Clayton Christenson’s seminal The Innovator’s Dilemma 
The innovator’s dilemma is this: a company that does everything by the book — listening to customers, managing by facts, being disciplined about costs and quality, and so forth — can get blindsided by an innovation that rapidly takes away its markets, because it was doing everything right. The innovations that cause this “why bad things happen to good companies” dilemma are disruptive innovations. The signature story of disruption reads as follows: an upstart low-end competitor displaces a much larger incumbent in a market, with the incumbent either retreating upmarket to higher margin/lower volume products or dying out altogether.
Examples
Examples are smaller, cheaper hard drives disrupting incumbent hard drive makers, hydraulic shovels disrupting cable-winch shovels (an early 20th century example), PCs disrupting mainframes, ink jet printers disrupting laser printers and, most recently, the Nintendo Wii starting to disrupt the Playstation and the Xbox.
Major though they were, innovations such as CDs, laser printing and jet airplane engines were not disruptive with respect to the technologies they displaced ( cassette tapes, light lens Xerography and piston engines respectively). In each case, the incumbents benefited from these non-disruptive, or sustaining innovations.
The Disruption Pattern
The key point to remember is that disruption is a market/business phenomenon and has little to do with technology per se. In particular, a disruptive innovation may or may not represent a major technical breakthrough. Major breakthroughs, which are called ‘radical’ in Christenson’s model, may or may not be disruptive, while minor, or ‘incremental’ innovations can be massively disruptive. The opposite of disruptive is sustaining. Why and how does disruption happen?
- A disruptive innovation usually starts as a low-quality differentiated product in a low-volume marginal segment of a much larger mature market, which demands attributes that the mainstream market does not, and which is willing to give up performance attributes the mainstream market is not (example, Wii customers willing to give up sheer processing horsepower for 3d input capability).
- A marginal player occupies this segment and starts growing rapidly, solving initial quality problems while retaining a cost advantage.
- The incumbent mature market leader, no matter how visionary, is forced to ignore the opportunity because it does not meet the growth needs dictated by its larger size, and also because the disruptive product is not yet good enough for its mainstream customers.
- The marginal player goes through a learning curve, solves its quality problems and suddenly starts threatening the market leader in its main markets
- The incumbent scrambles to put together a response, nearly always fails because of the disruptor’s head start and optimized culture, and retreats to a higher-end market
Why this happens is as straightforward as it is inevitable. It is an economic analog to the tyranny of majority rule. Good, well-managed companies have highly optimized delivery channels and listening mechanisms wired to their main market segments, and investors watching its performance in those segments. When a company pursues a vector of innovation important to its mainstream customers, it is rewarded by both customers and investors. When it pursues a vector that is irrelevant to mainstream customers (or worse, causes a temporary reduction in performance along key vectors), it is punished for getting distracted. In Christenson’s prototypical example, customers of a given size of hard drive were always interested in more storage at that size, rather than a smaller size. Disruption was fueled by the (at the time) marginal applications for smaller drives.
Distinction from Radical/Incremental
The main reason “disruptive” causes confusion is that it sounds like “major upset,” which suggests that the technological cause should be major as well. This leads us to falsely conflate disruptive innovation with technically radical innovation. So we end up confusing disruptive with radical and sustaining with incremental. The two are orthogonal axes.
In fact, in most documented cases of disruption, the disruptive innovation was a minor/incremental change and well within the technical capabilities of the incumbent (and was often taken to market by a renegade spin off from the original company). Similarly, companies have taken huge risks, massively churned their workforces and mastered extremely complex new technologies for innovations that were valuable to their existing mainstream customers and, therefore, sustaining (example, the Boeing 787, which we discussed before in my review of Wikinomics).
How to Overcome the Dilemma
Customers and investors are able to punish/reward companies to stay away from disruptive innovation because mature companies are structurally set up to feel the pain. Christenson concludes that the only way for an incumbent to pursue a disruptive idea is to separate the new business completely from the culture, processes and market pressures of its old one. This was what worked for the IBM PC. I haven’t yet seen a counter-example to this principle yet.
