Blog #4: Flexing Through Disruption - Amazon as a Proof of Concept

Chapter seven “Discovering New and Emerging Markets” of the book The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail (Christiensen, 2006), discusses critical lessons for surviving technological disruption in your industry, whether from within or without your company.

1. Assume you’re wrong about how the technology will be applied 
2. Retain strategic reserves to adapt to how the market actually evolves for the new technology 
3. Be willing (managerial) and able (technology / manufacturing) to change directions

The author also concedes that while many may wish to simply wait the market out until it’s fully defined, this costs companies the strong position of “first mover advantage”. Does this mean it’s that simple to adapt to and generate disruptive technologies by investing large budgets in research and development?

According to Statista.com (Duffin, 2020), the five companies with the greatest research & development spending were: 

1. Amazon $44.6B USD 
2. Alphabet $16.2B USD 
3. Volkswagen $15.8B USD  
4. Samsung $15.3B USD 
5. Intel Co $13.1B USD

Evaluating Amazon, it is clear they are a leading disruptor of many industries from the original book selling, to personal tablet devices, to organic groceries. But does Amazon adhere to the principles outlined by Christiensen?

Since its launch in 2016, there are now 26 stores open and planned for this year. While the stores were initially seen as just another Amazon disruptive innovation to yet another industry (the corner / convenience store), no one could have expected how touchless shopping would become a near-critical necessity in the face of a global pandemic (Rubin, 2020). Criteria #1, assume the technology will evolve in a way you didn’t expect? Check.

Criteria number two to be a successful disruptor / innovator is to keep financial reserves to allow you to adapt for the changes in the market in how the technology is adopted in the wild. Considering Amazon reported $38.51B in free cash flow in 2019, over double the $11.92B reported in 2015 (MarketWatch, 2020), it is safe to say that Amazon has the capital to make changes to the Amazon Go concept and underlying disruptive technologies for touchless shopping that it needs to as things like customer adoption and market trends in the face of the COVID-19 pandemic may demand. Criteria #2, retain enough financial reserves to respond to the actual market for your disruptive technologies? Check.

Based on annual shareholder letters from Jeff Bezos, we can conclude that Amazon responds to customers’ experience with products rather than tailoring products based on pitches to executives (Ladd, 2018). This meets the third criteria of changing directions on a product to better serve the way it has taken off rather than sticking to anything simply because it is the plan.

Amazon clearly adheres to the three principles of The Innovator’s Dilemma. It would be interesting further analysis to rank the Fortune 500 companies by number of disruptive contributions to the world and compare how closely they meet the criteria laid out here.

References

Christiensen, C. M. (2006). Discovering New and Emerging Markets. In C. M. Christiensen, The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail. Boston: Harvard Business School Publishing Corporation.

Duffin, E. (2020, April 28). Ranking of the 20 companies with the highest spending on research and development in 2018. Retrieved from Statista.com: https://www.statista.com/statistics/265645/ranking-of-the-20-companies-with-the-highest-spending-on-research-and-development/

Ladd, B. (2018, August 27). These Tools Are Why Amazon Is Successful. Retrieved from Forbes.com: https://www.forbes.com/sites/brittainladd/2018/08/27/these-two-things-are-what-make-amazon-amazon/#750338145fd5

MarketWatch. (2020). Amazon.com Inc. Retrieved from Marketwatch.com: https://www.marketwatch.com/investing/stock/amzn/financials/cash-flow

Rubin, B. F. (2020, April 15). Coronavirus is making touch free shipping a necessity. Retrieved from cnet.com: https://www.cnet.com/personal-finance/coronavirus-is-making-touch-free-shopping-a-necessity/