I am sometimes asked this question when I present my work on rogue innovations to an audience. Since it is a tendency of every industry to go from supernormal profits to normal profits, aren’t all innovations rogue over long time periods?
It is true that the biggest blockbuster innovations today will yield little profits many years and decades down the line. Look at some of the low profit products today? Automobile manufacturing, basic plastic toys, cathode ray tube television and a whole host of products that yield normal profits would fall in this category. In each case, you can go back to the category’s origin and find a glorious and profitable past.
When an innovation starts a new category or extends a product line significantly, it is often very profitable. However, high profits attracts new competition that tries to create a me-too product or a better mousetrap. As technological and non-technological difference between various products decline due to efforts of competition, this puts pressure on the existing margins in the industry. Incumbent react with novel improvements via profit enhancing innovations. In fact most innovations are an attempt of incumbents to stem this tide of time that pushes margins lower.
How is this natural tendency of industries towards normal profits different from rogue innovations? The answer is simply that a rogue innovation provides a definite path to profit destruction in a relatively short period whereas industries tend towards lower margins over a longer periods of time. As industries evolve, numerous small and often insignificant events result in reduced profit margins. On the other hand, a rogue innovation is usually an event in time that shows a clear path of profit destruction. Such an event is often momentous for the industry.
Going back to the example of mutual funds industry, competition often resulted in depressed margins of a fund type over time. However, index fund was a major innovation that could have eroded margins significantly in a short period if it had become the dominant mutual fund type. Furthermore, 1975 went down in the history of the mutual fund industry that changed the industry in a major way, forever.
Short answer is, no every innovation is not a rogue innovation.
At the same time, one can think of a rogue innovation as a forceful event that can fast forward industry evolution on profit margins in a short period. It is so forceful an event that small profit enhancing innovations are incapable of preventing the consequences. Incumbents need to find a breakthrough solution in a short period. Often incumbents are not able to succeed at it.
Fortunately, I have sufficient evidence that it is possible to deal with such innovations. I will write in here in future how incumbents can quickly deal with a rogue innovation successfully. Stay tuned for more.
Please note: I reserve the right to delete comments that are offensive, or off-topic. If in doubt, read my Comments Policy.