Magazine Fall 2015 Research Feature

How Useful Is the Theory of Disruptive Innovation?

Few academic management theories have had as much influence in the business world as Clayton M. Christensen’s theory of disruptive innovation. But how well does the theory describe what actually happens in business?

Andrew A. King and Baljir Baatartogtokh Reading Time: 35 min 

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The turmoil of business competition has often been likened to a stormy sea. “Gales of creative destruction,” economist Joseph Schumpeter wrote, periodically sweep through industries, sinking weak and outdated companies.1 In the mid-1990s, the winds of change appeared especially powerful, threatening even some of the strongest businesses. Enter Clayton M. Christensen, a professor at Harvard Business School who is now considered one of the world’s leading experts on innovation and growth. In his 1997 book, The Innovator’s Dilemma, Christensen provided an explanation for the failure of respected and well-managed companies.2 Good managers face a dilemma, he argued, because by doing the very things they need to do to succeed — listen to customers, invest in the business, and build distinctive capabilities — they run the risk of ignoring rivals with “disruptive” innovations.3

Christensen’s theory of disruptive innovation has gripped the business consciousness like few other ideas. In a review of enduring business books, The Economist called the theory “one of the most influential modern business ideas.”4 Other commentators have noted that the theory is so widely accepted that its predictive power is rarely questioned.5 The theory’s influence has spread far beyond the business world. Christensen and his associates have proposed disruption as a framework for thinking about vexing social problems such as poverty, lack of access to health care, illiteracy, and unemployment.6 The theory, or variations thereof, has been used in so many settings that Christensen himself has expressed unease with some of the ways the theory is being applied. In an interview with the editor-in-chief of the Harvard Business Review, he said, “I never thought … that the word disruption has so many connotations in the English language, that people would then flexibly take an idea, twist it, and use it to justify whatever they wanted to do in the first place.”7 So, what is the right way to use the theory of disruptive innovation? What are its core elements, and how predictive is it? We decided to examine these questions by taking a closer look at the theory.

Our first discovery was that, despite the theory’s widespread use and appeal, its essential validity and generalizability have been seldom tested in the academic literature.

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About the Authors

Andrew A. King is a professor of business administration at Tuck School of Business at Dartmouth College, in Hanover, New Hampshire. Baljir Baatartogtokh is a graduate student at the University of British Columbia in Vancouver, British Columbia.

References

1. J.A. Schumpeter, “Capitalism, Socialism, and Democracy” (London: Routledge, 2003, first published in 1942 by Harper Perennial); and J.A. Schumpeter, “The Theory of Economic Development: An Inquiry Into Profits, Capital, Credit, Interest, and the Business Cycle” (New Brunswick, New Jersey: Transaction Publishers, 1934).

2. C.M. Christensen, “The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail” (New York: HarperCollins, 2003, first published in 1997 by Harvard Business Review Press).

3. Ibid.

4. “Aiming High,” June 30, 2011, www.economist.com.

5. J. Lepore, “The Disruption Machine: What the Gospel of Innovation Gets Wrong,” New Yorker, June 23, 2014; and A. Saunders, “Is Disruptive Innovation Dead?” September 29, 2014, www.managementtoday.co.uk.

6. C.M. Christensen, J.H. Grossman, and J. Hwang, “How to Heal the Health Care System,” Forbes, October 31, 2008, 81-85; C.M. Christensen and D. van Bever, “The Capitalist’s Dilemma,” Harvard Business Review 92, no. 6 (June 2014): 60-68; S.L. Hart and C.M. Christensen, “The Great Leap: Driving Innovation From the Base of the Pyramid,” MIT Sloan Management Review 44, no. 1 (fall 2002): 51-56; and C.M. Christensen, M.B. Horn, and C.W. Johnson, “Disrupting Class: How Disruptive Innovation Will Change the Way the World Learns” (New York: McGraw-Hill, 2008).

7. “Clay Christensen on the Recent Debate Surrounding His Theory of Disruptive Innovation,” interviewed by Adi Ignatius, June 27, 2014, www.youtube.com.

8. C.M. Christensen and J.L. Bower, “Customer Power, Strategic Investment, and the Failure of Leading Firms,” Strategic Management Journal 17, no. 3 (March 1996): 197-218.

9. C.M. Christensen, “The Rigid Disk-Drive Industry: A History of Commercial and Technological Turbulence,” Business History Review 67, no. 4 (winter 1993): 531-588; Christensen and Bower, “Customer Power”; and C.M. Christensen, F.F. Suarez, and J.M. Utterback, “Strategies for Survival in Fast-Changing Industries,” Management Science 44, no. 12, part 2 (December 1998): S207-S220.

