Thursday, November 19, 2015

How Understanding Disruption Helps Strategists

Through the past 15 years my colleagues and I have wrestled with disruption in many contexts. That’s no surprise, since Clayton Christensen co-founded our company in 2000, five years after his Harvard Business Review article with Joseph L. Bower “Disruptive Technologies: Catching the Wave” introduced the idea of disruption to the mainstream market.

Christensen and two co-authors revisit where disruption theory stands today in a new HBR article, “What Is Disruptive Innovation?” And my company’s experience over the past 15 years – consulting with global giants, working alongside mid-sized companies in emerging markets, investing in wide-eyed entrepreneurs, and advising government officials – highlights four reasons why disruptive innovation theory should be a key component of any good strategist’s toolkit.

First, disruption directs you to look in places you might otherwise ignore. Christensen’s research shows that disruption often starts at a market’s edges. Sometimes that is in relatively undemanding market tiers, such as how mini mill manufacturers started in the rebar market. Disruption also takes root with customers that historically were locked out of a market because they lacked specialized skills or sufficient financial resources to consume existing solutions. Sometimes the place to look is in physical locations where consumption was historically difficult if not impossible. Finally, fringe markets like hackers or students can put up with the limitations that often characterize early versions of disruptive ideas.

As Ted Levitt pointed out 55 years ago, companies develop significant myopia over time, only seeing things that are squarely in the mainstream of their market. Disruptive innovation theory expands your view, increasing the odds that you spot important trends early.

Of course, the more places you look, the more things you see. No company has the capacity to respond to every trend they identify. That’s the second advantage that comes from using disruptive innovation theory: it helps you to separate the early-stage developments that have the highest potential to drive change from those that are likely to fizzle.

Does the upstart have a unique way that makes it easier and more affordable for target customers to get the innovation job done? Are they following a business model that looks unattractive to market leaders? One yes bears watching; two yeses is a standup moment. For example, in the late 1990s Netflix introduced its subscription model, which let consumers rent DVDs without worrying about late fees. Market leaders such as Blockbuster earned substantial profits from late fees, and used those fees as a way to drive customers to return hot movies quickly and therefore guarantee their availability. The rest, of course, is history.

Read the rest of the article at HBR.org here>>

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The INNOBLOG covers all aspects of growth strategy, from innovation to organizational change, in thought-provoking and insightful posts. Innoblog is a group forum to which many Innosight team members contribute. Outside contributions are welcome too. The blog is edited by Evan I. Schwartz, who also edits Strategy & Innovation.

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