Disruptive innovation can be a serious threat in today’s era of rapid change. Yet, it’s easy to overreact when potential disruption looms.
I’ve blogged previously about the danger of panicked responses to potential disruption, a post I wrote in late February 2013 when the March Harvard Business Review cover story stressed the urgency of responding to disruptive threats. Too much emphasis on the urgency, however, can contribute to misguided overreaction.
Now, Harvard professor Clayton M. Christensen, the architect of the theory of disruptive innovation, who popularized it years ago in his bestselling book “The Innovator’s Dilemma”, is addressing the misguided reactions to disruption and clarifying what disruption really means. In the December 2015 issue of Harvard Business Review, Christensen, Michael Raynor, and Rory McDonald wrote the article “What is Disruptive Innovation?: Twenty Years after the Introduction of the Theory, We Revisit What It Does—and Doesn’t—Explain”.
According to the article, since the theory of disruptive innovation has become quite popular, it is often misapplied and misunderstood. A pull quote featured in the article adds emphasis as it clarifies a crucial point: “Incumbent companies should not overreact to disruption by dismantling a still profitable business…” And, a boldface subhead in the article says: “The mantra ‘Disrupt or be disrupted’ can misguide us.”
It’s great that Christensen and his colleagues wrote this recent Harvard Business Review article clarifying disruptive innovation and discouraging inappropriate overreaction to it. In today’s rapidly changing world, where disruptive threats seem to be rampant, the article serves a real need and offers valuable guidance. Companies can suffer serious damage if disruption’s threats propel them to give up too soon on still viable businesses that they’d be better off continuing to nurture.
Yet, it’s easy to see why potential disruptive threats might trigger premature and misguided dismantling of a still profitable business. Spurred by rapid change as digital technology makes its mark in numerous industries, companies face new realities in their markets. The popular, but often misguided, mindset encourages companies to disrupt themselves before they are disrupted. Thus, conditions are ripe for fostering a powerful fear of disruption that might result in damaging highly viable businesses.
Businesses that are still profitable are especially vulnerable to harm from a panicked response to disruptive threats. But, panic is not an effective way to deal with disruption. Responding in a well thought out manner is important, even when the disruptive threat is very real, and may already be eroding an incumbent’s business.
Additionally, as pointed out in the December Harvard Business Review article by Christensen and his colleagues, it is not just whether to disrupt, but also the very definition of disruptive innovation that is widely misunderstood. As the article explains, Christensen’s theory defines disruptive innovation as something that starts by pursuing low margin or underserved markets. These areas generally do not interest incumbents, so the disrupters tend to be ignored. From there, the disruptive innovation gains momentum and eventually moves into a broader market where it threatens incumbents. Thus, according to the article, UBER’s threat to the taxi business is not actually disruptive innovation. As the article explains, UBER did not start with a low margin business, but instead went after taxi’s profitable customers, and does not fit Christensen’s definition of disruptive innovation.
As I see it, defining disruptive innovation relates to two separate components. The theory of disruptive innovation has an explanatory component that tells why and how disruption happens. But, since a theory’s value is enhanced when it can be applied, there may also be a practical, less theoretical component.
As a theory, disruptive innovation is excellent for explaining the way once dominant businesses can become dethroned. From an explanatory standpoint, start-ups that eventually disrupt often begin in low margin or underserved markets, thus escaping much notice before eventually broadening and threatening incumbents. So, defining disruptive innovation this way, as Christensen does, can solidify the theory’s capability for explaining how businesses are disrupted.
On the other hand, a broader, more literal definition of disruption may be more practical. Google defines the word disrupt as: to drastically alter or destroy the structure of. And, dictionary.com even offers a business definition of disrupt: to radically change (an industry, business strategy, etc.) as by introducing a new product or service that creates a new market.
So, from a practical standpoint, disruptive innovation could go beyond Christensen’s restrictive criteria and encompass competitive threats to the incumbent’s business, regardless of how the disrupter started. From a practical perspective, incumbents are concerned about threats from entities like UBER, even if the disrupter did not start in low margin or underserved markets meeting Christensen’s criteria for disruptive innovation.
Granted, a UBER-like threat might get noticed sooner than a disrupter that starts in less desirable markets. But, UBER-like threats can still leave incumbents reluctant to or incapable of readily matching the disrupter’s innovation. So, these incumbents’ challenges can be much like what occurs when disrupters do fit Christensen’s criteria for disruptive innovation.
Furthermore, consistent with defining disruptive innovation more practically and broadly, Fortune magazine’s 2015 list of Top Business People, which appeared in its December issue, apparently recognizes UBER as a disrupter. Fortune named UBER CEO Travis Kalanick as number eight on the list. Fortune includes disruption, along with money raising and a valuation reportedly near $70 billion, as qualities that vaulted Kalanick into the top ten. Thus, from a practical standpoint, UBER is being prominently recognized as a disrupter, even though the company doesn’t fit the more restrictive definition of disruptive innovation.
This raises the issue of whether the definition of disruptive innovation should be less restrictive than what Christensen’s theory calls for. From a practical standpoint, companies must respond to competitive threats regardless of their origin. As a practical matter, unfortunately, many businesspeople who could benefit from the application of a theory will not read everything published about it, and many practitioners might read little—maybe even nothing—about it. Thus, although the theory of disruptive innovation has a solid explanatory component, defining disruption so narrowly may limit its practical value. Nonetheless, in the Harvard Business Review article, Christensen and his colleagues make the case for not expanding their theory’s definition of disruptive innovation, pointing out that they considered, but rejected that option.
In summary, Christensen’s December Harvard Business Review article does a tremendous service by clarifying misperceptions about disruptive innovation. The article emphasizes the valuable point that companies should not dismantle profitable businesses for fear of disruption. Since that mistake is so easy to make, being forewarned by the article can be highly beneficial.
Yet, caution may be needed regarding the narrow, less practical definition of disruptive innovation. So, pay attention to disruptive threats whether or not they originate in the low end of the market. Remember that panic is not a solution to disruption. And, by all means, do heed the article’s advice not to dismantle a profitable business in the name of disruption.