10. M. Tripsas and G. Gavetti, “Capabilities, Cognition, and Inertia: Evidence From Digital Imaging,” Strategic Management Journal 21, no. 10-11 (October-November 2000): 1147-1161; E. Danneels, “Trying To Become a Different Type of Company: Dynamic Capability at Smith Corona,” Strategic Management Journal 32, no. 1 (January 2011): 1-31; and D.G. McKendrick, R.F. Doner, and S. Haggard, “From Silicon Valley to Singapore: Location and Competitive Advantage in the Hard Disk Drive Industry” (Stanford, California: Stanford University Press, 2000).

11. E. Danneels, “Disruptive Technology Reconsidered: A Critique and Research Agenda,” Journal of Product Innovation Management 21, no. 4 (July 2004): 246-258.

12. McKendrick, Doner, and Haggard, “From Silicon Valley”; A.A. King and C.L. Tucci, “Incumbent Entry Into New Market Niches: The Role of Experience and Managerial Choice in the Creation of Dynamic Capabilities,” Management Science 48, no. 2 (February 2002): 171-186; G.J. Tellis, “Disruptive Technology or Visionary Leadership?” Journal of Product Innovation Management 23, no. 1 (January 2006): 34-38; and A. Sood and G.J. Tellis, “Technological Evolution and Radical Innovation,” Journal of Marketing 69, no. 3 (July 2005): 152-168.

13. C.M. Christensen, “The Ongoing Process of Building a Theory of Disruption,” Journal of Product Innovation Management 23, no. 1 (January 2006): 39-55.

14. Christensen, “Innovator’s Dilemma”; and C.M. Christensen and M.E. Raynor, “The Innovator’s Solution: Creating and Sustaining Successful Growth” (Boston: Harvard Business School Press, 2003).

15. Christensen, “Innovator’s Dilemma”; Christensen and Raynor, “Innovator’s Solution.”

16. Christensen and Raynor, “Innovator’s Solution,” 33.

17. Ibid, 34.

18. Ibid., 33.

19. Ibid., 33.

20. Ibid., 34.

21. This distinguished disruption from previous theories. Scholars had long argued that companies are displaced when their capabilities become obsolete or surpassed by those of competitors. Christensen broke from this tradition by arguing that companies are displaced despite possessing the capabilities needed to succeed.

22. Christensen and Raynor, “Innovator’s Solution,” 35.

23. Ibid., 34.

24. Ibid., 44.

25. Ibid., 46.

26. Christensen, “Innovator’s Dilemma,” viii.

27. Ibid., 213.

28. Ibid., 232.

29. Christensen and Raynor, “Innovator’s Solution,” 34.

30. Anonymous expert, Barnes & Noble interview, July 28, 2015.

31. Anonymous expert, digital printing interview, July 28, 2015.

32. This might seem surprising, but our expert told us that for many years colleges focused on “opening doors to new types of students: GIs after wars, underrepresented minorities, low-income students.” The expert noted that for many years there was not any discussion of performance. Some scholars, the expert noted, were of course focused on improving research.

33. Christensen and Raynor, “Innovator’s Solution,” 56.

34. Anonymous expert, boxed beef interview, October 22, 2014; and anonymous expert, centralized beef slaughtering operations interview, October 21, 2014.

35. D. Hounshell, “From the American System to Mass Production, 1800-1932: The Development of Manufacturing Technology in the United States” (Baltimore, Maryland: Johns Hopkins University Press, 1985).

36. Anonymous expert, boxed beef interview, October 22, 2014; and anonymous expert, centralized beef slaughtering operations interview, October 21, 2014.

37. Anonymous experts, Internet search engines interviews, October 9, 2014 and October 22, 2014.

38. Anonymous expert, Internet search engine interview, October 24, 2014.

39. Anonymous expert, endoscopic surgery interview, October 1, 2014.

40. Anonymous expert, computers based on reduced instruction set computing microprocessors interview, November 24, 2014; anonymous expert, direct sales computer retailing interview, February 18, 2015; and anonymous expert, minicomputers interview, October 27, 2014.

41. Anonymous expert, Microsoft DOS interview, October 22, 2014.

42. Anonymous expert, online law schools interview, October 10, 2014.

43. Anonymous expert, discount airline (Southwest) interview, November 3, 2014.

44. Christensen and Raynor, “Innovator’s Solution.”

45. Anonymous expert, email interview, October 15, 2014.

46. Anonymous expert, plastics interview, November 14, 2014.

47. W. Scott Frame, A. Srinivasan, and L. Woosley, “The Effect of Credit Scoring on Small-Business Lending,” Journal of Money, Credit and Banking 33, no. 3 (August 2001): 813-825.

