IVAN RAPIN-SMITH

Happy 25th Birthday, Disruptive Innovation Theory

by | Jan 25, 2020

Clayton Christensen’s theory on why success is so difficult to maintain still stands strong…

In his 1995 HBR article and subsequent book, Clayton Christensen proposed a theory to explain why companies who were on top of their game were disappearing into oblivion. Those companies were lauded for their strong leadership. How could these same leaders let new entrants take away their market-leading position?

Christensen argued that it was precisely their strong leadership that was the problem. Management was, as they should, listening to the needs of their customers and investing in innovation that would deliver better and more profitable products to those customers. 

The unintended consequence of this focus was that companies who were building products that were (at least to begin with) inferior in performance and sold at low profit margins were not seen as threats. Therefore no resources were allocated to develop a response to those seemingly non-competing products. 

In the meantime, those new entrants were not standing still. As they improved on the performance of their products they were able to not only capture the dollars of their initial customers but were starting to move into the exact market segments the incumbents were serving. Once the incumbent realized that they now faced a true competitor, it was too late to react. Boom. The new entrant had created disruptive innovation.

Christensen then argued that the only way for corporations to avoid being disrupted was to set up separate organizations to focus on potentially disruptive technologies.

“It follows, then, that senior executives must first be able to spot the technologies that seem to fall into this category. Next, to commercialize and develop the new technologies, managers must protect them from the processes and incentives that are geared to serving established customers. And the only way to protect them is to create organizations that are completely independent from the mainstream business.”

Andy Grove of Intel helped propel Christensen into management thinker stardom when he appeared on stage of the 1997 Comdex trade show in Las Vegas. Holding a copy of the then just published book “The Innovator’s Dilemma‘ Grove said that it was the most important book he had read in 10 years. Intel successfully applied the theory to develop the low-cost Celeron chip for use in low end PC’s.

The theory became wildly popular in both the startup and corporate circles. 

In 2010, Christensen published a follow-up article to share some new insights and dispel some misunderstandings of his theory. 

One addition to the theory was that disruptive innovation always originates in either low-end or new-market footholds that are overlooked by the incumbents. Low-end market customers are happy to pay a lower price for a “good enough” product. New-market customers are happy to pay for a new product category that was not previously available to them.

The updated article also emphasized that disruption is a process that does not happen overnight which is another reason it can be overlooked by incumbents. Disrupting companies often also build business models that are different from established companies.

Christensen cautioned against the “Disrupt or be Disrupted” narrative: 

Incumbent companies do need to respond to disruption if it is occurring, but they should not overreact by dismantling a still-profitable business. Instead, they should continue to strengthen relationships with core customers by investing in sustaining innovations. In addition, they can create a new division focused solely on the growth opportunities that arise from the disruption.

Recognizing and responding to disruptive innovation is not always obvious. Even Clayton Christensen admitted that he was wrong when he predicted that the iPhone would not go anywhere. He saw Apple’s invention as a sustaining innovation of the cell phone and only later realized that it was disruptive to laptops. 

The theory of disruptive innovation is a powerful mental model is not to be treated as a unified theory of innovation.

“Disruption theory does not, and never will, explain everything about innovation specifically or business success generally. Far too many other forces are in play, each of which will reward further study. Integrating them all into a comprehensive theory of business success is an ambitious goal, one we are unlikely to attain anytime soon.”

Clay Christensen passed away on January 23rd 2020, twenty-five years after first sharing his theory of disruptive innovation. The idea still stands strong. It has inspired Startup founders to challenge established corporations and has opened the eyes of corporate executives on the importance of allocating resources to innovation initiatives outside their core business. 

Happy 25th Birthday Disruptive Innovation Theory and thank you Professor Christensen for dedicating your career to helping businesses figure out how to grow.

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