Invention is in essence the power of creation and destruction. Most breakthrough inventions create new industries and companies while destroying existing industries and companies. Innovation is the tool by which invention finds expression in commercial markets. Taken together, they are powerful forces and if contradicted can quickly bring even the most successful company or industry to its knees. Why is this? Innovation effects change in the established order using invention's creations. The established order (whether social, scientific or commercial) is a mosaic of patterns, working models and behaviors that enjoy a certain predictability and harmony. Thomas Kuhn in his classic work, The Structure of Scientific Revolutions1, defined this order as a paradigm. When accepted scientific ideas or principles are invalidated by breakthrough discoveries, this is a "paradigm shift." Mr. Kuhn argues convincingly that a paradigm shift is inevitable and predictable in its effects.
Clayton Christensen, a professor of business administration at Harvard Business School, has restated Mr. Kuhn's logic in The Innovator's Dilemma2. Mr. Christensen's premise is simple. Innovation is either sustaining or disruptive. Sustaining innovation (SI) is typically seen as improved performance of existing products. It is incremental and safe. "New and improved" banners on cereal boxes and bathroom tissue come to mind. SI is the lifeblood of mature, slower growing markets. SI is predictable, conservative and risk averse.
Disruptive innovation (DI), on the other hand, creates new and conflicting value propositions at all levels and forces competitors and consumers to make reactive decisions. Mr. Christensen identifies key characteristics of DI's, which include the following:
• They emerge out of insignificant markets.
• They initially under-perform against established products.
• Few consumers want or think they need the new DI product.
• DI's lead to reduction in profit margins (within the old order).
Disruptive innovation products (DIP's) are initially harder to use or understand and seem clunky compared to the refined and fully developed sustaining innovation products (SIP's) they compete against. Notable examples of DIP's include the photocopier, the jet engine, computers and pretty much everything in the computer/software world. Market leaders, even when well managed and highly responsive to their customers' wants and needs, often stumble and miss the paradigm shift brought on by DIP's. The reasons appear to be found in the nature of innovation. Market leaders listen to customers who themselves do not want disruptive change and thus don't demand this from suppliers or customers. The more vested companies are in the status quo, the less able and willing they are to perceive the next disruptive innovation.
Nutraceuticals And Innovation: Past And Present
What does this have to do with the nutraceutical industry? Everything. Our recent history shows a period of deep conflict (1990-1994), profound change through DSHEA (invention) and subsequent disruptive innovation (1996-2000). This industry has gone through a major paradigm shift with the resulting deconstruction of established patterns and orders of commerce.
The inventive force was passage of DSHEA in October of 1994. This law "created" new product claims and new markets. Explicit benefit claims were the needed "passport" to larger markets where personal service and advice are largely unavailable. Product claims and advertising became the surrogate retailer. But this isn't enough. Broad consumer interest and knowledge is the predicate to mass market expansion. The sudden interest of the popular media in herbs, natural medicines and the like drove the new "natural health consumer" into the aisles of food, drug and mass merchants. It now seems clear that many of these newly minted natural health shoppers were more curious than committed. What appeared to be SI trends were in fact unrecognized DI trends. The old and stable marketplace of small stores who gave advice and charged specialty product prices was destabilized by sharp retail price reductions in the mass market and a mismatch of consumer expectations and product performance without the old retailing support system to act as a shock absorber.
A downturn in the market two years ago (for whatever reasons) triggered a series of events including the rise of retail private label and a reordering of the price/value proposition to consumers. Many brand leaders were forced to follow the price-is-value trend, even though most everyone recognized that the collapse of the brand/value/price equation would genericize the dietary supplement market. A review of trade and consumer publications would mislead a reader to believe that the industry enjoys a pattern of sustaining innovations through a steady stream of new or improved products, higher potencies, greater bioavailability, etc. In fact, powerful disruptive innovations have been at work that go to the heart of how our business is conducted. Indeed, as Mr. Christensen's model predicts, most of our products emerged out of an insignificant market, initially under-performed against established products (OTC and Rx medicines) and were offered to consumers who, in reality, have been unable to figure out why one product is better or worse than another. A reduction in sales and profit margins followed because a sustainable "why-does-the-market-need-my product" proposition has not been established.
In short, there has been a mismatch of innovation and market needs. While we have been busily creating sustaining innovations (distinctions without a difference), we have not achieved the market maturity that values this form of innovation. In reality, we are faced with disruptive innovation in the marketing, sale and distribution of our products that has led to margin and profit erosion, low brand awareness and loyalty and compromised quality.
The solutions will not be found through more sustaining innovation. The current disruptive cycle cannot be changed without reinvention. This means yet another paradigm shift-a reordering of the existing structure, which is only five years old!
Restoring a value/brand-driven market is our most important problem. To do this will require both invention and innovation, creation and destruction. Like Shiva, the Hindu god, who personifies both the creative and destructive forces of the universe embodied in one entity, we must accept that the power to reinvent lies within us. We cannot blame the government, nasty media stories or hostile consumer advocates as the cause of our present troubles. Whatever problems exist, we made them, and we will have to fix them. But first, we must accept that the solutions will come as they always have for us-by shifting the paradigm. The good news is we are onto something very big that a lot of people are looking for. We are still in the early stages of this revolution and that means reinvention...not just more innovation. NW
References
1. Thomas S. Kuhn, The Structure of Scientific Revolutions. University of Chicago Press, Chicago, IL, 1962. (Thomas Kuhn was professor emeritus of philosophy at the Massachusetts Institute of Technology. He died in June, 1996.)
2. Clayton M. Christensen, The Innovator's Dilemma. Harvard Business School Press, Boston, MA, 1997. (Clayton Christensen is an associate professor of business administration at the Harvard Business School. He holds a joint appointment with technology and operations management and general management faculty groups.)
About the author:
Loren Israelsen is president of the LDI Group, a consulting firm based in Salt Lake City, UT, that advises clients on dietary supplement and functional food issues. Reader e-mail comments are invited at LDI@LDIgroup.com.
