Why D.I. (Disruptive Innovation) in the Public Sector and Community Governance

In the last post, a strategy of applying Professor Clayton Christensen’s Theory of Disruptive Innovation to the public sector and community governance was raised. More needs to be done but the question that needs to be asked more directly is “why?” What are the big problems that Disruptive Innovation or a D.I. approach has the potential to solve that will likely remain beyond our grasp without it? Does it even matter why one innovates, let alone disrupts in the public sector?

Several premises need to be set before addressing this question. The first is that numerous communities are in serious financial difficulties. The second is that a very sizable portion of those problems are due to decisions made in the past by leaders, both public sector and political, in city halls based on auto-centric and accelerated growth fueled by debt resulting in an overabundance and misalignment of retail space relative to the economic needs of communities, not to mention the problems that accompany that. Third, the economy is a complex system and becoming more complex not only with exotic financing mechanisms but the innumerable basic interactions of business transactions by autonomous agents across a global stage. Fourth, this complexity is feeding and is fed by the realignment of the economy to metropolitan areas around the globe, which do not have their own level of representative government. Fifth, that smaller local governments are, it can be argued, in too many cases doubling down on past bad decisions, and seeking to maintain control through overly complicated processes based on twentieth century management making them incapable of addressing complex, wicked challenges of the twenty-first century. Sixth, that as a result city halls can become entrenched over time in which, despite the appearance of democratic inclusion, community engagement becomes more and more of a whitewash, effectively disengaging, disenfranchising and disempowering people over time. The result is that our communities fall further behind. A follow up premise at seven is that due to the financial difficulties facing communities and the role that public sector pensions play, in large measure due to decisions made by those holding power in local government institutions, the nature of public sector employment will change and therefore the nature and essence of local community governance. The choices are between that which is most likely to be played out being local community services are provided in an increasingly commodified manner by McGovernment type institutions and constituents become customers hoping for resolution of problems through call centers with no real hope of meaningful input or alternatively a means is devised to instill community members with the capacity of being true co-creators of democracy and having a meaningful role in the creation of their communities.

This is an extensive list and communities don’t necessarily interact directly with the first three on the list but the shifting of economic concentration through what the Brookings Institute is calling the Metropolitan Revolution does have an impact upon smaller but far more numerous communities. The inability of community members to change the direction or enhance the ability of their community because of power held by a few is also of direct consequences. Individual communities will vary in the degree to which they see themselves falling under each premise, some far more so than others.

To innovate or not is one question and it seems logical that communities would want to innovate to optimize providing better services based on the wishes of the community while holding down costs. To disrupt, and to integrate and apply that disruption through a process of innovation is another question.

For the entrepreneur working for economic reasons, the answer why apply disruptive innovation is obvious, once you understand how disruptive innovation works. It permits one to build a company from nothing that can go on to dominate a market. It’s the most effective way to innovate as a means of generating tremendous wealth. In business it could be argued, the reasons to disrupt make intuitive sense. It may be more matter though of disruptive innovation being an inherent organizing principle in economics whether the entrepreneur or market entrant has a full understanding or not. System elements within a business environment if aligned properly, including the creation of ‘asymmetries of motivation,' or perhaps incentives would be a better term in this case, will more likely result in disruption of the market in question. This raises the hypothesis that disruptive innovation could be brought about by design.

The asymmetries ascribed by Christensen cause the creation of noncompetitive space between the entrant and incumbent. The entrant initially goes after customers that the incumbent has no interest in but that is not enough, the entrant must also continually attract those of diminishing interest. If the entrant is not able over time to pull away customers from the incumbent there will be no disruption, only a new niche market. The entrant invariably works from the bottom of the market up forcing the incumbent to circle their wagons around an ever smaller number of high-end users until they also jump ship and the incumbent folds. This process of progressively moving up, however, does not need to be readily apparent at the start.

