Barriers and Moats Won't Protect You. Innovation Will.

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0:57Scott D. Anthony:1453. Three, an army approaches Constantinople. If you're inside the walls of Constantinople, you probably feel okay, because after all, those walls had stood for more than a thousand years. There's a literal moat that goes around the city. Once you get past the moat, you get to two sets of walls, each 18 feet thick. Those walls were impenetrable before. Salt pier, sulfur, charcoal, three ingredients that, when combined in the right way, created gunpowder. First identified in about 142, 1300 years later, a mysterious figure named Orban appears. He goes to the people inside the walls, the Byzantine Empire, and says, I can sell you something that will protect your city.

1:46Scott D. Anthony:The Byzantine Empire passes. Orban goes to the Ottoman Empire that is seeking to sack the city and makes the same proposition. They say yes. Imagine how it felt. Walls that had stood for a thousand years faced the onslaught of a half-ton cannonball flung over the distance of a mile. The walls shattered. The city fell in 47 days. Disruption changes everything. The question you have to ask in modern times is what is the moat that we have, that we built yesterday, that might protect us today, but will be powerless against the disruptions in the future. Why is it that market leaders pass on disruptive innovations?

2:31Scott D. Anthony:Well, when you first see a disruptive innovation, it looks really different. It looks unfamiliar, and therefore it's pretty easy to discount it. If you're inside walls that had stood for a thousand years and you see this unproven cannon present in front of you, you don't fully understand it. You don't fully see its use. you're used to horses, you're used to cavalry, you're used to arrows. Those are things that had worked for a very long period of time. It's only once you see the full demonstration of the power of the disruption that you really, truly get it. Why historically have disruptive innovations tended to start with upstarts?

3:11Scott D. Anthony:Well, Bob Dylan put it pretty well, when you ain't got nothing, you got nothing to lose. A market leader sees downside. They see risks. They see threats. Somebody who is an upstart sees nothing but gain and possibility. So therefore, it's pretty natural that an upstart will go and gravitate to following a new disruptive approach. And the research shows that's a smart thing to do. If you try to take on the incumbent in a battle that they are used to playing and you try to do it better, they're going to beat you most of the time. Clay Christensen called that a sustaining innovation battle. If you try to take them on with a very different form of battle, you've got a much greater chance of winning.

3:52Scott D. Anthony:So it's natural that if you don't go and counteract these forces, the upstart's going to see it and jump all over it. The incumbent's going to hesitate and pause.

4:04Scott D. Anthony:When you look at a new innovation, it always feels like there's risk involved. So you have to make a decision. Am I going to put a dollar, euro, rupee, whatever into this innovation or that innovation? One of the big challenges a market leader has is a comparison. Should I spend that unit of resource making today better? Or should I spend it making tomorrow different? If you're a company that's got nothing, you only think about what do I do that's going to have the maximum impact? You look for the most exciting things, the things with the most potential. Your resources naturally allocate towards the disruption.

4:41Scott D. Anthony:This is the rational part of the innovator's dilemma. Left unchecked, the resource allocation process inside an organization will direct everything to the known, to the proven, to the things that appear to be said, not recognizing that you're actually taking a risk by not taking a risk, by leaving yourself susceptible to somebody who comes at you with a disruptive innovation.