore threatens to disrupt existing broadband and cellular technologies. But they are wary of its massive upfront costs, piling debt, technological adoption hurdles, and looming competition from the likes of Sprint.

In a 2004 article in Strategy and Innovation, Clayton Christensen and Scott Anthony applauded the company for taking an emergent, disruptive approach by rolling out its technology in small, underserved, rural markets where it would initially compete against nonconsumption rather than powerful incumbents. Two and a half years later, Clearwires promise continues to grow (as evidenced by the four billion dollar valuation the IPO fetched), but doubts and challenges are mounting as well.

This post is a thought starter what do you all think of Clearwires chances? What strategy should it pursue to optimize its chances of success? Does WiMax represent the next wave of disruption in telecomm? Will Clearwire win the space it has pioneered? Would love your thoughts on this one