Renée Mauborgne: The Beauty of Non-Disruptive Innovation

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1:05I'm Guy Kawasaki and this is Remarkable People. We're on a mission to make you remarkable. Helping me in this episode is the remarkable Renee Maborn. Her book, Blue Ocean Strategy, co-authored with W. Chan Kim, sold over 4 million copies, and is recognized as one of the most iconic and impactful strategy books ever written. It helped many organizations achieve success by creating and serving uncontested market spaces. And now she's back with another remarkable concept. Innovation without creating disruption. That's the subject of her latest book. It's called Beyond Disruption. Innovate and achieve growth without displacing industries, companies, or jobs.

2:02Renee's accolades are numerous. She was ranked as the number one most influential thinker in the world by Thinkers 50. She is the first woman to ever top this list. She is also a fellow of the World Economic Forum and served on President Barack Obama's Board of Advisors for Historically Black Colleges and Universities. We are excited to dive into Renee's insights and expertise on business strategy and innovation. I'm Guy Kawasaki. This is Remarkable People. And now, here is Renee Maborn.

2:49Should Reed Hastings have told himself, I'd rather not destroy Blockbuster, I have to think of another idea for a business? I can't speak to that. He could have asked that question and come up with another non-disruptive, as we call, big opportunity. Because both disruption and then the new idea of our book, which is creation without disruption or displacement, which is non-disruptive creation, they're just two viable paths. It's just that one is always talked about disruption, which is what Reed Hastings did. And none of us are really systematically looking at all the non-disruptive opportunities we can have before us.

3:24So both are open to him. With your book and with your proselytization of this concept, do you think entrepreneurs will now Now, think of disruption, non-disruption as a variable to consider as they come up with ideas in businesses. That's our hope, because why as an executive would I want to deny myself this huge opportunity space where I don't have to take on the big guy? I don't have to take on established players. There's a lot of sunk costs that buyers have as well in an existing product or service that I may need to displace. And here is an opportunity to create without destruction, without taking on players, have huge profitable growth as well that we articulate in the book and we show through that.

4:13So as an executive, of course, I want to know what all my options are before me. And I do want to think about both, Guy. Yes. And what if I'm that executive and you tell me this and I say to you, but at least if I am going to disrupt the business, there is proof that a market for this exists. But if I'm going to go completely non-disruptive, blue ocean, either combination, then there's this whole big question arises of does the market exist? In our book, we talk about, in the second part of it, is like, how do you get a handle on creating these markets, these non-disruptive markets, in a more systematic way?

4:58And one of the paths to doing it is looking at existing problems that have been unaddressed or assumed as just a necessary, difficult part of life. So if you look at Jim McKelvey, who created The Square Reader, as we all know, he found that he couldn't make a blown glass sale. And so he said, okay, that's a problem for me. But is it a problem him and Jack Dorsey started looking at just for me, or is it a problem for all small micro enterprises? And he started to realize that the problem he experienced was a widespread problem. And people all wish that they could accept credit card payments, which is the most used form of payment.

5:38And so he said, okay, then there are a lot of people. So we talk about how do you assess if the market you're going for, who cares besides you? How do you assess the size of that market? If there's a big market and there's huge opportunity for people or there is a huge pain for people that we're taking for granted, then that becomes a market worth exploring. And that's how you need to start thinking about it. So, yes, you're right in the sense that you can say, I can see an existing industry and I can know the target is there. But you have to know you're up against big forces as well. Right. They don't just sit back and say, steal my lunch from me, take all my money from me.

6:17They're going to fight you as well. There are these sunk costs. There's a lot of other issues at play. And these non-disruptive opportunities, when you start thinking about them, when you start putting on the lens of non-disruptive, you start seeing opportunities all around that when you didn't have the lens to think that way, you weren't looking for. So we try to make that more systematic for you. So, yes. But couldn't I say, shame on you, NCR. Shame on you, all you point of sale hardware cash register companies. Why didn't you think of Square first? Had they started to think about non-disruptive and real growth?

6:54My guess is they were making enough money where they were sitting. There was enough incoming cash flows. Regularly, just the cash flow kept coming in. They didn't feel that burning need to do that. And they sat satisfied. No one wants to disrupt their own business, of course. So they don't want to disrupt themselves. And they started thinking about what other growth opportunities do we have, leveraging what we have? Are there any non-disruptive opportunities outside that we're denying? They could have done that very well. So it really depends on the growth appetite of a company. It also depends on how their cash flows are flowing.

7:28And you'll find many businesses, they're very few nowadays increasingly, but are sitting on nice, steady cash flows that keep coming in that are repeated and they're not being disrupted, they tend to be a little less hungry, but it could have very well been for them as well. Yes. So this is a very theoretical question, but do you think that society would be better off if Kodak and Blockbuster were still in business today? Or did they deserve to be disruptive and they were dinosaurs? They should have died. I think one thing, guys, very important to understand is we are not saying disruption isn't important and we're not saying that their industries that shouldn't be disrupted.

