So far, we’ve discussed the theories which influence disruptive innovation, and their implications. In chapter 6 of Seeing What’s Next, the authors pose an interesting question – is there a point at which innovation is no longer possible? By examining the airline industry, we can begin to tackle this question.
Until the 1960s, the airline industry was primarily dominated by major airlines that operated within a “hub-and-spoke” system of international and regional airports, focusing most of their efforts on business travel. This created an opportunity for disruptors to infiltrate the under-served market of regional airport travel, and inspired the development of many lower-tier competitors, such as South West Airlines. Suddenly, major airlines found themselves in competition with these companies, as they could not simply “flee” from this segment of the market, composed of lower-tier and leisure travelers.
The subsequent decades saw a back-and-forth war of innovation between major airlines and discount/regional airlines. Discount airlines offered lower rates than major airlines, and compensated for their smaller profit margins by modifying their operations – for example, South West did not provide food on their flights, seating was not pre-assigned, and check-in was largely completed at a kiosk. These airlines slowly captured a large portion of the lower-tier customers from the major airlines.
Major airlines responded by offering customers better deals on airfare, and more last-minute options. They had lower operating costs due to the scale of their business, so when they could not compete by creating a new product, they offered up these deals. Discount airlines remained competitive by expanding their operations, and in some cases, becoming subsidiaries of major airlines. Slowly, discount airlines captured a large segment of the lower-tier market, eventually expanding to international airports, which caused several major airlines to file for Chapter 11 bankruptcy, and others to respond with their own, similar products. Major airlines still held a large share of the higher-tier market of business travel.
With the recession, travel cost became a greater concern for a larger portion of the population, while service offerings among regional airlines continued to expand. This seems like it would be a self-sustaining recipe for the success of discount and regional airlines. Interestingly enough, once the discount airlines had expanded operations to as many airports as they could, they faced a wall in their innovation. The authors argue that the ping-pong battle between major airlines and discount airlines would likely continue, with no end in sight.
But what could happen instead? The authors suggest that discount and regional airlines could pursue untapped customers by offering transportation between airfields. 98% of Americans live within 20 minutes of a public-access airfield, and this segment of the market still remains largely untapped. Discount airlines could restructure their existing business model to capitalize on this innovation, offering even more regional travel options to business and leisure travelers alike. After all, innovations geared toward untapped customers tend to be the most successful!
This poses an interesting dilemma that all entrepreneurs will likely face – how to continue generating revenue and developing ideas when it seems like their business has “hit a wall.” The key is to identify untapped customers and sectors, and become a pioneer in that sector. Sometimes innovators are so ingrained in their existing practices, they miss these opportunities. It then becomes important that innovators continuously search for ways to compete with incumbents, especially through innovations the incumbents cannot realistically sustain, driving down their motivation to compete. Often, creatively examining the market disruptors already serve is a good place to start in developing new ideas. By analyzing customer feedback, researching fringe markets, and sustaining their innovative process, innovators can develop entirely new products with relatively little (initial) competition, placing them at the forefront of these markets.
Source: Christensen, C.M., Anthony, S.D., & Roth, E.A. (2004). Seeing What’s Next: Using the Theories of Innovation to Predict Industry Change. Boston, MA: Harvard Business School Publishing Company