Innovation Doesn’t Have to Be Disruptive.

The era of international travel began in the mid-19th century, which was considered the golden age of transatlantic ocean voyages. The leading company in the industry was the British firm Cunard, which transported millions of immigrants from Europe to the United States in the early 20th century. By the end of World War II, Cunard had seized the emerging North Atlantic travel market in the first decade of the post-war period and became the largest Atlantic passenger line operating 12 ships that provided transportation to the United States and Canada.

This golden age came to an end with the emergence of commercial jet flights. In 1957, one million passengers crossed the Atlantic Ocean by ship, but with the popularity of air travel, this number dropped to 650,000 by 1965. Each person who preferred sea travel was now outnumbered by six people who chose air travel. Passenger ships could no longer match the speed and comfort of jet aircraft.

While other companies in the ocean travel industry disappeared with the arrival of the jet age, Cunard introduced a new concept of “luxury vacation at sea” and created the modern cruise ship industry. Until then, passenger ships were seen as a mode of transportation that simply took passengers from point A to point B, much like airplanes. Cunard transformed its ships into platforms filled with leisure and entertainment, changing this perception.

Today, Cunard is a part of the Carnival Corporation and the tourism industry of sea travel, pioneered by Cunard nearly 60 years ago, generates approximately $30 billion in revenue annually and creates over a million jobs. The creation of the sea travel industry was clearly not a disruptive business model. It did not invade, destroy, or displace any existing market or industry. It was created without causing destruction.

AN ALTERNATIVE PATH TO INNOVATION AND GROWTH

For the past 20 years, there has been a battle cry in the business world: disrupt this. Disrupt that. Disrupt or be disrupted. Whether it stems from Clayton Christensen’s theory of disruptive innovation in the upper or lower segments of the market, the overtaking of ships by the commercial aviation market, or Apple’s dominance in the smartphone market with the iPhone, corporate leaders have been constantly told that the only way to innovate and grow, even within their own companies, is to destroy their industries. Not surprisingly, many have come to equate disruption almost synonymously with innovation.

However, this obsession with disruption masks a critical truth: market-creating innovation is not always disruptive. People may be fixated on the disruptive aspect, and that is certainly significant and happening around us. But as our research and the example of Cunard illustrate, this narrow view only reflects one side of the spectrum of innovation that creates markets. On the other hand, there is what we call non-disruptive innovation, which gives rise to new industries, new jobs, and profitable growth without annihilating existing companies or businesses.

The precursor to the concept of disruptive innovation, Joseph Schumpeter’s notion of “creative destruction,” inherently links market creation to destruction or displacement. However, non-disruptive creation breaks that link. Non-disruptive innovation showcases tremendous potential for creating markets that never existed before and, in doing so, promotes economic growth in a way that allows business and society to progress together. In this article, we will demonstrate how non-disruptive innovation can balance the disruptive side by offering an alternative path to market-creating innovation. We will start by exploring the significant impact this concept has on growth, business, and society.

THREE IDEAS THAT HAVE CHANGED THE WORLD

Today, many women in developed countries may take sanitary pads for granted, but this innovation has created a non-disruptive new market that fundamentally improves the lives of half the world’s population. Women use sanitary pads to cope with the discomfort caused by their monthly menstrual cycles. However, it wasn’t always this way. Before the invention of sanitary pads, women would typically use old pieces of cloth that were often dirty and could cause infections, or even sheep wool. These old methods were uncomfortable; they shifted in place when worn and couldn’t prevent visible staining and leakage. School-age girls would often miss several days of school during their monthly cycles to avoid the discomfort it caused. Sanitary pads removed the shame associated with this situation and reduced the fear surrounding menstruation: girls could go to school, engage in sports without worry, and women could work more easily. Today, the sanitary pad industry generates over $22 billion in revenue annually.

Consider microfinance, an innovation that has transformed the lives of many of the world’s poorest people by providing financial services to those who survive on less than a few dollars a day. Prior to the emergence of microfinance, no bank or financial institution was willing to serve these individuals and deemed them ineligible for credit. Muhammad Yunus, the founder of Grameen Bank, found a way to overcome this problem and enabled previously excluded individuals to create new microenterprises, jobs, higher living standards, and hopes for the future. Microfinance has surprisingly become a multi-billion-dollar industry with a repayment rate of 98%, providing ample room for future growth.