8:09There are many industries that invite their own disruption because their service is poorer, their infrastructure is outdated, they're not leveraging the newest technologies. So disruption exists, but we're saying there's another half of the market universe that has been hidden and that we can start to thinking about creating without displacing, without tearing down as well, and we should go there. So a lot of industries are ripe for disruption, and that is a viable path. But let's not shut ourselves off also from all the non-disruptive opportunities we can do. And that's what we're saying, especially, and chime in if you'd like, but the one power of non-disruptive creation is it allows me to pursue economic gain in a way that does not create social displacement or human hurt in the mark process.

8:57And I think that balancing increasingly for companies and even for the employees to want to be there, showing that we create without only destroying is also important. So I would, as an organization, as a CEO, I feel irresponsible when I'm thinking innovation to not think both camps and ask myself which one. Certain businesses, yes, we should disrupt. They're inviting it. They're outdated. Service and certain industries, what can we create? As you just said, NCR to create what's where a reader did actually, and make that your business instead of being now blocks business. So, yes. So are you suggesting that a CEO would talk to her R &D people and say, of course, we have to maintain our business for current cash flow and we would like to disrupt where we can create new markets.

9:49But I also want you to consider non-disruptive. Is that something that you think that they should just come out and say, you know, open your eyes to this other kind of opportunity? So whether it is the CEO or it's the head of the R &D or the head of, it depends on each organization and how the CEO communicates. But to that answer, I would say, yeah. So let's say to your point, now you talked about a large corporation, I have an existing business. So obviously I don't want to disrupt myself because then I'm losing current cashflow for uncertain future cash flows, that is often very tricky, right?

10:26Because Wall Street investors or employees, they don't want replacement revenues as much as they want new revenues. So now I have two alternatives. If I'm going to disrupt, that means I'm taking on another industry. I'm going up. The fact that I'm disrupting means the industry exists and there's big established players in there. If I have a lot of lazy players in that industry, I might want to disrupt it. if I've got a lot of strong, really credible players in that industry, that's a tough industry to disrupt. So now I'm going to say, okay, as a CEO, what industries that we're thinking about, do you have any ideas that you want to disrupt in?

11:01Because you find on the other side, there's lazy companies, they haven't really changed, their service or infrastructure is poor. They may say, we see some, they may say, no, we don't see some. Then I'm going to say, okay, what about non-disruptive opportunities out there? Can we see beyond the bounds of our industry, existing problems that have long existed, but people have taken for granted that we could go and start to create. And so I would, as a CEO or the head of my R &D division, I would absolutely want to start thinking this way. Yes. And suppose you were the CEO of Kodak back in 1970, and this engineer shows up and says, listen, I have invented digital photography.

11:41You see this big thing on my table. It can take pictures. People won't have to buy film. Well, with hindsight, we probably all think Kodak should have jumped onto that technology. What would have been a reasonable and forward-thinking reaction at that point? I'd have to step back, but I think part of the fear of that was it meant destroying everything Kodak was. It was self-disruption. And that is very hard. People's livelihoods, their business, their core competence, everything behind them is right there. And so that becomes a tougher fight. You know, you start to think about the effects of all your employees, of your community.

12:20It's a harder one. And so I understand why that organization, these aren't stupid organizations, why when they looked at it from a business perspective, it was hard to swallow when you're disrupting yourself. And could Kodak at that time, had they had the opportunity to start thinking about what else we could maybe do because that wasn't the challenge is there that possibility we would say yes there is a possibility for non-disruptive opportunities but I I can't place myself at that time but I can understand why Kodak was not able to do that nor make sense of that there's a lot of calculations just like you know you advise a parent about what they should do with their child so easy when it's not you no kidding and then it's your own child.

13:07Oh boy, is it difficult, right? That was their own child they're talking about. Trust me. Trust me. I understand that better than you even want to know.

13:28I would say whether this is disruptive or non-disruptive, Don't you think a CEO should be having the attitude like, if we don't disrupt ourselves or if we don't non-disrupt ourselves, two guys, two gals, a gal and a guy in a garage, they're going to do it to us. Should we continue to sell the Apple II to be loyal, milk the cash cow, not throw everything out of whack? Or do we jump to a Macintosh? To that, I would say is I think that when you ask a company to disrupt themselves, they can say, nod their heads and say, oh, yeah, sure, sounds good. But you have just raised a level of fear and anxiety in that organization tremendously.

