What is disruptive innovation?

Change is scary, especially in business. And when it comes to innovation, it’s really easy to keep putting it on the back burner. Just firefighting to keep the business afloat every day is hard enough - who’s got time to innovate?

The problem is, technology is moving faster and faster and by not embracing innovation there’s every chance companies will be left behind.  

These days, in a world where competition is fierce and the costs of staying ahead of the game are ever-spiralling, your business clients must keep up.

It’s no surprise businesses feel overwhelmed, especially with both money and reputation at stake. But real, attainable disruptive innovation is something any company can aspire to.

What is disruptive innovation?

Say the words ‘disruptive innovation’ and many people will be left scratching their heads. So what actually is it?

Disruptive innovation occurs when an existing concept (product or service) is transformed so that a broader group of consumers can access it. This is because it has become more abundant or cheaper for example.

This type of innovation means developing something that doesn’t just improve on what is already a success but that totally redefines the market.

Disruptive innovation is also far reaching in that it doesn’t just bring about an improvement in the industry; it also challenges market leaders in a literally disruptive way. It’s a transformation that changes the market forever.

An example: The smartphone

The smartphone is an excellent example of disruptive innovation. Not only did it disrupt the mobile phone industry, but it also launched the tablet market, whilst heavily impacting the way consumers accessed the internet.

When the iPhone first launched back in 2007, mobile phones weren’t anything new. But what this disruptive new innovation did - along with the introduction of apps - meant businesses could create services never seen before. It brought about the chance to connect with their customers in a brand new way. Nowadays mobile accounts for approximately half of web traffic worldwide, according to data from Statista.

Why is innovation in business so crucial?

Daunting as disruptive innovation can be, it’s often something which is reached in stages. It’s an incremental progress instead of anything immediately ground-breaking; a progressive strategy of innovation eventually leads to something that really blows up the market. Having said that, dithering is a bad idea, because only the most disruptive innovation will have the biggest impact.

After all, disruptive innovation is where a business generates new revenues with new products, services and business models. Yes it’s tempting to stick with what you know and what you do best, but once a business is too comfortably in its niche it’s likely to stifle its own progress. But the march of technology means languishing in a comfort zone for too long really isn’t an option.

The real art of getting this right though lies in spotting the opportunities to innovate that come along, having the creativity (and resources) to make an R&D project work. Usually, a business’ customers and employees are the best source of inspiration. This makes it vital that the conversation continues to flow around innovative projects, not just between employees and customers but with their accountants too.

How to spot a truly innovative company

There are certain vital characteristics that make a company hot on innovation really stand out from the crowd. Key ingredients include:

• Having a plan for innovation that is not only active but the results are measured.
• The CEO is fully on board and involved, and who takes ownership of the innovation process.
• The ability to be a leader, not a follower. That is to say, the company spots emerging trends and is ready to jump. Yes, reckless risks are never a good idea, but really innovative companies don’t rest on their laurels.
• Setting aside a committed budget for innovative R&D projects.

There are also four important questions that, in our experience, businesses should ask themselves when it comes to tracking and measuring their innovation:

• Is the CEO involved?
• What percentage of revenue is made up of products/services the business didn’t offer five years ago?
• What innovations are customers most asking for?
• What percentage of EBITDA (Earnings before interest, taxes, depreciation and amortisation) does the business spend on innovation?

Don’t forget: Claim up to 33% of R&D costs back through R&D Tax Credits

There’s no getting around it; innovation is expensive. From hiring new staff to outlaying for materials, to prototypes and testing and everything else, finding the cash to invest in such innovation isn’t always easy.

Thankfully, the government has long offered a lucrative tax relief to help combat this by offering up to 33% of eligible R&D costs back via the R&D Tax Credits scheme. This is either reflected as a cut in a company’s Corporation Tax or (in the case of a loss) a cash credit. Even better, the relief can be claimed by any UK company regardless of size or sector, as long as it has a Corporation Tax liability. Plus, the scope of eligible R&D activities is purposefully broad - as long as a technical or scientific uncertainty has been addressed.

The take-home message here is that if your client’s company has recently developed a new product, service or process (or appreciably improved an existing one) then R&D Tax Credits could well be on the cards.

With various other reliefs designed to encourage innovation too (we’re thinking Patent Box and Video Games Tax Relief too), there’s never been a better time to help bring your client’s disruptive innovations to life by making them aware of what’s available.