Now, think about the television program Sesame Street, which teaches preschool children about colors, shapes, counting, and letters. The best part of this program was that children had so much fun accompanying the lovable puppets and singing along that they didn’t even realize how much they were learning. Sesame Street did not displace preschools, libraries, or parents who read stories to their children. Instead, it opened the door to a previously mostly nonexistent industry—preschool educational entertainment. Today, entertainment programs that provide preschool education have become a multi-billion-dollar industry. Sesame Street has become the most successful and longest-running children’s television program in history, winning dozens of Emmy Awards and 11 Grammys. It has viewers in over 150 countries.

These three cases, although different from each other, are all examples of non-disruptive innovation. I haven’t even mentioned emerging space tourism industries led by companies like Virgin Galactic, SpaceX, and Blue Origin, which, as our book “Beyond Disruption” demonstrates, cover various fields such as cybersecurity, male cosmetics, environmental consultancy, life coaching, pharmaceuticals, and smartphone accessories. All of these have created or are creating billion-dollar new industries, growth, and employment without displacing existing markets, players, or businesses.

A DIFFERENT AND NOVEL CONCEPT

Building upon the examples we have presented and examined earlier, we have identified three key characteristics of non-disruptive innovation. Firstly, it can emerge from new or existing technology. It can stem from a scientific breakthrough or technology-focused innovation, as seen with sanitary pads and space tourism. However, it can also be generated through a new combination or application of existing technology, as demonstrated by microfinance or Sesame Street utilizing television as a medium.

Secondly, non-disruptive innovation can be applied from advanced markets to the bottom of the pyramid, across wide geographic areas, and at various socio-economic levels. Sesame Street and sanitary pads were initially created for developed economies, while microfinance was designed for the base of the pyramid. The Cunard line initially catered to the upper and middle socio-economic strata, whereas microfinance targeted the lower strata.

Thirdly, non-disruptive innovation can be new to the world, but that doesn’t mean it is equivalent to disruptive innovation. On one hand, many innovations in the world are disruptive, as commercial aviation was to ocean liners. On the other hand, non-disruptive innovation can be new to a particular field but not to the world. Consider Ping An Good Doctor, which created a non-disruptive primary healthcare market in China. While the West already had an existing primary healthcare market, such a service did not exist in China before.

All of this means that non-disruptive innovation is distinct from scientific discoveries, technological breakthroughs, or newly produced products or services in the world. It should not be confused with specific geographic markets like the bottom of the pyramid or socio-economic strata like the lower class. Non-disruptive innovation is different from existing innovation concepts and can be defined as “the creation of an entirely new market beyond the boundaries of existing industries.” It entails no destruction, no failures, and no loss of businesses or established players. (For a discussion section on our research in this area, refer to the informative section of our book titled “Blue Ocean Strategy.”)

HOW DO ECONOMIC AND SOCIAL IMPACTS DIFFER?

Taking into account the examples of Netflix vs. Blockbuster, Amazon vs. bookstores and independent small businesses in the US, and Uber vs. taxis, they all come from different industries, but there are three key common factors: they are all cases of disruption, they reflect a clear win-lose situation, and they bring painful adjustment costs to society. Let’s examine this further.

On the positive side, consumers gain significant time savings. This is why people are drawn to disruptive offerings. For a product or service to disrupt, it needs to provide a leap in value, typically highlighted by a new business model. Otherwise, the industry will not be disrupted, and there will be no reason for buyers, whether businesses or consumers, to switch from the incumbent offering to a new one.

Economically, we can say that the side causing disruption generates high consumer surplus, and resources are allocated to places where society believes they are better utilized. Therefore, disruption tends to grow industries but also disrupt them: the compelling value it unlocks attracts people who previously did not buy the incumbents’ products or services, and inspires existing customers of the incumbents to use their new offerings more frequently. For example, people now use Netflix more than they rent DVDs from Blockbuster, and more people take digital photos than ever before, just like more people prefer flying over ocean liners for overseas travel.

However, growth here is achieved through a win-lose method. The success of the disruptor comes at the direct expense of the existing players and markets. This brings us to the second common point: disruption leads to a clear winner and loser scenario. In some cases, one party wins and everyone else loses. This is because the leap in consumer surplus provided by the disruptor can almost wipe out the existing industry and incumbents. Amazon not only displaced Borders’ 1,200 stores and numerous independent bookstores but also captured a significant share of Barnes & Noble’s sales. Now it is doing the same to independent small businesses and stores across the US and the other countries where it operates.