14:10And I think what I would say as a CEO is, are we continuously offering a leap in value to that marketplace? That's all I want to know. I want to know that without any marketing at all, people are going to be talking about us and there's going to be tremendous word of mouth praise. As long as I'm doing that, I know I can't be disrupted because I am on the bleeding edge. So I'm not going to be asking that. But Then I'm going to say, okay, now Wall Street is breathing down my neck. People are breathing down my neck. We need our next chunk of growth. Where is it going to come from? Well, I want to know, everyone, have we ever thought about all we talk about is tearing down and taking on the other guy?

14:44We've got big rivals out there. They've got a lot of money. They've got a lot of expertise. They're not going to lie down and sit there and take that easily. They're going to come back punching at us. So my question is, are there non-disruptive opportunities that are just sitting there right next to us that we could go and start creating for our next chunk of growth. So I think I would be challenging my organization not to disrupt myself, but to make sure I am continuously offering a leap in value that will leave customers breathless when they talk about me. And if I do that, believe me, no one's going to start thinking about disrupting my industry.

15:20Okay. Okay. This may seem like a strange question, but do you think that this dependence, if not obsession with disruption, particularly where I come from in Silicon Valley, everybody's talking about disruption. Do you think it's a male thing? Is it linked to a gender? Of course. I can't say that, but certainly a lot of men talk about it. But when I see women entrepreneurs as well. They talk about it, but I haven't done a study on it. I mean, I think you're the best to answer. So you meet more men than women. And what do you see happening there? There is something very macho about it, but that's not our field of study.

15:58So I can't really speak to that. I haven't done that now. Maybe I'll ask my researchers to look into this, but let me back up on that for a minute. So we teach at INSEAD, business school, MBA from all over the world. And the one thing I do see with the incoming cohort, and for the last few years increasingly, is students place a lot of value on not only wanting to make money, but wanting to do good. And they place a lot of value in believing that they are somehow contributing. And when we speak of the need to not only destroy and tear down, but to create without assuming we need to take down others, I will say it's very well received.

16:42It really speaks to this new generation. It also speaks to the increasing movement of people talking not only shareholders, but let's think about the intersection between business and society. I think it speaks to that as well. So we've been talking about this from more or less the supply side, but what about from the the demand side in the sense that I don't think people get up in the morning saying, God, if only I could buy a disruptive product, nor do I think they get up in the morning saying, if only I could buy a non-disruptive product. As your book mentions, don't they just want to wipe out mistakes and take a photo and see it immediately or be able to select from thousands of movies without driving?

17:31So what does this mean from the demand side? Because I don't think people care if it's disruptive or not disruptive. It's just, do they want it? Yeah. So, you know, very critical. We talk about that one of the defining features of whether you're going to unlock a commercially compelling market, whether disruptive or non-disruptive, is if you're achieving value innovation, which is not about bleeding edge technology per se, but you're offering a magnitude of value increase that makes my lives better. Whether I'm a business, you make my life better, or whether you are a company doing a non-disruptive opportunity for us, non-disruptive creation, you have made my life better.

18:14And I think that is the key defining feature. So when we talk about what are the paths, it's like identify a burning, but unexplored problem or issue that people are struggling with, or that could create a real opportunity for their lives. And that is what people should be able to immediately resonate with when you say, if I could do this for you, yes, please. Yes, please do it well. Yes. So, you're correct. Buyers are not thinking disruptive or non-disruptive. They just want something that makes their life better. That's all. Takes away one of the hassles or gives them an opportunity that they'd never before imagined they'd have, right?

18:59Now, let's suppose that magically, with total certainty, a company has a disruptive product. You're not at all suggesting that they should hold themselves back because of these other social concerns, right? They should still go for it? Yeah, we're not making any judgment on that. There are certain industries that invite disruption it leads to the more efficient use of capital and resources. So we are not claiming that at all. What we are claiming though, is that this obsession with disruption has kept everyone looking only at existing industries and how to tear down and take competitive competition out when there are all these other opportunities, as we outline in the book, that companies are doing that are building billion dollar businesses that we're not looking at.

19:46And so let's take some attention and start looking here. Let's expand the horizon of our thinking so we're not missing any possible business opportunities. That's what we're saying. Yes. So non-disruptive creation is not attempting to disrupt disruption. Disruption exists, has its value. And we're saying there's just this other half and we've paid no attention to it. And guess what? It has a lot of benefits organizationally to execute on it, but it has benefits economic and social because it doesn't lead to shuttered companies, hurt communities, or very real social and human costs. So if I tell a company, guess what?

20:23I'm going to disrupt your industry. Every employee that hears that a major company is coming after them, they are going to go home filled with fear because we as consumers like it. But when you're on the opposite side of that, and you're on the receiving end, and you're in the receiving community, the receiving town, there is a lot of hurt. We don't perceive it, but there's a lot of hurt that goes with it. And we're just saying, do it when you have to, but consider this too. Now, it seems to me that in the disruptive world, we have heroes such as Elon Musk and Steve Jobs. Who are my heroes, my role models for non-disruption innovation?

