What’s so disruptive about innovation?

By July 12, 2016 Uncategorized

One of the buzzwords that is on everyone’s lips in business, start-ups and anyone dealing with innovation these days is “disruptive innovation”. A term initially coined by Clayton Christensen, in 1995, which refers, in simple terms, to a process by which start-ups are able to challenge market leaders. In essence, it refers to a David vs. Goliath phenomenon by which a small business with limited resources is able to gain significant market share from a well-financed big business.

  • The guru of disruption – Clayton Christensen

Clayton Christensen, and his colleagues at the Clayton Christensen Institute for Disruptive Innovation, has gone on to define the term, detail the process, and proscribe strategies for challengers to disrupt incumbents or for incumbents to defend against challengers. A key element in the process that Christensen describes is that incumbents tend to follow their best customers, thus creating a situation in which the rest of the market becomes underserved over times. This gap creates a foothold for new companies who tend to breach the gap at the low end and, over time, are able to leverage up, eventually taking the high end of the market too. What is often misunderstood is that disruptive innovation does not refer to making a market “better”, rather it refers to making a product, service or technology more affordable and thus much more widely accessible.

A classic example is Apple’s introduction of the personal computer which disrupted the computer industry and allowing the mass market to access computing that was, until then, only available to big corporations. Another recent example of this kind of disruption that Christensen cites is again Apple, this time with the introduction of the iPhone which disrupted the cellphone market (Nokia and Blackberry notably) and brought smartphones to a much wider public.

  • On site at the Christensen Institute of Disruptive Innovation

In the fall of 2015, I had the chance to visit the Christensen Institute during a learning expedition with the various MBA cohorts of the École des Ponts Business School and was impressed with the work they are doing on disruptive innovation in the areas of education and healthcare. Here is a brief video taken right after our visit:

During the visit we had a fascinating discussion on the future of education in a blended learning reality, as well as a discussion on how healthcare can be positively disrupted along the lines of Christensen’s theory. For those interested in exploring his work further, three books are worth reading:

The Innovator’s Dilemma

The Innovator’s Solution

The Innovator’s Prescription

  • Even disruption is now being disrupted!

What is interesting when considering Christensen’s work and model is that if we stick to the strict initial definition of Christensen et al there is actually not much disruption going on at all, despite what the media and Silicon Valley is trying to sell us. And, in fact, Christensen believes that the term has been abused to the point of referring, in popular terms, to any innovation that “changes an industry’s competitive patterns”. Uber, the disruptive innovation “poster child” of recent years, is not disruptive according to Christensen’s definition or framework.

As a result, authors/pundits like Robin Chase, who wrote an article in Harvard Business Review, in January 2016, calling to expand the notion of disruptive innovation to include AirBnB, Uber, Waze and Whatsapp, as well as any other start-up that “harnesses excess capacity” (homes, cars, GPS/internet and telco respectively). In other words, being much more open-minded about the notion of disruption. Which makes sense in the context of innovation, where disruption occurs.

This reminds me of Andy Kessler’s provocatively entitled book Eat People: Unapologetic and Game-Changing Rules for Entrepreneurs in which he explains how entrepreneurs disrupt markets and change the world by leveraging assets that have become almost free (the internet, computing power, telecommunications, …) to provide value “over the top” that people are willing to pay for. He not only saw disruption happening much more often and frequently than Christensen, but he also tried to decode the levers and drivers of disruption. In simple terms, leverage free to offer value!

  • Can’t we all just get along?

Taking a helicopter view on the question, I would suggest a new definition for disruptive innovation, one that is more in line with the popular understanding and use of the term: a disruptive innovation is any innovation that significantly changes the dynamics, customer behavior, business model, price structure, cost structure, and/or value proposition of any market.  According to this definition Uber is disruptive, but so is Amazon, Netflix, Facebook, Fitbit and Tesla. I, for one, am all for disruption, and a wider definition thereof. Maybe Christensen can find a narrower term for his approach, something along the lines of bottom-up disruptive innovation, allowing the rest of us to widen the debate and consider the various flavors of disruption – without worrying about the orthodoxy of the terminology.

So answering the question that is the title of this blog entry – “what is so disruptive about innovation?” – today both start-ups and established firms are looking to innovate in order to establish new market dynamics that can give them the only form of competitive advantage that is somewhat sustainable in today’s business reality. An innovation that disrupts the market and creates a new order is often the only innovation that holds the promise of competitive advantage associated with some form of defensibility. Often this is in the form of business model innovation, but not just. And this race to “disrupt” is one that benefits an increasingly wider public with new products and services, lower prices, increased value and a plethora of novelty.

  • So what does this mean for you?

So whether it is FinTech, EdTech, BioTech, NanoTech, platforms, intermediation, disintermediation, one-side, two-sided business models, or any other new arrival on the business horizon, go ahead and call it disruptive, or potentially disruptive, without worrying about semantics.

That said, understanding the debate, as well as the process that Christensen describes as “disruption” as compared to other dynamics of disruption, is worth taking the time to do. Understanding what disruption implies for start-ups and incumbents – in our age of disruption – is not only interesting but also a key strategic insight business leaders must master today.

 

So what do you think?

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