While disruptors may be celebrated as winners in the media, and there is a flow of consumers and investors towards them, this win-lose approach triggers a third common point: the painful adjustment costs to society are often hidden by the excitement and grandeur surrounding the disruption. For example, Uber’s impact in New York City, its largest US market, has had a significant effect on taxi drivers who purchased the right to operate taxis in the city and on individuals holding taxi medallions. Taxi medallions, once seen as retirement tickets, have lost value from $1 million to as low as $175,000 since the rise of Uber and other ride-hailing services, and taxi drivers’ earnings have dropped by up to 40%. Many taxi drivers now have to work double shifts just to make ends meet. This has resulted in bankruptcies, foreclosures, evictions, and even suicides. Such negative aftershocks were felt globally in major cities where Uber and similar services entered. The same disruptive force that enriches consumers with value leap also harms others in the process. The costs on individuals from Amazon’s disruption are even more pronounced: the visual impact of shuttered stores takes a toll on people’s spirits and darkens a community.

In theory, disruption should lead to overall growth and the creation of new jobs, but the subsequent adjustment costs are typically borne by social interest groups, government bodies, and nonprofit organizations striving to minimize the loss. (Of course, if an industry has a significant negative impact on the environment or human well-being, the trade-off may be small compared to the overall benefit of dismantling and displacing the industry.)

The adjustment costs are where disruptive non-creation separates

itself from disruption. In this way, market-creating innovation effectively moves away from market destruction, allowing organizations to minimize the loss of value in their existing assets and mitigate social pains, enabling their growth. Everything else being equal, this can be seen as a positive-sum approach to innovation. It can be seen as a much-needed complement to disruption on the path to growth. (You can refer to the “Creating vs. Disruptive Destruction” table in our book for further discussion on this concept.)

Toward a Positive-Sum Outcome

Non-disruptive innovation provides compelling value for both consumers and businesses, just like disruptive innovations do. That’s why we buy or use the product or service and thus bring the new market into existence. A new market will not gain traction without creating extraordinary value. However, non-disruptive innovation does not create specific losers like disruptive innovation does, and it only incurs minimal painful adjustment costs. From the outset, it has a positive impact on growth and employment.

For example, Kickstarter, the company, recognized that there were thousands of wildly creative projects that people envisioned but lacked the capital to bring those ideas to life. Most artists prioritize realizing a vision over achieving a return on investment. So, it is not surprising that Kickstarter, an online crowdfunding platform, did not gradually erode the existing financial industry or displace a small fraction of the profits, growth, or investment opportunities of existing stock investors or venture capitalists. Additionally, since backers on Kickstarter do not receive monetary incentives (they only receive perks like cool products or acknowledgments on the creators’ website), a new group of investors emerged: people who care about creative projects and want to help others realize their dreams.

Kickstarter was appreciated after being named one of Time magazine’s best 50 inventions of the year and succeeded with minimal disruption across industries. Within three years of its inception, it became a profitable business and raised a staggering $4.3 billion in funding for supported projects in its first decade, which otherwise may not have come to fruition. According to a study conducted at the University of Pennsylvania, Kickstarter is estimated to have created over 8,800 new companies and nonprofit organizations, along with more than 300,000 part-time and full-time jobs through its projects, generating over $5.3 billion in direct economic impact for these creators and communities. No one lost their jobs or went bankrupt because of Kickstarter. It helped the artistic community thrive without experiencing damaging or painful adjustment costs. This meant a victory almost everywhere it operated.

As we can see from this example, non-disruptive innovation has the potential to create a positive-sum outcome, where value is created for multiple stakeholders without causing significant harm or displacement. By focusing on creating new markets and providing compelling value, non-disruptive innovation can contribute to growth, job creation, and economic benefits, while minimizing the negative impacts associated with disruptive innovation.

The Growing Importance of Non-Disruptive Innovation

Since Nobel laureate economist Milton Friedman introduced the theory of shareholder primacy, there has been an assumed trade-off between maximizing economic gain and social benefit. Friedman’s theory, which lies at the core of what we now know as capitalism, argues that businesses have only one social responsibility, which is to engage in activities designed to use their resources and increase profits. Social issues beyond this scope are considered outside the purview of business.

