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What is Disruptive Innovation?

2009 August 23

Can your company be Disruptive?  A lot seem to want to be.  In the hypercompetitive digital world everybody is looking for an edge and being “Disruptive” sounds like a good way to be clever and beat the competition.

The term is used (or overused) usually to show that one is “thinking outside the box.”  Yet Disruptive Innovation isn’t about being wily or cunning, it is about passion and privation. Companies who seek it should be careful what they wish for.

When Clayton Christensen coined the term “Disruptive Innovation” in his classic book, The Innovator’s Dilemma, he had something very specific and counter-intuitive in mind. It challenged previous assumptions about how business works.

He named it aptly, because Disruptive Innovation isn’t about being clever at all, but presents firms with some very difficult choices.  As a matter of fact, if you’re an established company, the competitor you drive crazy might be yourself.

Why Do Successful Companies Fail ?

What Christensen set out to learn was, “How can great firms fail?”  As a newly minted professor at Harvard, he wanted to find a common problem and prescribe a solution.  He researched companies like Sears, DEC, and Xerox – all paragons at one time that eventually became well publicized laggards. His initial assumption was that these companies had somehow lost their way, but what he found was that they were actually following time-tested and honored principles.

They had great management: All of the corporations mentioned above were not only market leaders, but had competent, professional management.  Their leaders were hailed as innovative geniuses and graced the covers of top business magazines.  They were smart, disciplined and well versed in the latest management practices.  They were asked to speak at top business schools and other CEO’s sought them out for advice.

They listened to their customers: The companies he studied didn’t have their heads in the sand.  They met with customers regularly, listened to what they had to say and then strove to make products to meet their needs.

They spent heavily in R&D while relentlessly pursuing profits: The failed companies that Professor Christensen studied were not content with the status quo.  They invested aggresively in the newest technologies and even pioneered innovations.  They constantly sought not only to grow revenues, but profits and for years they delivered superior returns to their shareholders.  These firms were fierce competitors!

A Surprising Answer

Obviously there was something counter-rational going on.  How can well managed companies, the ones that did all the right things, fail so miserably and so fast?  He found that just a few years after these companies were widely heralded business press darlings, they were just as widely panned for being foolishly mistaken on obvious trends.  What had happened?

The answer he found was startling.  These once great firms didn’t fail because of what they did wrong, but because of what they did right!  They listened to their clients, invested heavily in the future and vigorously pursued above average profit margins.  They, in effect, did everything that his own institution had taught students of business to do for generations!

What happened is that they fell prey to Disruptive Innovations.  However, these innovations weren’t disruptive just because they made big enterprises fail.  They all followed a specific pattern.

What Makes A Company Disruptive?

Professor Christensen discovered that in certain situations, firms revolutionize a market by pursing unusual business practices:

They make products that aren’t good enough for existing customers:  One of the most shocking things that he found was that established companies miss out on Disruptive Innovations because they listen to their customers and give them more of what they are asking for.  Remember the weird people who bought digital cameras when they were expensive and didn’t take good pictures?  How could Kodak make money in what was a niche market when their customers were asking for better film?

Professor Christensen makes the point in a paradox:  The most money is to be made where the product isn’t good enough, once it is, it becomes a commodity and profits fall.  Business schools teach that successful firms should seek profits, so entrenched companies are happy to cede these lines of business to new competition.  However, as the technology improves, the new firms advance further and eventually traditional firms have no place to retreat to.

There is no profitable market for what they are offering: If there was a current market for the “Next Big Thing,” it would actually be the “Current Big Thing.”  Established companies with big R&D budgets and large, effective sales forces would have a clear advantage in this type of innovation.  Christensen calls it a “sustaining innovation” and it goes on all of the time.  Big companies are actually extremely good at it.

Disruptive Innovations are so difficult for established companies to pursue because there is no money in them.  However, the opportunity might be big enough for a small company and then as the technology improves, you have the “Next Big Thing.”

It can’t make money in the conventional way: A Disruptive Innovation represents a fundamental shift in value that requires a change in the way business is done (remember, Kodak made their money in film, not cameras).  You can find fairly extreme (and exciting!) examples of this in Chris Anderson’s new book Free.

Do You Really Want to Pursue Disruptive Innovation?

So if you want to aspire to Disruptive Innovation you will need to think of something that doesn’t work very well, has no market for it and no clear path to profitability (as Google did when “Search was dead”).  That takes passion.  If there are big budgets, nice offices or fancy cars in the parking lot, it probably either isn’t disruptive or it won’t be successful.

