Magazine Fall 2015 Research Feature

How Useful Is the Theory of Disruptive Innovation?

Few academic management theories have had as much influence in the business world as Clayton M. Christensen’s theory of disruptive innovation. But how well does the theory describe what actually happens in business?

Andrew A. King and Baljir Baatartogtokh Reading Time: 35 min 

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The turmoil of business competition has often been likened to a stormy sea. “Gales of creative destruction,” economist Joseph Schumpeter wrote, periodically sweep through industries, sinking weak and outdated companies.1 In the mid-1990s, the winds of change appeared especially powerful, threatening even some of the strongest businesses. Enter Clayton M. Christensen, a professor at Harvard Business School who is now considered one of the world’s leading experts on innovation and growth. In his 1997 book, The Innovator’s Dilemma, Christensen provided an explanation for the failure of respected and well-managed companies.2 Good managers face a dilemma, he argued, because by doing the very things they need to do to succeed — listen to customers, invest in the business, and build distinctive capabilities — they run the risk of ignoring rivals with “disruptive” innovations.3

Christensen’s theory of disruptive innovation has gripped the business consciousness like few other ideas. In a review of enduring business books, The Economist called the theory “one of the most influential modern business ideas.”4 Other commentators have noted that the theory is so widely accepted that its predictive power is rarely questioned.5 The theory’s influence has spread far beyond the business world. Christensen and his associates have proposed disruption as a framework for thinking about vexing social problems such as poverty, lack of access to health care, illiteracy, and unemployment.6 The theory, or variations thereof, has been used in so many settings that Christensen himself has expressed unease with some of the ways the theory is being applied. In an interview with the editor-in-chief of the Harvard Business Review, he said, “I never thought … that the word disruption has so many connotations in the English language, that people would then flexibly take an idea, twist it, and use it to justify whatever they wanted to do in the first place.”7 So, what is the right way to use the theory of disruptive innovation? What are its core elements, and how predictive is it? We decided to examine these questions by taking a closer look at the theory.

Our first discovery was that, despite the theory’s widespread use and appeal, its essential validity and generalizability have been seldom tested in the academic literature.

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About the Authors

Andrew A. King is a professor of business administration at Tuck School of Business at Dartmouth College, in Hanover, New Hampshire. Baljir Baatartogtokh is a graduate student at the University of British Columbia in Vancouver, British Columbia.

References (92)

1. J.A. Schumpeter, “Capitalism, Socialism, and Democracy” (London: Routledge, 2003, first published in 1942 by Harper Perennial); and J.A. Schumpeter, “The Theory of Economic Development: An Inquiry Into Profits, Capital, Credit, Interest, and the Business Cycle” (New Brunswick, New Jersey: Transaction Publishers, 1934).

2. C.M. Christensen, “The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail” (New York: HarperCollins, 2003, first published in 1997 by Harvard Business Review Press).

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Comments (2)
Travis Barker, MPA GCPM
These findings indicate some cause of optimism for startups and new entrants who are interested in entering new markets.  Taking the perspective of startups in mind, the following 11-insights can be incorporated into the stages of idea generation, customer development, customer validation, and product/service launch:

#1 Not Exceeding Expectations: Focusing on customer needs may present an opportunity for a new entrant to provide a simpler product that is better matched to the target customer's needs

#2 Exceeding Expectations: Overshooting the incumbent's business model may also provide an opportunity to target customers currently not served well by existing products or services.

#3 Lower Level Innovation: Targeting lower innovation targets may present an opportunity to enter a market while the incumbent focuses on their more lucrative customers, leaving the incumbent exposed.

#4 Customer Development Focus: Sustained innovation is more effective for some models than disruptive innovation when the business continues to engage and map out the customer's evolving needs to the product/services changing specifications. 

#5 Technology Adoption: Keeping up with the industry's technology, changing skill sets, and competencies presents as a challenge to incumbents dedicated to their existing business model. There are instances where adopting new technologies is essential to increasing efficiencies and providing added customer value. There are also examples where this is not true. Aligning technology acquisition with the business' core competencies and customer needs is key. Exceeding these can be costly. 

#6 Exit Planning: It is not always advantageous for incumbents to challenge disruptive innovation head on, particularly if the incumbent is unprepared to change their business model. Instead, exiting the market niche or refining the business' target (and reallocating unused resources to other projects) may be justified. 

#7 Culture: Creating a culture of change, agility, and disruptive innovation can strengthen the business' ability to compete, challenge, and gain traction in a new market. In contrast, legacy architecture will increase exposure to being undermined by new entrants. 

#8 Scaling: Business models that require a certain scale in order to be profitable can limit market entrants.

#9 Agile Business Model: When it comes to disruptive innovation, there is no one-size-fits-all explanation of where the challenges may surface. Business models that have the necessary competencies to adapt, both forwards and backwards, based on changing (or clarified) customer needs are better able to respond to market challenges.  When it comes to disruptive innovation, there is no one-size-fits-all explanation of where the challenges may surface. 

#10 Disruptive Elements: These change over time, and depend on understanding customer needs, industry evolution, 

#11 Rate/Type of Innovation: The model of disruptive innovation recommends exceeding the customer's expectations, which particularly makes sense as this can help engage some of the market's most valuable customers. But alternative product/service configurations remain essential to serve the rest of the market as well; only offering product/service offerings that exceed existing needs can relinquish market control to new entrants that are willing to provide lower level product/services. 

Utilizing many of the principles advocated in Steve Blank's customer development model, and tools available in the Lean UX field, new businesses are able to disrupt incumbent's hold on the marketplace through iterative innovation from the ground up. According to the research, incumbents have been found to be less likely to respond to attacks on lower value areas of the market and thus often miss the opportunity to protect themselves from future disruption as the new business gains stronger footing. This stronger footing can be achieved through disruptive innovation or exceeding customer's needs; but the research finds examples where neither of these was required to undermine incumbents.
 
The research indicates that examples of new business' ability to undermine an incumbent through lower innovation was enhanced when new business model characteristics were introduced; when the incumbents existing patents, trademarks, and projected intellectual property  limit the incumbents ability to respond. This refers to the known but basic premise that an incumbent's over-commitment to their business model can actually become a weaknesses that constraints their ability, and willingness, to respond to new entrants. In contrast, new technologies are not disruptive if incumbents are able and willing to respond.

As mentioned at the beginning of this response, the business' culture will determine what opportunities are exploited and those that are missed. Business' must continue to identify products and services that play to their strengths, while identifying changing needs, and seeking to build the technologies and competencies (both new & existing) to serve those needs. Disruptive innovation is not always about providing new product/service offerings that exceed what is currently available. It is more about understanding the market, the customers served, building upon your strengths, and exploiting your competitor's vulnerabilities.

Travis Barker, MPA GCPM
Innovate Vancouver
Harry Hawk
Re: The Yellow Pages businesses lacking the ability to innovate; they clearly had highly innovative tech and could have offered a variety of directory like services. 

Run by the RBOCs were barred from entering the information services marketplace. They had the data, they had the data in database(s), they had the technology (modems, Unix, etc).

As early as the late 1970's, and throughout the 1980's they could have offered these services on personal computers, and via telephone terminals through interactive voice response (IVR).

Pre and Post divestiture, online databases of phone numbers, businesses, addresses, services, and other data would have been disruptive. A case could be made that these databases would have evolved into directory services like Yahoo. These data services could have been connected to existing online services including The Source, The Well, AOL, Compuserve, independent BBS systems, Etc.   

As early as 1983-1984 there existed the commercial ability to offer two way data through cable systems. RBOCS could have partnered with independent cable systems and been highly innovative.