However, despite all the economic benefits it brings, this approach is increasingly causing problems as the costly social impacts resulting from the pursuit of profit maximization come into view. Moreover, the public is raising its voice, demanding that companies expand their missions beyond profits and consider the impact of their actions on local communities and society as a whole. As a result, discussions about the need for socially responsible capitalism are growing. Non-disruptive innovation achieves this by creating new markets without sacrificing economic benefits.

The impact of the Fourth Industrial Revolution underscores the increasing importance of non-disruptive innovation for the future. Artificial intelligence, smart machines, and robotics are advancing toward delivering previously unthinkable efficiencies, but they will increasingly replace a wide range of existing human jobs. Studies suggest that smart machines are expected to displace around 20 million manufacturing jobs worldwide (with over 1.5 million of them in the United States) over the next decade. Other research predicts that technologies such as smart machines, robots, AI, blockchain, 3D printing, and automation will put 20% to 40% of existing jobs at risk in various sectors, including but not limited to medicine, law, finance, real estate, and journalism, including high-level positions. Furthermore, recent developments have shown that AI has the capability to create original artwork and compose music that appeals to aesthetics.

The need for new jobs to absorb all the released human capital brings us back to the fundamental driving force behind economic growth: innovation that creates markets. The success of technology and the productivity it generates increase the value of creativity and the need for establishing new markets. The challenge for companies, governments, and society lies in creating new jobs that do not displace others. This is both a moral and an economic imperative. This further underscores the growing importance of non-disruptive innovation in the near future. Microfinance has provided credit to approximately 140 million people to start micro-businesses and become self-employed profitably. Another non-disruptive industry, life coaching, is estimated to have created tens of thousands of new jobs. Environmental consulting has opened the doors to thousands of new jobs, and as public concern about the degradation of environmental values increases, this number will undoubtedly rise. Non-disruptive innovation is not the sole solution to the challenges ahead; it requires many other pieces to complete the puzzle. However, it must be a part of any solution.

IDENTIFYING NON-DISRUPTIVE OPPORTUNITIES

So how can organizations progress in finding and pursuing opportunities for non-disruptive innovation? To answer this question, we examined whether there is a pattern behind successful examples and, if so, how they appear. Our goal was to document the repetitive thought processes and actions of non-disruptive creators in order to enable other organizations to utilize them for maximum impact.

The key to non-disruptive innovation lies in three building blocks: identifying an opportunity that doesn’t cause destruction, finding a path to initiate it, and securing the necessary enablers for executing this path with high value and low cost. In this article, we will focus on the first one due to space limitations. There are two main ways to identify a non-disruptive opportunity.

Address an existing but undiscovered topic or problem. Non-disruptive markets are created by solving a brand-new problem or uncovering a completely new opportunity beyond the boundaries of existing industries. This doesn’t mean that the problem or opportunity suddenly emerges. It could be a long-standing issue that has remained undiscovered because it hasn’t been seen as a problem to be solved or a production opportunity. Sometimes people consciously or unconsciously simply accept things as they are. Sometimes a respected organization or individuals have tried to solve a problem long ago and failed, leading people to perceive it as essentially impossible. Other times, a subject may have been underestimated and accepted that way because people bring an out-of-market solution to the problem, just as women used to make homemade sanitary pads before the production of commercial ones.

Let’s take the example of Square (formerly known as Block). Its founders, Jim McKelvey and Jack Dorsey, realized that individuals and micro-businesses were losing sales because they couldn’t accept credit card payments. Although this problem had existed for a long time, it was accepted as a natural challenge that comes with managing a small business. McKelvey’s firsthand experience of direct sales loss in his glassblowing business led them to focus on this existing yet undiscovered problem. As a result, McKelvey and Dorsey passionately started working to find a solution when they realized how much benefit many businesses, from small businesses to pop-up stores, ice cream trucks, and babysitters, could derive from this new market. Square’s solution, Square Reader, created a non-disruptive new market. This new market had little to no impact on existing businesses and credit card providers. Square quickly transformed into a billion-dollar company without eliciting any significant reaction or encountering any conflicts with established players.

