How does the landmark theory apply to tech start-ups, three decades after its introduction?
In 1995, the late and legendary Harvard Business School professor Clayton Christensen introduced his theory of “disruptive innovation” right here in the pages of the Harvard Business Review. The idea inspired a generation of entrepreneurs and businesses, ranging from small start-ups to global corporations.
Almost three decades later, debates have emerged around how the theory should be applied in the real world especially within the tech start-ups that have driven so much economic growth . RITA MCGRATH: Yeah. I think our common understanding of it was something that came out of R&D groups. It was like big product, big materials, big physical things, innovation. The classic would be like DuPont nylon. They invented this thing, that meant women didn’t have to spend hundreds of thousands of dollars collectively on silk stockings, and they had nylon riots. Literally, people were charging at these trucks with this revolutionary substance.
RITA MCGRATH: I think in our theory of innovation it was. I think the idea of really business model innovation to me, did not become a common topic of conversation really until the ’90s. Prior to that, it was really product-centric, I would say, innovation. Peter Drucker and people like that, talked a little bit about things like the advent of the knowledge worker and what the network society was going to mean, and that kind of thing but that was really early days.
They were about 14 months late or so later than they had anticipated. By that time, a competitor had essentially duplicated or had a product that was very similar, and the price premium that they expected to earn had vanished. In retrospect, I think looking back at this particular type of innovation, Clay later found in his dissertation that if you go directly against established incumbents, your chances of being successful are not all that great.
Then finally, he gave names to phenomena that were familiar, particularly to businesspeople. He called the trajectory of innovation that is far and away the most common, he called that sustaining innovation. Any company that wants to be in business for any length of time, had better be really good at that. He called that trajectory underneath the existing incumbents; he called that disruptive innovation.
AMY BERNSTEIN: Rita, Clay brought this idea to a much broader audience through HBR and through his book, The Innovator’s Dilemma. Tell us how that was received. AMY BERNSTEIN: That’s exactly when I remember becoming familiar with it for the first time. I’d forgotten that. Thank you for that. Felix, why do you think the idea struck a chord? Why did the book finally take off, the idea finally take off? What was happening at that time?
AMY BERNSTEIN: Derek, was that paranoia that Andy Grove was pushing? Is that what made the idea so relevant to businesspeople or what was it that made it resonate? RITA MCGRATH: I think the uptake happened in industries that were being challenged so automotive, for example. The advent of really inexpensive but super, high-quality, smaller cars in the ’70s and ’80s, had completely freaked that industry out. They glommed onto this theory as, “Oh, they were low-featured, they weren’t as good on the dimensions of merit that we’d previously competed on.” But the disruption theory gave the incumbent Big Three car makers an out.
AMY BERNSTEIN: Did everyone embrace this theory when it finally took off? Or were there some who said, “No, that’s not making sense”? Were there critics? There’s 15 ideas around the corner that go nowhere. How am I to pick the one that I should really pay attention to? That explanation is much more disquieting, I think, and hard to live with because it doesn’t really tell you what you can and what you cannot do. It replaced that with an explanation that said, “Yes. Of course, it’s bad luck someone else had a really promising idea, but your incentives were actually not to respond in the first place.
That disruption theory was still under construction, absolutely fit Clay’s worldview. It wasn’t so much that businesspeople criticized the theory. I think the academy had a really hard time with it, in part for the reason that Felix is mentioning.
So something like mRNA virus chains and discovery, all kinds of discoveries. He called them loonshots because it wasn’t obvious that they were economically viable. But his argument would be very often what turns into a disruptive technology, is actually a bunch of people pursuing what they think is a sustaining technology. It ends up through the twists and turns that discovery takes, it ends up actually being completely disruptive.
You can maintain perhaps a smaller but a financially super, super successful business. The idea of being disrupted, is not so much the disruptor has to, I don’t know, go bankrupt. Or it’s like it’s only really disruption if it looks like Kodak.AMY BERNSTEIN: Rita, what was it about the way that Clay communicated that helped spread his ideas?
AMY BERNSTEIN: Coming up after the break, we’re going to explore how the common perception of disruption is drifted from its original meaning. What lessons are there for us today? Stay with us.. I’m Amy Bernstein. Felix, let’s pull the camera back a little bit. How has Clay Christensen’s theory of disruption changed the way we think about strategy and competition?FELIX OBERHOLZER-GEE: Well, in a way, the idea is almost a victim of its own success, so disruption is anywhere.
They wanted to be Blockbuster’s online arm, and Blockbuster laughed at them. Literally laughed at them and said, “Get out of my office. What are you people? You’re a four-person dingbat operation, and we’re supposed to take you seriously?” That’s one of those stories that gets misunderstood. Kodak’s another one. The guy that sank Kodak had been running the printing business at HP. Lost out on the CEO race to run things at HP.
It may be that the providers of products and services change, revolve over time, but consumers benefit because there are more and more people who are available to consume products that are less expensive, more convenient, et cetera.FELIX OBERHOLZER-GEE: One of the really big additions was to distinguish between different types of disruption. We just talked earlier about the low-end entry, the low-end foothold that I think was very much on Clay’s mind when he first wrote about disruption.
AMY BERNSTEIN: For the businesses that are trying to avoid being disrupted, Rita, what’s the best advice out there for them? DEREK VAN BEVER: Yeah, pretty simple advice. Keep your cost structure low so that you’re able to exploit opportunities that are uninteresting to incumbents, too small, too remote, and target non-consumption. Don’t go after customers that they value, but rather go after segments that they’ve dismissed. The brass ring is if you can go after a segment that they’ve dismissed and they look at you and they go, “They just don’t understand this business.
How is it that leading company back then, that now ADT is serving homeowners, but renters are afraid maybe, or have a willingness to invest in home security as well. They built the company, literally built on the principles that she learned in the classroom. That yes, it’s a little less convenient, you don’t have someone who comes by your house and installs the equipment. You have to do that yourself, and so on, and so on. Then it turns out renters were just not really all that interested.
DEREK VAN BEVER: Felix, you’re reminding me, Clay, when he was in the classroom, he would take that big index finger of his and he would go, “Where do you stick it?”DEREK VAN BEVER: His frustration was that companies would always try to stick it underneath the division that it is effectively disrupting. You know how that story ends, right?DEREK VAN BEVER: Where it’s, “Oh, we’ll take care of this. Don’t worry, we’ll make sure that this grows just as fast as it should.
AMY BERNSTEIN: Let me throw out a question to the whole group here. Where do you all think our understanding of disruptive innovation is headed? What future are we looking at? I’ll go around the horn here. I’ll start with you, Rita. And yet, most managers aren’t taught it. If you think about the lifecycle of a competitive advantage, it has to come from somewhere. It has to come from an innovation or an invention, or an idea or something. Then you have to scale it, which is getting it into the business. Then you have this delightful period of exploitation, where you get to enjoy the fruits of your labor. That’s what we teach people.
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