In technology news, “disruption” has become such a shorthand for innovation and nimble new companies breaking into a market that it’s often used as a synonym for innovation and new products. But is it?
Not according to Clayton Christensen, who first published on disruption theory and its relationship to innovation in a 1995 Harvard Business Review article. Twenty years later, the HBR published an update on disruption theory.
Some Innovators Disrupt …
The update clarifies what disruption theory means – and makes clear how much the widespread use of it frequently misapplies the term.
According to Christensen and his coauthors, a disruptive innovation arises in a context when a company is meeting the needs of its core customers, but still has a segment whose needs are not being met. This happens to nearly all companies; it is standard corporate behavior to focus on the customers who buy the preponderance of the products, not on the outliers who don’t.
However common this is, it creates a scenario where a group of customers is not being noticed. Think customers of the once-ubiquitous video store Blockbuster 15 or 20 years ago. They could get plenty of new releases immediately, but older classics or obscure titles weren’t always available.
Enter the original incarnation of Netflix, which offered a wider selection of titles. Customers forfeited the immediacy of walking into Blockbuster and grabbing what they wanted. (Netflix originally mailed out its products.) But it served those who had gone away empty handed from Blockbuster, plus those who may not have literally gone away empty handed but realized the advantages of being able to get any 1930s Alfred Hitchcock film once they knew it was available.
The case of Netflix also illustrates another key component of disruption theory. The disrupter likely goes into a not-very-well served or unserved market initially. Over time, however, they likely become able to aim products at their competitors’ core customers.
Netflix began to stream, which changed the several-days’ mailing time versus get-the-movie-right-away equation in favor of Netflix. Netflix broadened its holdings as well. Eventually, it became the go-to choice of film renters, and Blockbuster shrank to a shadow of its former self.
… Other Innovators Sustain
What about Uber, which is frequently cited as an epitome of a disruptive business? Well, according to disruption theory, Uber is not, in fact, a disrupter.
Why? Because disruption stems from a segment of un- or underserved customers, it often originates on the lower end of markets or among consumers who haven’t had a given product or service.
Early personal computers are an example. IBM and other mainframe computer companies sold to large organizations. The first PCs often required substantial effort on the part of its customers to build. In addition, however, they cost much less than business mainframes. They appealed to people who had not had previous access to computers.
The authors comment that Uber certain transformed the hail-a-ride business, but didn’t disrupt it. Uber users are generally those who used taxis or rental cars before Uber, so they were not un- or underserved. Disrupters don’t start with mainstream customers. Uber did, and moved to the un- or underserved only later.
Instead, Uber is a “sustaining innovator.” Sustaining innovators offer roughly the same products that were available before, but consumers perceive them as better in some way. In Uber’s case, the cost, convenience, and market penetration may well outweigh that of taxis. If Uber is running taxis out of business, it is due to those factors and not that the ride or its target population is substantially different.
Effective leadership requires differentiation between the two types of innovation, both to plan a new offering and to defend against the encroachments of one.