The Explanatory Gap
The principles of disruptive competition work best to explain direct substitute competitions, like CDs for tapes. When innovations change consumer behaviors and force a redrawing of market boundaries, the explanation provided by the model is incomplete. Changes that come from much larger forces, like the Internet, are not well explained by Christenson’s model. Overloading the term by talking of ‘meta disruption’ as some people like to do, seems to me not very useful.
About Venkatesh Rao
Venkat! How are you?
I just went to a talk with this guy today where he was trying to modify things to fit a healthcare context. More specifically, how he’s trying to say how this model might guide reimbursement policies to encourage the rapid commodification and spread of ultra-specialist knowledge from prominent surgeon through protocols to family doctor, then nurses, thus giving more and more people access to cheaper and more widely available care. Or on an institutional level, from general hospital to a series of specialty hospitals. It didn’t seem to fleshed out on that end, and once his talk sinks in a bit more for me I’ll comment more.
I had never heard of him before but was fascinated by the talk. He’s got quite a natural style and even pace to his presenting.
Hey Arthur, nice to connect again! The guy is very famous in industry, and it is interesting that he is taking on organized healthcare, since there are no examples of that in his book that I can recall. Better him than Michael Moore. Your description of the challenge in healthcare is actually typical of problems in customer service triages in every sector: you want to save costs by doing as much as possible with the cheapest, quickest-turnaround resources at the bottom of your response system. Look forward to your more digested comments. If he succeeds in provoking disruption in that sector, others could learn from it, since it is more challenging than most.
At the moment, I can think of nothing disruptive in health care except one example from India. There are eye camps there that are organized in a disruptive way to deliver radically cheap cataract surgeries (free to a large proportion of patients, super cheap for almost all).They do this by stripping away absolutely all pre-op and post-op stuff from the high-value resources (the surgeons), who do nothing but surgery at assembly line speeds. No nice chats with the patients. In, slice, out. This way they’ve managed to set records both in quantity and quality (since error rate decreases in specialized surgeries with practice). Here is an interview with the founder of the disrupting institution:
Sankar Netralaya
I’ve heard similar though less dramatic stories about some types of heart surgery, but this model will not generalize, since it requires a particular kind of common-but-difficult surgery and a non-litiginous environment, where the assembly line can get really good.
Well, I’ve given this guys idea some more thought, and maybe I haven’t read up on it much but it doesn’t seem to fit quite right in my estimation. The way it was presented was a bit half-formed and hurried. He mentioned that someone told him it might fit a healthcare context pretty well, and as such a thing is in vogue he kinda shoddily pasted it on his existing idea.
It does seem like it could be useful, however, if one takes it in different directions. He seems to be implying that there should lots of different kinds of specialty hospitals that would be most efficient and best-equipped to deal with particular cases (see recent big NYT article on how cancer care can be so different depending on who you talk to). Anyway, this is probably a good idea, but not necessarily more compelling than an existing and growing movement towards quality improvement in healthcare.
He also wanted to steer things towards making more healthcare cheaper and widely available, which is a fine idea, and he mentioned how medicare/medicaid payments could be re-jiggered to push this already natural progression (according to him) slightly more forward.
He did have some cool examples that he talked about. One was about the car industry, where Korea is slowly edging into Toyota territory just as Toyota raids Ford’s most profitable segment, full-size trucks, and how China will be following up after that. The other one was how HBS itself was being chased out of lower segments by in-house corporate classes and training.
Anyway, the idea of disruption applied to a more knowledge-based industry seems to mean that one somehow creates a product that will allow people with far less training and expertise to do one’s job with more precision, while the next generation of really smart and well-trained experts goes on to bigger and better things. With technological advances, a mediocre cardiologist can do stents pretty well while the super cardiac surgeon has moved onto more complex surgeries, etc. etc.
