Source: The Economist: Schumpeter
TWENTY years ago a then obscure academic at Harvard Business School published a career-making article in the Harvard Business Review (HBR), warning established companies that they were in grave danger from being disrupted. Today Clay Christensen is an established company in his own right. He is regularly named as the world’s most influential management guru (his Harvard colleagues affectionately call him Mr Disrupter). He has applied his theory to an ever-wider range of subjects with books such as “Disrupting Class” (on education) and “The Innovator’s Prescription” (on health). He even has his own consulting operation to help him stretch his brand. Businesspeople everywhere treat him as a guide on how to cope with change. But the risk is that by paying too much attention to his theory, they will miss other disruptive threats.
This thought is provoked by a new HBR article on the subject, written by Mr Christensen along with Michael Raynor and Rory McDonald. Mr Christensen rightly points out that the word “disruption” is now bandied about so much that it is losing all meaning. The number of newspaper and journal articles using the phrases “disruptive innovation” or “disruptive technology” has gone from practically zero when Mr Christensen coined them to more than 2,000 in 2014. However, he goes too far in arguing that Uber, a taxi-hailing service, is not “genuinely disruptive” because it does not fit his theory of how disrupters break into established markets. Mr Christensen does not have a monopoly on the word disruption, nor a patent on his “disruption theory”: Joseph Schumpeter, for example, produced a rather compelling theory of “creative destruction” long before Mr Christensen was born.
The problem with Mr Christensen’s argument is not that it is empty. Unlike so much of the output of other management writers, his big idea contains genuine insights. Mr Christensen argues that incumbent companies can fail despite being well run and serving their existing customers as assiduously as possible. Their success can blind them to the realisation that scrappy outsiders are quietly rewriting the rules. These upstarts, he says, begin by using unproven or inferior technologies and business models to offer a cheap alternative to mainstream products and services. That wins customers whom established firms regard as unprofitable or unreachable. Little by little, the newcomers get better, and eventually they are in a position to raid the incumbents’ customer base. This leaves established firms in a dilemma: whether to keep investing in their current business—which is proven but now vulnerable—or take a leap into the unknown and emulate the disrupters, so as not to be wiped out by them.
Critics have picked holes in the case studies that Mr Christensen has used to illustrate his theory. In June last year Jill Lepore, a colleague at Harvard University, caused a stir with a takedown in the New Yorker magazine. In September Andrew King and Baljir Baatartogtokh published a more sober article in the MIT Sloan Management Review, arguing that “the majority” of Mr Christensen’s 77 case studies did not fully fit his theory.
However, even if he stretches some examples Mr Christensen has clearly identified something big. The problem is more that the definition of disruption he seeks to impose is too narrow. He rules out Uber because, from the start, it offered a better level of service than existing taxi firms, rather than something cheap but inferior. But ask any cabbie if it threatens to disrupt his business, and you will be left in no doubt of the answer. As Isaiah Berlin, a philosopher, would have put it, Mr Christensen is a hedgehog (someone who knows one big thing) rather than a fox (who knows lots of little things): his hedgehog mind leads him to ignore or belittle companies or market forces that do not fit his template.
In Mr Christensen’s theory, disruptive innovators are generally newcomers. But perhaps the most successful disrupter of recent years is an established firm—Apple—that has applied its mastery of technology and design to ever more areas. Mr Christensen greeted the arrival of the iPhone with a shrug: this was a “sustaining” rather than a disruptive innovation, with “limited” chances of success. He failed to see that Apple was reinventing an entire category of product, by turning the mobile phone into an all-purpose computer, entertainment system and shopping centre.
Mr Christensen argues that “real” disruptive innovators succeed by attacking from the low end of the market. But Apple has invariably succeeded by aiming at the top end. Likewise, Netflix destroyed Blockbuster by attracting its core customers: people who were so enthusiastic about watching films that they would pay a monthly subscription to consume them in bulk. Both Netflix and Uber have prospered by dealing with the “pain points” of core customers: in Netflix’s case, Blockbuster’s limited range and punishing late-return fees; and in Uber’s case, the manifold inefficiencies of the established taxi industry.
Don’t just follow the feet of Clay
It would be going too far to predict that Christensen Inc will itself be disrupted out of existence: there are plenty of businesses ripe for his variety of innovation (not least his own, higher education). But he should be treated as one voice among many. There are types of disruptive innovation other than the one he champions. Insurgents can revolutionise old industries by using new technologies, but established companies can use their superior war chests and management skills to invade adjacent industries.
Indeed, there are good reasons for thinking that this second kind of disruptive innovation may be more important than Mr Christensen’s: think of the threat that Google poses to carmakers, Facebook to newspapers and Apple to television stations. Back in 1995 Mr Christensen struck fear into executives by warning them that they could be put out of their jobs by companies they had never heard of. Today the biggest threats may come from people they talk about every day.