The New Disrupters

By entering the market with products and services that are every bit as good as those offered by legacy companies, a new breed of disrupters is making it harder than ever for traditional businesses to compete.

Reading Time: 16 min 

Topics

Disruption 2020

What will it take to innovate and compete over the next decade? These articles examine some of the biggest challenges companies will face, such as building the future workforce and identifying tomorrow’s disrupters. Included are contributions to MIT SMR’s special issue on disruption, published in memory of Clayton Christensen.
See All Articles in This Series
Buy
Already a member?
Not a member?
Sign up today
Member
Free

3 Free Articles per month, $6.95/article thereafter. Free newsletter.

Subscriber
$75/Year

Unlimited digital content, quaterly magazine, free newsletter, entire archive.

Sign me up

Image courtesy of Jing Jing Tsong/theispot.com

Clayton Christensen’s Theory of Disruptive Innovation first came to public attention 25 years ago. Christensen presciently explained that fast-moving disrupters entering the market with cheap, low-quality goods could undermine companies wed to prevailing beliefs about competitive advantage. In the last decade, however, the profile of disrupters has changed dramatically. The critical difference is that they now enter the market with products and services that are every bit as good as those offered by legacy companies. Their ascendance doesn’t undermine Christensen’s theory. In fact, they expand its reach and vitality — and make it harder than ever for traditional companies to compete.

The Classic Theory of Disruption

Before we look at how things have evolved, let’s briefly review why Christensen’s theory proved so influential and, indeed, disruptive to existing ideas of competitive advantage.1 Traditional strategy had been anchored on the notion of “generic strategies” in which a company could compete at the high end by differentiating, at the low end by pursuing cost leadership, or focus on serving a specific niche exceptionally well.2 Christensen illustrated a way for new entrants to cheerfully ignore these basic strategy dynamics. He showed how a new kind of dangerous competitor could wreak havoc by entering at the low end of a market, where margins are thin and customers are reluctant to pay for anything they don’t need.

The new entrant comes in with a product or service that’s cheaper and more convenient but that doesn’t offer the same level of performance on the dominant criteria that most customers expect from incumbents that have been working on the technology for years. The incumbents feel they can ignore the newcomer. Not only are its products inferior, but its margins are lower and its customers less loyal. Incumbents choose instead to focus on sustaining innovation — making improvements to the features that have been of most value to their high-end customers.

Christensen showed the downside of ignoring the newcomers. Eventually, as these upstarts improve, they become pretty good at the old dominant criteria. They also develop such solid innovations at the low end that they bring new customers into the market. Having doubled down on what has always worked, the incumbents fail to notice two things.

Read the Full Article

Topics

Disruption 2020

What will it take to innovate and compete over the next decade? These articles examine some of the biggest challenges companies will face, such as building the future workforce and identifying tomorrow’s disrupters. Included are contributions to MIT SMR’s special issue on disruption, published in memory of Clayton Christensen.
See All Articles in This Series

References

1. C.M. Christensen, “The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail” (Boston: Harvard Business School Press, 1997).

2. M.E. Porter, “Competitive Strategy: Techniques for Analyzing Industries and Competitors” (New York: The Free Press, 1980).

3. C.M. Christensen, M.E. Raynor, and R. McDonald, “What Is Disruptive Innovation?” Harvard Business Review 93, no. 12 (December 2015): 44-53.

4. W.A. Sahlman and H.H. Stevenson, “Capital Market Myopia,” Journal of Business Venturing 1, no. 1 (winter 1985): 7-30.

5. C.M. Christensen, T. Hall, K. Dillon, et al., “Competing Against Luck: The Story of Innovation and Customer Choice” (New York: HarperBusiness, 2016).

6. C.M. Christensen and D.C.M. van Bever, “The Capitalist’s Dilemma,” Harvard Business Review 92, no. 6 (June 2014): 60-68.

7. W. Lazonick, “The Curse of Stock Buybacks,” The American Prospect, summer 2018, 34-38.

8. Christensen et al., “What Is Disruptive Innovation?”

9. T. McEnery, “Like a Body on Life Support Fluttering Its Eyelids, General Electric Releases Quarterly Results,” DealBreaker, July 31, 2019, https://dealbreaker.com.

Reprint #:

61301

More Like This

Add a comment

You must to post a comment.

First time here? Sign up for a free account: Comment on articles and get access to many more articles.

Comments (2)
Eduardo Medina Gallardo
I love disruption. It is the only way to stay at your feet and walk on this new era.
James Bryant
The incumbents haven’t learnt what Tom Peters was talking about in the 1990’s: recreate yourself daily, become your own best competitor etc. Many big organisations think small- grind out the costs from the supply chain, down size work force, outsource, reduce footprint, rationalise costs. Is it their fault or the big consultancies that advise them- probably a mix. But what they don’t do is think like an an entrepreneur: they don’t take risk of the same proportion. They need to get upstream of their problems and reinvent for 5 years time not tomorrow. Thought and action leadership. Steady as she goes when you are the Titanic is not going to end well