Final verdict: compelling and cool idea as a whole. Value added to healthcare reform debate: marginal.
This article is very interesting. I am doing a project on gaming console – wii vs xbox/playstation.
I wish to contact this author. can anyone tell me the author of this
Thanks
Related article on the HBS Website. It seems to not address the “inevitability” aspect.
Clay’s co-author, Michael Raynor has tried to find a disruptor, before it disrupts. A tough challenge because the disruptor looks “worse” than the status quo as it “moves up-market.” To that end, he has authored a piece in Strategy&Innovation on InnoCentive. Well, I hate to admit it looks worse, but after 30 years in pharma, I understand why it does and yet may very well contain those seeds of disruption. (Sorry the link goes to a paid reprint page… but HBS press… http://harvardbusinessonline.hbsp.harvard.edu/b02/en/common/item_detail.jhtml;jsessionid=J0HLZX3FS0V2YAKRGWCB5VQBKE0YOISW?id=S0503E&referral=2341 -alph-
I run a regular Google search for articles related to Christensen and innovation, and this is one of the best I’ve turned up. I think this is a great guide to thinking about the general problems around “organizing to disrupt”.
P.S. to Arthur: There’s an in-depth discussion of disruption in a business school context in Christensen’s “Seeing What’s Next”.
Oops, commented on the wrong article :-( Will comment on the right one.
I too have had difficulty with Christensen’s way of expressing the matrix and have stuck to that described in Wolfgang Grulke’s book “Lessons in Radical Innovation”. This 2 by 2 has technology linkages across and market linkages vertical with each divided into enhances or destroys(Bottom left quadrant – evolutionary innovation – enhances technology linkages and enhances market linkages); top left is disruptive innovation (disrupting the market0; bottom right is disruptive innovation (disrupting the technology base) and top right quadrant is radical innovation that disrupts both existing market and technology. There is a whole chapter on how these combinations play out.
Hi Venkat,
‘The innovator’s dilemma’, is one of my “bible”, a must-read for entrepreneurs and innovators
I’d like to thank you for your article, because I think that it’s very close to what Clayton Christensen wanted people to understand when reading his book.
I’d like to add that most of the disruptive innovation aren’t technically advanced. Indeed, very often they are advanced (innovative) in term of ‘usage’, but not in term of ‘performance’ valued by the existing market’s customer. This is why the existing customer usually aren’t interested by such an innovation…Their performance needs aren’t met…. until some time in the future, when the innovation, in addition of fulfilling the needs of the users of the new market, is also fulfilling the performance needs of the market….. that is going to be disrupted.
One of the most interesting disruptive innovation that I know of is Microsoft Office : when Microsoft introduced Office in the 90’s, Lotus 123 was the best spreadsheet and fulfilled all the functionnal needs of the accountants. Wordperfect was the best text processing tool ,and me the needs of the secretaries and admin… At this time, Excel was an “awful” product for accountants as well as Word was for documents typing.
Microsoft targeted the managers who had to do composite documents (using Word), including numerical data or graphs, and willing to present this information with an overhead (ppt).
At some point in the future, Excel was good enough as well as Word…and today….nobody knows anymore about Wordperfect and 123… Their market had been disrupted.
Regards
I’ve searched all over the interwebs and this is by far one of the better articles on disruption I have come across. I especially agree on the point of distinction versus radical innovation. The term is often misused in that way. The examples were great as well because it’s a lot tougher than it seems to come up with them. And I’ve seen a lot of articles get this wrong, but I agree CDs/DVDs were not disruptive to video/audio tapes.
Anyway, reading this helped clarify and crystallize my own thoughts on the topic. I just wrote a piece on disruption (in the context of crowdfunding) which I’ll probably post later today at http://simmserely.blogspot.com/ Would appreciate it if you have corrections or comments to shoot them my way @simmserely on twitter.