For the past few years, the concept of disruptive innovation has been used to explain many of the new business entrants who have captured the imagination of investors and management gurus alike. However, recent research has shown that the theory is often misapplied.
The theory of disruptive innovation was introduced in 1997 by Harvard Business School professor Clayton Christensen. “Disruption—the theory states that innovators with cheap solutions to a vexing market problem can unseat larger, more established rivals—has become an unavoidable part of conversations about companies and the people who work in them. It has been hailed as the answer to everything from making health care more efficient to reducing poverty.”
In his book The Innovator’s Dilemma, Christensen stated that companies fail because they underestimate their least threatening competitors. Their executives are more focused on complex, expensive products with the most margins for the highest-end customers. According to Christensen, that creates an opportunity for upstarts to come up with cheaper products or services that get them entry into a market via low-end customers. As a result, the once dominant players fail to acknowledge their new competitors and are ultimately dethroned by them.
Christensen has come post publishing to correct the record on what he defines as “true” innovative disruption, using Uber as an example of where the moniker of disruptive innovation is applied too broadly.
Christensen now believes that in order for a business to be disruptive, it must first gain a foothold in a low-end of a market that had been ignored by the incumbents in favor of more profitable customers. Otherwise, the disruptor must create an entirely new market, turning non-customers into customers. Christensen wrote: “Uber doesn’t fit into either of those boxes: it targets people who already use taxi services, and it doesn’t provide a particularly lower-end or cheap experience.”
Christensen also points out the second quality of a disruptor where Uber falls short is that a truly disruptive business begins with low-quality offerings, then eventually captures the mainstream market by improving quality. In this regard, Netflix fills the definition of the disruptive model.
Initially, Netflix’s initial service wasn’t terribly appealing to Blockbuster’s mainstream customers, who wanted instant gratification when choosing movies. As its quality improved, so did the Netflix offering appeal to Blockbuster’s customers, who eventually crossed over to Netflix in high enough numbers to force the Blockbuster into bankruptcy in 2010.
A recent study published in the MIT Sloan Management Review points out that the vast majority of cases that Christensen cited in support of his theory do not actually fit the disruptive innovator model. Indeed, in many of the cases the old-guard businesses were not actually disrupted, the researchers found. The companies may have contended with innovation, but they were not pushed out of the market by it.
The attacks and re-definitions have not dimmed the phrase and image that disruption innovation carries as a management buzzword. Apparently, Christensen’s definition is one of complete victory with the old guard being so overly devastated that they disappear.
In today’s age of information and agile management theories, the complete wipeout of a competitor due to innovation is fairly improbable. Indeed, disruption and innovation are not as devastating as the theory implies but more about evolution and competitive adaptation.