On a smaller scale, let’s look at Not Impossible Labs, founded by Mick Ebeling and Daniel Belquer. The inability of deaf people to experience music had long been accepted as an unfortunate reality of life. However, Ebeling and Belquer saw it not as an inevitable fate for the hearing-impaired but as a brand-new opportunity for innovation. They embarked on a journey to change things with the Music: Not Impossible project. While sound vibrations enter the brain through the ears, they realized that it is the brain that “hears” the sound. So, instead of using the ears to transmit vibrations to the brain, they utilized the skin and developed a wearable, vibration-based device for hearing-impaired participants at concerts. This device was a shirt with 24 lightweight transducers strategically placed on the waist, neck, and shoulders, creating a complete sound system. As a result, the world’s first rock concert for the hearing-impaired took place. The Music: Not Impossible project is expanding the global distribution of this offering, reaching hearing-impaired individuals from a music festival in London to an opera house in Philadelphia, the Brazilian Symphony Orchestra, and silent discos at Lincoln Center.

GoPro, Liquid Paper, Pfizer’s Viagra, Prodigy Finance, and going further back, the humble yet indispensable windshield wiper and dishwasher are just a few examples of non-disruptive innovations that shed light on existing but undiscovered problems and market solutions.

Let’s discuss a new emerging issue or problem. Socioeconomic, environmental, demographic, and technological changes that have an impact on society or people’s lives lead to new problems, opportunities, and topics. Offering an effective market solution to a newly emerged need or opportunity (beyond the boundaries of existing industries) opens the door to a non-disruptive new market. Let’s take a look at Tongwei Group, a Chinese fish feed producer. The increasing global pressure for clean, low-carbon energy created a new driving force for green energy sources, particularly in eastern and central China where industrial activities are concentrated and power demand is high. These regions, with their dense populations and agricultural land dedicated to farming, left limited space for green energy production facilities.

Recognizing this emerging need, Tongwei Group started creating a brand new, non-disruptive market by utilizing the unused surface area of fish farms, which covered millions of acres in eastern and central China. While aquaculture was already a significant source of income for individual farmers and local governments, Tongwei discovered that by harnessing the economic value of these water resources through the utilization of the unused surface for green energy generation, the value could increase exponentially.

The company thus created a non-disruptive photovoltaic industry integrated with aquaculture by combining their innovative cage-type aquaculture system with a water-based photovoltaic system. The solar panels placed on the water had a cooling effect, reducing water temperature and minimizing photosynthesis and algae growth, resulting in increased fish farm production. At the same time, Tongwei generated electricity with the solar panels. The outcomes of this non-disruptive innovation were higher income for fish farmers, a new green energy source for the regions, increased tax revenue for local governments, and a highly profitable new business for Tongwei. The company’s new market did not disturb anyone and rapidly expanded across China.

Now let’s look at another non-disruptive market: e-sports. Young people had a rapidly growing interest in watching skilled professionals play online video games, whether they were gamers themselves or not. In response, video game developers and third-party e-sports organizers created professional face-to-face tournaments where the most talented players could compete in grand global events held in massive arenas with up to 50,000 attendees, and their moves were displayed on panoramic screens. Lucrative deals were made to broadcast these events worldwide, attracting up to 100 million fans. In this way, e-sports transformed from just being about the game itself to becoming a spectator sport. Today, the industry generates over $1 billion in revenue and has approximately 175 million fans worldwide. The creation and growth of such a field did not displace any existing gaming industries or other sports industries.

Here are some relevant questions: What are the overlooked problems that do not have a sector addressing them, which you or your company have observed or directly experienced? What new emerging problems are you encountering that do not have an industry addressing them, and could present a real opportunity for you, your business, or the world? Are you actively researching the newest problems to be solved and the newest opportunities for production? Do you have mechanisms, processes, or tools in place to effectively do this?

As we strive to address many challenges faced by our planet and humanity, we will need innovative solutions that create new markets. We believe that if businesses can succeed in being non-disruptive rather than disruptive, they can help bridge the gap between the business world and society, bringing people together instead of dividing them. Most of the business world is associated with aggression and fear: winning in competition, stealing market share, destroying or being destroyed. Many of us do not like these feelings and find them worrisome, as they make us feel threatened. It is a scarcity-based worldview. But

what if we could transition from fear to hope, from a scarcity mindset to an abundance mindset? The idea that we can create new markets and grow without harming others shows that business doesn’t have to be a disruptive, fear-based, win-lose game.

Certainly, fear can be effective. “Destroy or be destroyed” is a strong motivation for an organization to take action. However, the hope of making a positive contribution to the business world and society is equally powerful. Therefore, it is important to understand both sides of the spectrum of market-creating innovation and act accordingly. Understanding why non-disruptive innovation is a fundamental complement to disruptive innovation is important at this point. Each has a role to play in building a solid future.