Nevertheless, the term “disruptive” has become so fashionable that even self styled “experts” are confused about it.  A few years ago I attended a publishing course at Stanford University and a woman was giving a lecture on Disruptive Innovation.  I asked her whether she was referring to the term in a general sense or using the Christensen term specifically.  To which she replied, “Both.”

I was annoyed at first but then I thought, “Hey, she’s not a very good speaker, people aren’t interested in what she is saying and she’s not getting paid for this.”  Maybe she’s got something there…

-  Greg

30 Responses leave one →
  1. Katya permalink
    August 24, 2009

    Thanks, now I see why our company owners don’t bother to go through trial and error but want to have next big thing right away :)

    [Reply]

  2. August 24, 2009

    Uh…first thing is that I can’t believe that I’m just now finding out about this blog. I thought I subscribed to everything under the sun…but your stuff is good. I was pleasantly surprised.

    Second, your final points were the most critical…the term “disruptive” is so overused that everyone kind of misses Clayton’s point. Disruptive innovations which focus on specific needs of a small niche that later become everyone’s need are very hard to spot.

    Additionally, they are really only visible in hindsight after the technology full takes over. Whenever I think about this, I always have to wonder if firms should be working on R&D or if they should just acquire everything under the sun.

    Going to flip through the rest of this blog, I am excited with what I see. Ciao

    [Reply]

    Greg Reply:

    Ben,

    Thank you for your comment and your kind words and your right about my point: Christensen used the term “disruptive” to describe a specific class of activity not as a value judgement.

    However, I do want to quibble with the idea that disruptive opportunities can only identified in hindsight. Christensen gives clear criteria for identifying disruptive opportunities, including:

    1. Over-served market where functionality surpasses actual need.
    2. Non-consumers who would accept lower functionality for other attributes, such as service, price, convenience, etc.
    3. An innovation which would be disruptive to all incumbents (i.e. not sustaining to any).

    Again, thanks for your very kind words.

    - Greg

    [Reply]

  3. Olena permalink
    August 25, 2009

    A lot of examples like Google can be made. The question is how many of these ” disruptive innovations” failed? There’ re always two sides of the coin.

    [Reply]

    Greg Reply:

    Olena,

    It’s a good point. Most disruptive companies probably do fail. It takes a lot of passion to stick with an idea long enough to be successful. Many companies who actually develop the disruptive idea aren’t the ones who make it a success (Overture and Google are a great example).

    There is a formal name for it – “The fallacy of confirmation.” We tend to value higher information that we can confirm (as well as that is most recent). It is also valid point regarding social networks. (See here)

    Thanks for your comment.

    - Greg

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  4. August 25, 2009

    Trial & error, focus groups, etc., are exactly what does not work. Thinking that the next big thing come right of of the box– pretty unlikely. That is the hard part. It can start out very ugly and not fit in any definition that makes sense in an existing business. That can kill any trial before you discover what it may be teaching.

    [Reply]

    Greg Reply:

    Absolutely!

    [Reply]

  5. T A Balasubramanian permalink
    September 12, 2009

    Greg

    Excellent insight into the true implications of ‘disruptive innovation’.

    “Many companies who actually develop the disruptive idea aren’t the ones who make it a success.’

    I’m wondering if a company can actually minimize the chances of failing if they look around at ‘failed or non-firing ventures’ abandoned by others and build on the lessons from the ‘hobbled pioneers’ rather than go headlong into unknown territory.

    [Reply]

    Greg Reply:

    T A,

    Yes, I think that would be a very good idea for any company.

    - Greg

    [Reply]

  6. September 12, 2009

    Hi Greg,

    A couple disclaimers up front: I only skimmed your article and I haven’t read “The Innovator’s Dilemma”. But I HAVE read “The Innovator’s Solution”.

    And yes, a disruptive innovation is one that isn’t good enough for the existing customer. BUT it is more than good enough for people that couldn’t afford to be customers at the state of the art.

    India’s Tata auto. OpenOffice. Linux. The good ol’ Apple ][. For someone who couldn’t afford a car, Microsoft’s latest bells and whistles, or a Cray supercomputer, all these items, while woefully inferior at the time, delight(ed) customers–who couldn’t afford the dominant product.

    That’s the key to disruptive innovation–find yourself a product or service that has been around for some time and is established. Don’t try to compete directly with them. Do something quicker, simpler, and cheaper to get customers.

