Clayton Christensen: Tesla Is Not Disruptive and Other Corrections

Courtesy Amazon

1997 The Innovator’s Dilemma, a book about why well-­managed companies often fail, coins a soon-to-be ubiquitous term: “disruptive innovation.”

I decided to study the disk-drive industry on a tip from one of my faculty members, who said he knew nothing except that successful disk-drive companies had failed over and over again. They were the fruit flies of business: It’s a very fast cycle time, so it’s a great thing to study. At the time, I was living essentially in the Motel 6 on First Street in San Jose. It was about 7 o’clock one night, and I had gone across the street to have dinner at McDonald’s. And I was going back to Motel 6, and in the middle of the street it just fell into place—and I realized why the low end wins so frequently.

This phenomenon that I call disruption is one that allows a larger population, people who historically didn’t have enough money to buy a product, to afford something like it. That creates growth. The puzzle was, if this is what creates growth, why don’t the leaders in the industry go after it? I realized that every company has a business model, and they can invest in things that help them make money in the way their business model is structured. If innovation doesn’t allow them to make more money in the way they’re structured to make money, they can’t do it. So that was the big idea. It had nothing to do with technological change. Once I had that, I could see it happen everywhere. That was the real epiphany.

One of the insights we got early on is that the leader in an industry actually can catch disruptions and succeed at them, but they have to set up a completely different business model. It can be a different business model underneath the corporation’s umbrella. And if you set it up separately, then you can succeed quite well. We issued a second edition of The Innovator’s Dilemma and published this insight as a new chapter. Subsequent to that, I haven’t found a single anomaly to that observation.

In reality, the vast majority of people who use the word “disruptive” have never read anything that I’ve written. They use it to justify whatever they want to do in the first place. I wish I knew how to control the use of the idea, but it turns out that it’s not just me.

In terms of the most disruptive ideas of the last century, terrorism is disruptive relative to the way we have historically tried to defend ourselves. It enables a new population of people with less money and less skill to create chaos in the world. Their business model is very different than the business model of the Department of Defense. The computer and car are also disruptive. Every generation of computer, from mainframe to PCs to smartphones, was disruptive; in each generation, the leader got killed by new companies that made computing more affordable and accessible. Cars were toys to the rich until Henry Ford made the car accessible so millions of people had access to it. Then Toyota did it again when they came into America in the ’60s with their Corona—they made cars so affordable that the rebar of humanity, college students, could own one.

On the other hand, the electric car is not in any way disruptive. I don’t think Tesla itself thinks this way, but there are a lot of investors who do. It’s what I call a “sustaining innovation”; it makes a good product better. It’s up against the very high-end cars made by BMW and other sports cars. A disruptive innovation in electric cars, you can see coming from the bottom—from the world of golf carts. They just get better and better and better. You see them now; you see them everywhere. Ten years ago, you didn’t see them. That’s disruptive. —As told to Brad Wieners

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