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A stocked pantry is a thing of beauty, but relatively few people get giddy about the prospect of a grocery store run. That's why Cincinnati-based Kroger has been testing a new service that allows shoppers to order groceries online and have them delivered straight to their door (courtesy of Uber drivers).
This service seamlessly blends the physical world with the digital realm. Yet, in celebrating such new capabilities in technology, people have to be careful not to lose touch with reality. They shouldn't try to disrupt a market entirely through a new app. We don't, after all, live in a purely digital world; this isn't The Matrix. And, the last time I checked, Keanu Reeves wasn’t our anointed savior.
The question I'm posing here is, if new technology isn’t supported by physical infrastructure, what’s the point? Digitally redirecting a UPS package does nothing if there aren’t workers on the ground who can update the address label on the box. Entrepreneurs who overlook the physical world will never change it. Furthermore, they must be able to identify when markets are primed for disruption if they want to be the ones driving major innovation.
Pinpointing markets ripe for disruption
Generally speaking, there are two conditions that indicate a market space is ready for a new behavior to replace tried-and-true methods: maturation and fragmentation.
A mature market has a relatively stable structure in terms of the size of firms, the number of startups and the composition of businesses. In these markets, cumbents and customers alike tend to consider it fairly obvious how to run businesses. If people utter phrases like, “This is how it’s always been done,” that's a good indicator that that market is mature.
Innovation becomes an afterthought, and companies tend to all move in the same direction.
The smartphone marketplace, for example, hasn’t dramatically changed since the first iPhone hit the scene 10 years ago. Phones have become increasingly faster and possess new bells and whistles, but they’ll likely be replaced soon by a next-generation device that will “change everything.” Rumors are already swirling that Microsoft’s planned Surface Phone could disrupt the market.
Which brings us to fragmentation. Mature markets are stagnant, while fragmented markets have numerous solutions, but no obvious leader. A fragmented market lacks streamlining and standardization, so disruption entails an introduction of something new, rather than the end of an era. In that scenario, disruption serves as a unifier -- innovation that bridges, adds to or partially replaces solutions. This is a common occurrence in technology, where a newly adopted standard can have a ripple effect.
Returning to the smartphone example, that marketplace was already fairly fragmented a decade ago. After Apple changed the game by introducing the iPhone, other companies followed suit with similar devices. The lesson? Once you’ve pinpointed a market that’s ready for disruption, it’s time to figure out how to use a combination of hardware and software to stir things up.
Flipping the script
When everyone else is focused solely on technology, companies that are able to innovate in the physical world can stand out from the crowd. There are three scenarios where technology can affect the physical realm to cause true behavior-altering disruption:
1. Let software set hardware free. Hardware is developed to set specifications because it’s immensely difficult to create something open-ended in terms of functionality. This is where software proves its worth. Software can combine several pieces of single-purpose hardware and distribute the benefit to numerous users.
This was obvious with the mainframe computers of the 1950s, and beyond. IBM made a number of key changes to its computers in the 1950s, transitioning from the electromechanical switches of the 1940s to eventually replace vacuum tubes with transistors. Every step forward increased the number of calculations per second that these computers could handle, and each development fueled exponential new uses.
Computers then progressed from government and research work to business functions, such as tracking inventory and billing. Eventually, they achieved widespread use with the first computer-disk storage system. Each piece of hardware wasn’t necessarily unique, but software opened the door for different hardware combinations that pushed things forward.
2. Create hardware that facilitates software. Software is worthless without hardware, but some hardware can stand on its own, mechanically. That said, hardware can accomplish a much more diverse set of tasks when it's combined with software. When creative thinkers build new hardware, it doesn't take long before new innovations in software and new solutions are generated throughout society.
In many cases, real-world hardware ends up limiting software capabilities. A smartphone app that allows people to shop for groceries doesn’t completely eliminate the necessity of grocery shopping, as the food still needs to make its way from the store to your fridge. Kroger’s delivery service certainly simplifies this process, but it also still hinges on the existence of Uber drivers. As new products and services rise to prominence in the physical world, developers are inspired to create new software.
3. Use hardware and software as catalysts for each other. Ideally, hardware and software work in tandem to improve production and create value. Instead of attempting to fit hardware and software together, let the development of one facilitate further development of the other. If hardware and software are allowed to develop without restrictions, one will soon innovate until it reaches the limits of the other, creating fertile ground for further innovation on the other end. This teeter-totter of progress produces incredible growth.
While Marc Andreessen's famous quip that "software is eating the world" is accurate, I’d argue that adding a software layer to existing physical processes can reduce costs. The true power of software, however, lies in facilitating new processes.
An example from the hospitality world
Consider, for example, the case of the restaurant reservation app OpenTable. It’s possible that the digitization of table reservations could cause restaurants to use software to track internal resource allocation. Restaurants already know it takes a group of four people about an hour to order and finish a meal, but newer data from sophisticated software could show, for instance, that it takes about 20 minutes to prepare an order of ribs and about 18 minutes for a diner to eat them. It could also track how often customers order this signature dish in the average week.
This level of data could open greater automation in the restaurant industry and allow owners to avoid costly food waste. It could also standardize -- and thus limit -- variations in quality, making for a better dining experience.
Suddenly, a simple app could open the floodgates for restaurant -- and perhaps supplier -- efficiency. The scales would then tip to the other side, with production changes influencing the direction of the software. This cycle could continue in perpetuity, with a rising tide lifting both ships.
An inventive combination of software and hardware could improve everything from grocery shopping to restaurant operations. Software might be essential to these market changes, but it’s ultimately the real-world consequences that will draw consumer attention. By pairing software and hardware in inventive new ways, companies with insight will disrupt even the most disjointed or stagnant industries.