21:06So you could say Elon Musk in a way, because if you think about what he's trying to do right now. So yes, Tesla is a disruption. He's attempting to disrupt that, the auto industry. But if you look at what he's trying to do is space tourism and life on Mars, which I think is his greatest passion of all. That's all non-disruptive, what he's trying to do all of that. So he's balancing both. For us, the hero is the individual. You mentioned the mistake out or liquid paper. That was Bette Newsom. And she was a secretary. Power of it is we can all be our own heroes. We don't need only a Steve Jobs or an individual person that personifies that.

21:51And I think the book tries to empower people so that we can all see ourselves in the driver's seat of how we can effectuate this kind of new market creation. I had never heard the whiteout story. And that is a great story. The story that everyone hears is, of course, Post-its and Art Fry, who we are interviewing soon. But this story of Whiteout, can you just tell the story? Because it just warmed my heart when I read that. Yeah. The simple story was that this woman, Bette, she was a secretary and we didn't have word processing and all these typewriters in the old days and you type. And when you made a mistake on the typewriters, you often had to redo the whole page again.

22:38if you had a demanding boss, of course. And so secretaries were wasting a lot of time and typing over pages and a very inefficient and frustrating job. You had to be so careful when you're typing. And she, as a hobby, was a painter. And at the holiday time, she would come and she would paint the bank windows. And she started thinking about it. God, when I'm an artist and I make a mistake, you don't erase it, you paint over it. So she got the idea. Let me bring a little white tempura paint into the office. And when I make a mistake, I'm just going to dab a touch on the paper and start typing over that so you don't see it.

23:16And other secretaries started to see it and they started to like that idea. And she found a real problem. So you said, how do we know the market exists? Well, Bet saw the frustration of all the secretaries and how much time it wasted and how irritating it was. And so there's my size of my market. A lot of people irritated, a lot of frustration. I can do it. And then I do it myself. And we always say, dream big, but start small and scope it down. So it's human challenge. And let's see what that looks like. And then of course, roll it out. And that is how that story began. And I think the beauty is, and even in microfinance, I'll go back, you know, we can admire microfinance.

24:00That's a non-disruptive industry. Today it serves over 140 million people, but who could have ever imagined that somebody earning less than$2 a day, no regular job, no collateral, nobody with money that could vouch for them could ever get a loan to start a business? And what bank would ever give a loan for 22 cents? It's not worth the paper it's printed on. In fact, they can't even read paper or they're not literate enough to even sign the paper. So it's a closed case. But Grameen Bank starts this. Now, a lot of people say, well, wow, give money. Okay, so you can start that. But these are illiterate people, a lot of them.

24:38They've had no formal education. They live in huts. They live on dirt floors. But what he saw was that they have enormous creativity just to survive, just to survive and pay for their families. And they have their own skills and crafts that they do, whether it's weaving a mat or making a sweet cake or whatever it is. To the contrary, they're all little entrepreneurs. And he invested in those people. And they didn't fail. They have a 98 % repayment rate. Now, why do I say that? Because those are the heroes. Like we can be heroes like Elon Musk, but I meet heroes at all levels. And that's what the book hopes to inspire.

25:16And we start with small stories and we have big stories. Because right now you look at the challenge. I heard, by the way, a fantastic interview that you did with Ginny Romney. Just terrific. She's a great lady. And you started talking at the very end about AI. AI right now, when you see it, a lot of people are talking about the large level of the efficiencies and productivity it brings, but maybe a large amount of potential displacement before new jobs are created at the speed as which displacement can occur. So if we have displacement that goes much faster than new job creation that goes around those new technologies, we're going to have a lot of released human labor.

25:56And maybe my industry that I'm in today as a small or mid-sized company or an existing company might face that. And so I say this because we all need to, I think, start thinking about how can we create jobs from the beginning? And this non-disruption can be the way because disruption leads to more displacement in the short to medium term. So roundabout way to answer that question, but I think it's important. That's okay. Yeah, let's go in circles. Are you bullish or bearish on crypto? It's not part of our research. I would say I see great strength in Bitcoin. I haven't done enough study on crypto, but I would say Bitcoin is also different than crypto because it is truly a decentralized ledger, not controlled by anyone.

26:41I think that a story that you might use to illustrate the difference between disruptive and non-disruptive innovation and the sort of goodness of non-disruptive is I would make the case that crypto in general is a very disruptive innovation and it is trying to destroy finance as we know it. On the other hand, as you mentioned, microfinance is not disruptive and it is not trying to destroy things. It is trying to build things. So I think that is a great juxtaposition of you want to be a crypto millennial bro, or do you want to be helping 180 million people with microfinance? That's the difference between disruptive and non-disruptive finance.