It is the entrant, entrepreneur or startup firm, who is incentivized to move or to react to the different elements of the business environment moving them into alignment through management processes to result in the disruption. This is done though by incentivizing customers or users to adopt a specific solution to a specific Job-To-Be-Done or JTBD of the customer which the incumbent has failed to adequately address. Overall, this starts as a limited or narrowly focused solution meaning that only a small part of the market will choose the entrant over the incumbent but overtime through technical improvements, proper management, greater customer education and acceptance and most importantly that this occurs within a noncompetitive field due to the “asymmetries of motivation” there is a transformation from scarcity to abundance not only for the individual participants of the system, particularly the entrant and customers (incumbents, not so much) but for the economic system overall. If the right solution can be found for the true JTBD of the constituent as opposed to ‘it doesn't come in that size’ approach of incumbents, little outside motivation is required and users become co-marketers and in some cases co-innovators.

The value created for the customer in fulfilling the JTBD does not exist before the disruption and is great enough to substantially improve the economic value of both the customer and entrant and especially the monetary assets of the entrant, all of which in combination are greater than the loss of economic value of the incumbent which are for the most part transferred to the entrant and customers.

What about in public service and community governance? There is a long list of specific issues that could be addressed to consider. Do we first prioritize? Which is more important, introducing more self-service options for government, building community engagement, changing how we select representatives and the rules of engagement for their terms, fixing a corrupt tax system, or figuring out a way to get our debt under control? Is basic infrastructure, roads, bridges, or is border control more important or the social safety net? Why are we unable to balance the books? Why are people disengaged or feel they aren’t empowered and that government is the enemy? Are there limits to good governance?

There is very unlikely a D.I. magic bullet which addresses all of these but then that should not be expected. At this stage, it is not even necessary to directly determine the means of addressing any of these and even if we did, it would likely be a sustaining innovation without an organizing principle of disruption behind it. Much of the success of D.I. in the private market is more apparent in hindsight and solutions to JTBD are only fully understood after they have been adapted and adopted for some time. No one should assume limits to what could be created as possible solutions in the future. It can also be proposed that the list of issues raised above are in reality more from or in reaction to an incumbent led perspective and that what is needed is to take some time to apply design thinking methodologies to create better JTBD solutions focused directly on the perspective of the community and its members. Without a D.I. perspective, the more likely approach is to simply wait for the next sustaining innovation to appear which in reality does nothing to change the nature of community governance and especially not that of entrenched community government institutions. What should be examined more closely are more general factors defining the application of disruptive innovation to the public sector.

There should be expected to be fundamental differences between using D.I. in the private market economy and the public sector. The driving incentive of private market disruptive innovation is the personal motivation of the entrepreneurial entrant. D.I. can also, however, be viewed from a systems perspective made up by the relevant components of the economy or business environment in which the D.I. could potentially occur.

The organizing principle of D.I. is admittedly not as great within the public sector or community based governance as it is within the private market economy. It could not be assumed but instead would have to be purposely applied. The intention is to argue that this is needed to bring about the desired paradigm level changes needed by our communities.

Would it be possible to create something similar to the “asymmetries of motivation” within the public sector and at the same time address relevant community based JTBD or civic issues that could be scaled? Could a comparable shift from scarcity to abundance be made within an environment, with which community governance was concerned, by the community itself?

If the answer is even a possible yes, if the deliberative design of disruptive innovation could be applied to the creation of new community paradigms then this strategy should be pursued. There is no expectation of quick fixes by sudden bursts of D.I. insight. Community advocates, those incentivized to take on a D.I. perspective, could though raise the potential of innovative disruption shifting, at a community level, a field of scarcity and abundance over time. At first through disrupting innovations as opposed to disruptive innovations in that the former do directly challenge the incumbent or through basically outside sustaining innovation efforts of organizations such as Code for America. The public sector incumbent can then choose to oppose or adopt the specific innovation. One example of disrupting innovation is the Building a Better Block approach initiated often through a Tactical Urbanist perspective. These, by themselves, may not though result in the paradigm level changes that are coming but that will not be defined in a manner of our choosing if left to their own devices. Going beyond these though is not something that can be done after the fact. An approach featuring an organizing principle of natural community inclusion which did not require the blessings of any entrenched city hall would be arguably optimal.

