Based on my previous post it would seem obvious that all firms should pursue innovation like a holy grail because innovations lead to higher profits and better position for firms. However, in some situations innovations do exactly the opposite. They go rogue.
When innovations go rogue, even if the incumbent firms are able to overcome the challenges of innovation, the incumbent firms face diminished profits or loss of position in the market or both. I have termed such innovations as ‘rogue innovations’ because they lead to ruin and destruction rather than to glory and success.
Such innovations are rather scary and often firms do not realize that an innovation will go rogue until a lot of investment has already gone into the innovation. At other times it is obvious to firms that an innovation will go rogue. In either situation firms face enormous challenges. In my future posts I will share many of these stories of firms facing such innovations.
Not very long ago, the pearls sold in the jewelry shops took incredible effort to find. Divers would go in the sea to find pearls and this used to be an expensive operation. It was not that pearls were scattered all over the sea for anyone to go and pick them. As a result, pearls were expensive and the firms who sourced and sold these pearls made good money from the business.
Then, we found that it is possible to create exactly the same pearl in a farm. All one needs to do is to insert a spec of sand into a mollusk and a pearl would form soon. You can imagine what this innovation did to the pearl industry. The industry was devastated because of an abundant supply of pearls. These pearls were no different from other pearls that had to be searched with enormous effort by divers. As a result, prices fell, new competition entered and the incumbents suffered.
This is a classic case of an innovation gone rogue. Even if the major incumbent firms embraced pearl farming to create cultured pearls, they would have seen a significant loss of profits because people didn’t buy more pearls to compensate for this loss of profits. If on the other hand these incumbents avoided the innovation, other players would have brought cultured pearls to the market. The result would have been an ever greater loss of profits and market share. You can see how these incumbents were stuck between a rock and a hard place.
It is a nightmarish scenario when innovations go rogue. I have been studying these innovations for many years now and deeply understand this situation. The good news is that there are ways to tame such innovations and I will share a lot of stories of how innovations go rogue and how firms tame them. I will also share the stories of times when firms fail to tame rogue innovations. Stay tuned.
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