Stop Reinventing Disruption
These days, the term disruption is greatly overused. And unfortunately for the strategists and investors seeking to apply the theory's brilliance, even the pundits seem to get it wrong.
Over the course of the past few weeks, two articles crossed my desk touching on this issue. Both articles espoused slightly new definitions of disruption, expanding the categorization of the world that Clay Christensen introduced us to more than 20 years ago. One of the articles reached millions of readers through one of the internet's most respected technology blogs. The other article reached executives around the globe through publication in the HBR's print magazine. The similarity between the two: both articles hinted at a sort of "high-end" disruption. Where we've traditionally described disruption as the slow climb of scrappy start-ups offering cheaper, lower performing products through models that look unprofitable to the incumbent firms they are attacking, both of these authors argued for a classification of disruption that captured innovative offerings that were superior to existing products.
Simply put, the argument for "high-end" disruption is a bad one. Not only does it create complexity where none is needed, but it also misses the point of disruption itself.
Disruption is an answer to a seemingly paradoxical question: "Why do the best resourced firms, with well trained employees, access to distribution channels, and funds, fail time and time again when combated by scrappy start-ups?" Two decades ago, Professor Christensen realized that more often than not, the innovations that displace these giants were those that offered cheaper, lower performing products and services in ways that incumbents found unprofitable. Incumbents were happy to walk away from these offerings. If integrated steel mills had built mini-mills to compete with their disruptors, their margins would have been compressed as they fought for share at the bottom of the market. If retail pharmacies had immediately embraced 90-day mail programs, they would have expedited the cannibalization of their existing business. If Dell, HP, and Lenovo had pushed netbooks and tablets in the early 2000's their profitable PC businesses would have suffered.
Disruption is a story of rational responses to a changing environment. It's the sensible retreat from your low margin business towards your more demanding, more profitable customers. At least, it's a sensible retreat until you recognize that you've given away your business and there is nowhere left to run.
If a start-up starts launches a better product, at a higher margin, to an incumbent's best customers — that's not disruption. That's just...innovation. Disruption shouldn't be a term used to describe any successful innovation. If it is, it loses its significance. So the question becomes, why do people get it wrong so often?
Often when pundits suggest the presence of "high-end" disruptions, what they're really witnessing is a very effective disruption by a better alternative. The case studies offered in both of the articles above are good examples of this — cell phone GPS apps and Uber. Both are fantastic disruptive innovations, but they're easily explained by Christensen's initial, simple model — you don't need to invent "high end disruption" to explain them.
It's tempting to use examples like these to justify this "high-end" disruption idea. After all, both services are now far superior to the offerings they have displaced (TomTom, towncar companies) and both are used by "high-end" customers — people wealthy enough to afford smartphones and, in the case of Uber, pretty expensive taxi rides. But if you look deeply you can recognize the flaws in that logic. Take for instance, GPS mapping on cell phones. Initially, cell phone guidance was pretty crummy when compared with the GPS systems offered by Garmin or TomTom. Apps lacked voice navigation, dynamic user interfaces, and drew on limited data plans. And though eventually they passed their competitors, it took years. It wasn't a case of high-end disruption, but classic disruptive innovation: start with a barely-good-enough product that captures consumers too cheap to buy the existing, expensive product, then make it better and better until one day, it's as good as, or better, than the incumbent product.
High-end disruption is an impossible proposition, because when innovation yields a premium product, firms can rationally respond. They can charge more, cover their costs, and adapt. And disruption itself represents exactly the opposite scenario. It's the rational retreat from an entrant with an extendable core advantage (we addressed in our December HBR article, "Surviving Disruption"). It's the paradox that plagues managers of successful firms, tempted to make all the right decisions, right up until they're flung off a cliff.
The pace of disruption is changing. But the path of disruption is not.
Initially, Christensen claimed that the disruptions he observed occurred over the course of 10-30 year cycles. His assertion stressed how much foresight was required to engage in the self-disruption that so few corporations tended to perform. However, when Professor Christensen suggested that disruption occurred over this time-frame it was 1992. And not even he could imagine the pace of information exchange today. It took decades to build national businesses and truly global businesses were a relatively new phenomenon, brought about by an IT revolution. Today, it takes mere months for a business to reach global scale. Logistics are easy to manage, billing happens in an instant, and a digital storefront built in the US is equivalent to a digital storefront anywhere else. With 2.4 billion people accessing the internet today, we shouldn't be shocked that the pace of disruption has picked up.
Yet it's important to recognize that just because the pace has picked up doesn't mean the pattern has changed. Disruption still represents the type of business that draws a rational retreat from up-market competitors.
As managers, often it's enticing to assert that new pathways or types of disruption have developed, in order to explain why we're missing taking note of them time-and-time again. The reality is that, today, everything is just moving faster. As managers, we no longer have the luxury of missing potential disruptions for months or years. If we don't spot them on the horizon as soon as they appear, our business's well-being falls in jeopardy — but the disruptive threats we must watch for follow the same trajectory they always have. Throwing new jargon at the phenomenon helps no one.
Not all successful products will fall into the category of disruptive innovation. Was the iPhone a case of "high-end disruption"? No. It was simply a better expensive smartphone than the BlackBerry; and RIM's failure to adapt doesn't mean they were "disrupted." It just means they lost.
To preserve the significance of the term disruption, it's vital that people stop using it as a synonym for "awesome innovation." In fact, sometimes an "awesome innovation" is just that... and not a disruption. So don't be fooled by pundits (like him, or him, or even him). If you want to understand disruption, go to the source.
I promise: it's worth your time.