An outside of city hall, grassroots generated from the community approach which incorporated a disruptive innovation perspective would have the potential to take these ideas, recombine them, re-adapt them, re-apply them through better focused JTBD solutions in an environment of imposed 'asymmetries of motivation’ with an overall long term objective of establishing far more expansive use of radical, or as recognized by this effort fundamental, community engagement. What needs to be developed next is who and how and what determines them? The particulars of this theory of disruptive innovation in the public sector and community governance, such as JTBD or how incumbent businesses and entrenched city halls have equivalent roles in a system of disruptive innovation, despite having no other commonalities, needs to be developed further.

Applying Disruptive Innovation within the Public Sector and Community Governance

In this post an argument for applying lessons learned from Professor Clayton Christensen’s Theory of Disruptive Innovation to the public sector and in particular community governance will begin to be developed. This has been on the back-burner for a good while and most of the work that resulted in this has come from discussions and readings provided through colleagues in the Disruptive Innovation group and more recently Disruption by Design group on LinkedIn.

In the previous Innovation Through Community; Innovation By Community post, the difficulty in generating more meaningful innovation within the public sector due to structural system problems with our current form of local institutions of government was raised. A means needs to be found that not only implements the change being sought but that also disrupts the elements of the system working to stop that change. Unlike past politically based forms of disruption which were usually disrupt first then innovate after, a way needs to be found by which the innovation and disruption occur simultaneously, that shifts the balance of influence through a process of innovation that entrenched institutions of government have minimal means to stop. The post following after made the case against Entrenched City Halls and why they can fail communities despite having the appearance of being democratic.

Developing a theory of disruptive innovation within the public sector will be difficult because disruptive innovation has become such a misused term, especially within the public sector. Most examples of disruptive innovation cited by the public sector are mislabeled either purposely or inadvertently, usually to make a more persuasive sounding argument for something. We are not looking for the next disruptive product or disruptive service or disruptive technological advancement but a continual means of innovation (which could include technical or management processes) by some form of disruptor, be it an entrepreneur or other change agent, that drastically bends the growth curve up, substantially shifting the value inherent within the system from one of scarcity to abundance and thereby disrupts the current system.

So it needs to be made clear that we are endeavoring to utilize the concepts of disruptive innovation as developed by Professor Clayton Christensen of Harvard University. A section of the New Community Paradigms wiki has been set aside to gather additional resources related to disruptive innovation. This will not be a comprehensive examination though. The stories of companies such as Apple, as a disruptor or Kodak, as the disrupted, are known and this post will leave telling the specifics of such stories to others. The intricate details of the theory will also be left to others. This post will focus on laying a foundation how disruptive innovation can be applied to the public sector by describing elements of the process and how and why it can disrupt certain components of a system in question and at the same time transform the relationship between scarcity and abundance for other components of the system in question.

Once that is established, we will then need to later determine boundaries as to where the theory can identify applicable factors that can be applied across different systems. As Professor Clayton devised his theory based on the workings of private free-market economics, its application to the public sector will be done by finding the most robust analogies between the two systems. Even if the application of disruptive innovation to the public sector is primarily figurative, it should still have the potential to have an impact upon the system and therefore able to cause meaningful change.

Another problem with explaining the concept of disruptive innovation as a process which could be purposely applied is that on the surface it is not intuitive and how it gets one from point A to point B is not readily apparent until one digs deeper. This is in part why it is effective because the industries or the companies within them being disrupted do not realize the threat and the resulting disruption seems to come out of nowhere. It is all the more effective though because after a certain point, along the path of innovation discerned by Christensen, little can be done to prevent the disruption and its inevitability becomes clearer in hindsight. This is also one of the ways the public sector misses the essential aspects of disruptive innovation. It is not just a matter of creating a brand new mousetrap for the world and everyone beating a path to your door. Someone or something finds itself being prone to being disrupted in the process putting organizations of all types in the position of being the guy at the poker table who does not know who the sucker is.