    Then move up-market as quickly as you can.

    Anyways, thanks for the article and thanks for letting me get on my soapbox for a second or two.

    [Reply]

    Greg Reply:

    Steve,

    In many ways, “The Innovators Solution” is better. It’s more polished and clearly written. “The Innovators Dilemma” is more rigorous and gives a much better account of how he came up with the theory.

    Thanks for your comment. It is also polished and clearly written as well as being true:-))

    - Greg

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  7. Spam Sorenson permalink
    September 25, 2009

    What is your point?

    Is this a book review of bullet points? Seems as original as wonder bread. Certainly didn’t capture my imagination.

    Disruptive is by definition disruptive. I deal with folks who think they are original by asking me to clone another ‘with a button or feature’ nothing new, and it is every day. What most see as disruptive is simply a clone with a scar and it comes with a “See, its unique” but it isn’t. disruptive is imaginative not plagiarizing someone else.

    Disruptive means that the disruptive technology doesn’t exist and it is not a rehashing of existing books. Glad you read the book, I did, glad you found it motivating. But what, pray tell, is new or disruptive about your post?

    [Reply]

    Greg Reply:

    Thanks for your point of view. Very original.

    Good luck with the buttons!

    - Greg

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  8. October 8, 2009

    Christensen book is a classic, and you did a great job in distilling the gist of his canon.

    Unfortunately most of Christensen’s ideas were borrowed from the grand daddy of technology diffusion Everett M Rogers. While The Innovator’s Dilemma handsomely frames the conversation with tangible examples, Roger’s Diffusion of Innovation remains the seminal work on this subject.

    Lawrence Johnson
    http://www.indextree.com

    [Reply]

    Greg Reply:

    Lawrence,

    Thank you. I’ll pick it up.

    - Greg

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  9. October 25, 2009

    It is quite astonishing that business school gurus, especially in America, can claim to formulate new concepts that are quite old. The concept of “disruptive innovation” was formulated 100 years ago by Henry Ford who said “all my customers would have told me that they wanted a faster horse, so I didn’t bother to ask.” The techniques of “innovative disruption” are called “establishing a bridgehead” in military training manuals that have existed at least since Naopleon’s time and probably even longer.

    I have worked in forecasting and innovation for 45 years. I think I make fewer mistakes than most. One reason is that I mistrust all gurus. Better to ask lots people – and not just customers – what they would like to buy if only it existed. And instead of counting replies, figure out if the most outlandish requests can, with time and money, actually be developed and delivered.

    Quantitative methods have always failed to spot trends until they are well established, not to speak of big opportunities that are not yet on any market or even on the drawing boards. One day some academic may actually notice.

    [Reply]

    Greg Reply:

    Roy,

    It’s an interesting question. I guess the answer is that people continue to study business after Henry Ford for the same reason that people study Physics after Einstein or Genetics after Watson & Crick.

    There are some people who are interested in expanding human knowledge, and I am thankful for them.

    - Greg

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  10. October 26, 2009

    Great post Greg,
    I was a bit taken by your assumption that disruptive innovation means a disruptive company. I do not necessarily think so. I totally agree with you on the premises that disruption comes from a deep need to make up for weaknesses (bas products, bad market, bad business model…) but think that it can be integrated in a global strategy or vision.
    I just blogged about that: http://www.debaillon.com/2009/10/the-zen-of-co-creation/
    My best,
    Thierry

    [Reply]

    Greg Reply:

    Thanks Theirry,

    Integrating disruptive innovation is notoriously difficult, but you’re right. It can be done.

    - Greg

    [Reply]

  11. John permalink
    November 28, 2009

    Hi Greg,
    Based on your comment:
    Christensen gives clear criteria for identifying disruptive opportunities, including:

    1. Over-served market where functionality surpasses actual need.
    2. Non-consumers who would accept lower functionality for other attributes, such as service, price, convenience, etc.
    3. An innovation which would be disruptive to all incumbents (i.e. not sustaining to any).

    Would the Apple iPhone then count as disruptive innovation?
    There is/was definitely an over supply of mobile phones, many with complicated features that people did not want or use.
    While the iPhone does have the capacity to run complicated applications, by customising the interface it can be kept simple. Also the touch screen interface is intuitive and attractive to people who are overwhelmed by too many buttons/menus/features.
    The phone itself was disruptive to all incumbents with competitors having to create similar phones to combat the iphone and keep their market share.
    What do you think?
    John

    [Reply]

    Greg Reply:

    John,

    It’s an interesting question, but I don’t think Apple is a disruptive innovator. They create premium functionality and charge a premium price. That makes them a very, very, good innovator, but not a disruptive innovator.

    In effect, they do disruptive the marketplace, but not the business model. They just force everybody to catch up with them.

    - Greg

    [Reply]

  12. Raghu permalink
    December 3, 2009

    Hi,

    An informative post. Just happened to read. Is the disruptive innovation is restricted only to manufacturing or services? Can it not be applied in say infrastructure? Just wondering.

    While in the media segment in the creativity domain this may work wonderfully (vodafone ad with the Pug, for instance) , why it is not seen often even in established companies? Are they are wary of this phrase or not acknowledge it?

    [Reply]

    Greg Reply:

    Raghu,

    No, it applies to all industries – discount stock brokers and tax accountants for instance who disrupted the marketplace by targeting people who were over-served by conventional models.

    It’s actually very tough for established companies to continue to service their current customers and also target over-served or non consumers.

    - Greg

    [Reply]

  13. December 5, 2009

    Disruptive technology is a powerful term when you’re trying to appeal to investors. It’s also a great buzzword for sales pitches & marketing communications vehicles. As a consequence, it may be overused. However, the outstanding companies that are well-managed, etc. — those that become obsoleted by “disruptive technology and ideas are largely those who have the market move from under them, and can’t or don’t adapt to that change.

    Buggy whips are a common example. Sears built its reputation and customer base on rural lower-income people who found it convenient to order from catalogs. WalMart took this market from them, but wouldn’t have succeeded as greatly as they did if Henry Ford hadn’t started making a auto for the masses.

    Sears didn’t react because their well-trained and s(t)olid management misread the situation. The same is true with Big Blue and PCs. They didn’t want to soil their hands and have to grub in the commodities type of marketing. The market is the same all over. Some of today’s highly respected giants will lose their luster and market share. It’s inevitable. It’s business. Neil Mahoney

    [Reply]

    Greg Reply:

    Neil,

    As always, thanks for your input.

    - Greg

    [Reply]

  14. June 1, 2010

    Do You Really Want to Pursue Disruptive Innovation?

    So if you want to aspire to Disruptive Innovation you will need to think of something that doesn’t work very well, has no market for it and no clear path to profitability (as Google did when “Search was dead”). That takes passion. If there are big budgets, nice offices or fancy cars in the parking lot, it probably either isn’t disruptive or it won’t be successful.

    I’m in it as inventor, and prototyping some things I believe in, but as you said, I am pennyless and creditless in front of traditional business.

    Still I know I’ll knock them off, sooner or later. But I need help, I need management, I need funds, and I need friends, and above all I need to stay alive.

    I’ll make it, I promise.

    [Reply]

    Greg Reply:

    Thanks Emil.

    Best of luck to you!

    - Greg

    [Reply]

  15. June 1, 2010

    Luck has notihing to do with, Greg, passing the vision instead, has to do a lot.

    If one fails to pass the vision to the investors, than the market will wait in vain for that solution with their cash in hand, that’s it.

    Or said better, it is not luck that I need, it is you!

    Look here

    http://www.youtube.com/user/valdemoneghe
    This is my personal youtube channel
    get in, you will see the last uploaded video in the middle
    on the right they are the 3 last ulpoalded videos in a frame, and beneath them is the “more” link, click it
    you have thus access to all the uploads I did, look at them, they are examples of my projects in Autocad shown as films, or other projects I did.

    And than think if there is any way you could be of help, a referral, or a question, anything that gives imput in any manner is welcome!

    Even a curse, if that’s pushing me ahead of an inch.
    .-= Emil Pop´s last blog ..Banks are crap! =-.

    [Reply]

    Greg Reply:

    Emil,

    Unfortunately, YouTube is blocked in Turkey, but I wish you luck anyway:-)

    - Greg

    [Reply]

  16. June 1, 2010

    Not as blocked as they want it too, I have the solution, if you need it!

    Two way satelite internet, you pay in UK, and behave like in the UK in all the nordic emisphere, some 45 euro a month (if I do remember well)

    Send me your e-mail through Linkedin mail and I’ll find those attachements wherever I should of put them, and forward them to you.

    Remember this is a friendly token of mine, I make no money on it, but I do it to beat the turks, chineese or whosoever else fears Youtube or other informations channels.
    .-= Emil Pop´s last blog ..Banks are crap! =-.

    [Reply]

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