Stories of disruptive innovation can start off as the David and Goliath sort. Disruptors, entrepreneurs or startup firms, play the role of David with seemingly meager weapons and the incumbent, as in the well established, undisputedly in power, market leader, sometimes even iconic business with a long history of financial success and domination over the market assumes the role of Goliath. In some ways disruptive innovation may be more like stories of Popeye and Bluto when Popeye finds the spinach but what the spinach is changes with each new and different innovation. (I am a Baby Boomer, Google it if it’s not familiar)

The incumbent market leaders or the Goliaths and Blutos, once they are established, appear to remain unbeatable because they are the ones coming up with sustaining innovations, the ones proclaimed as new and improved in the advertising. This is when one most often hears empty claims of disruptive innovation being made as in not only new and improved but super new and improved. This means that their customers and especially high-end users continually get better service through features with better quality and improved reliability making them the safe bet. These improvements can be small and incremental or significant but they are targeted to the already defined customer base with the intention of making the base population larger at the price point set by the business or to raise the price point high enough so that even if less customers are added in numbers the overall profit for the company goes up. Customers that show loyalty by being able and willing to pay the price for the standard offering or better yet move up to the premium offering are rewarded. Those not included within this relationship are left behind to no obvious detriment to either the chosen customers or incumbent business. People get use to Goliath or Bluto being the biggest badass in town and assume it will remain that way.

Disruptive innovations or DIs, led by the Davids and Popeyes, are seen as overall inferior or underperforming solutions compared to those being provided by the market or sector leaders. Where DI agents are able to begin to compete is on a different set of benefits, such as simplicity, convenience, accessibility, significantly lower price, or ease of use that satisfy a need either not met or underserved by the incumbent market leaders. By doing so, they create what Clayton Christensen termed “asymmetries of motivation” and a new dimension of value.

This new dimension of value can be created in two ways, first through low-end disruption which means offering lower quality or performance, perhaps missing features, though at substantially lower costs making it appealing to users who can’t afford or can’t access, or new users, along with others, that don't need the full features of the incumbent market solution.

The new dimension of value can also be created through new market disruptions that provide the means to accomplish a new category of previously unrealized objectives or goals with which the incumbent has decided or defaulted to not compete. It is good enough though to meet the particular customer’s goal or what has been termed in disruptive innovation literature as the Job-To-Be-Done or JTBD. A DI directly addresses some JTBD of the customer at an acceptable price making them willing to put up with the lack of features or quality as compared to the incumbent offering.

The incumbents ability to offer sustaining innovations to its defined customer base only cements its position as long as it offers them at a pace that keeps it ahead of whatever competition it may have. Incumbents create the products or services to be bought and the market reacts within the confines of this solution choosing between better or worse alternatives. Customers adjust themselves to optimize their use of the solution offered, not the other way around. Incumbents over time mold customers expectations and train them to become dependent upon the incumbents offerings and stop seeing the possibility of alternative solutions. At some point though these sustaining innovations stop making a difference and buying decisions become based solely on price, the one providing the best offering at the lowest price becomes king of the hill.

There is, however, still those who are not being served, or are being underserved and sometime even over-served by the incumbent business. If the DI agent goes after these customers then the incumbent sees no reason to compete. Initial offerings to these customers can be seen as mere toys flying below the radar of the incumbent market leaders.

When David or Popeye start off, they and their customers may have no idea of the full potential of the innovation that they are offering. This is where the DI agent finds his sling or spinach. What it does is provide a track for continual, while still sustaining, innovation has the very important difference that it is within a noncompetitive arena with the incumbent business allowing Popeye to pop open the can of spinach unhampered.

This is where disruptive innovation has its greatest impact because this new dimension of value is what moves the value inherent in the system from a state of scarcity to abundance. It is at this point that truly meaningful change could start to be implemented.