48. N. Wecker, “Weigh the Benefits, Disadvantages of Attending a Non-ABA Law School,” December 17, 2012, www.usnews.com.

49. C. Markides, “Disruptive Innovation: In Need of Better Theory,” Journal of Product Innovation Management 23, no. 1 (January 2006): 19-25.

50. Christensen, “Ongoing Process,” 50.

51. Anonymous expert, community colleges interviews, October 6, 2014, and August 26, 2015.

52. Christensen and Raynor, “Innovator’s Solution,” 33.

53. Ibid., 213.

54. This rapid expansion in consumer “needs” may explain why Christensen predicted the iPhone wouldn’t succeed. See J. McGregor, “Clayton Christensen’s Innovation Brain,” June 15, 2007, www.bloomberg.com.

55. Anonymous expert, centralized beef slaughtering operations interview, October 21, 2014.

56. Christensen and Raynor, “Innovator’s Solution.”

57. Anonymous expert, ultrasound imaging interview, October 28, 2014.

58. J.L. Bower and C.M. Christensen, “Disruptive Technologies: Catching the Wave,” Harvard Business Review 73, no. 1 (January-February 1995): 51.

59. G. Marks, “Letters to the Editor: Disruptive Technologies,” Harvard Business Review 73, no. 2 (March-April 1995): 8-9; and C.M. Christensen and J.L. Bower, “Disruptive Technologies: Reply,” Harvard Business Review 73, no. 3 (May-June 1995): 17.

60. For example, Christensen and Bower write: “Our conclusion is that a primary reason why such firms lose their positions of industry leadership when faced with certain types of technological change has little to do with technology itself — with its degree of newness or difficulty, relative to the skills and experience of the firm. … We find that firms possessing the capacity and capability to innovate may fail when the innovation does not address the foreseeable needs of their current customers.” See Christensen and Bower, “Customer Power,” 198.

61. Anonymous expert, LCDs interview, November 12, 2014.

62. H.S. Thompson, “Hell’s Angels: The Strange and Terrible Saga of the Outlaw Motorcycle Gangs” (New York: Random House, 1966).

63. M. Ogle, “In Meat We Trust: An Unexpected History of Carnivore America” (New York: Houghton Mifflin Harcourt, 2013).

64. Anonymous expert, small-format disk drives interview, October 15, 2014.

65. Anonymous expert, discount airline (Southwest) interview, November 3, 2014.

66. Anonymous expert, discount airline (Southwest) interview, August 22, 2015.

67. Anonymous expert, LCDs interview, November 12, 2014.

68. C.J. Loomis, “The Sinking of Bethlehem Steel,” Fortune, April 5, 2004, http://archive.fortune.com.

69. Ibid.

70. As this article was undergoing review, Harvard Business School professor Willy C. Shih published a blog post on Harvard Business Review’s website on the importance of legacy costs in explaining the failure of U.S. steel mills. See W.C. Shih, “Breaking the Death Grip of Legacy Technologies,” May 28, 2015, https://hbr.org.

71. Ogle, “In Meat We Trust.”

72. Anonymous expert, online book sales interview, October 24, 2014; and P. Ghemawat, B. Baird, and G. Friedman, “Leadership Online: Barnes & Noble vs. Amazon.com” (Boston: Harvard Business School Case Services, 1998).

73. Anonymous expert, online book sales interview, October 24, 2014.

74. W.B. Arthur, “Competing Technologies, Increasing Returns, and Lock-In By Historical Events,” Economic Journal 99, no. 394 (March 1989): 116-131.

75. M. Campbell-Kelly and W. Aspray, “Computer: A History of the Information Machine,” 2nd ed. (Boulder, Colorado: Westview Press, 2004).

76. J.A. Jakle and K.A. Sculle, “Fast Food: Roadside Restaurants in the Automobile Age” (Baltimore, Maryland: Johns Hopkins University Press, 2002).

77. Anonymous expert, interview on the rise of fast food, October 30, 2014.

78. B. Goldfarb, D. Kirsch, and D.A. Miller, “Was There Too Little Entry During the Dot Com Era?” Journal of Financial Economics 86, no. 1 (October 2007): 100-144.

79. Anonymous expert, boxed beef interview, October 22, 2014.

80. Anonymous expert, countertop photocopiers interview, September 17, 2014.

81. Christensen, “Innovator’s Dilemma,” 3.

82. Anonymous expert, telecommunications (circuit and packet switched), July 30, 2015.

83. Anonymous expert, disk drive industry interview, October 15, 2014.

84. C.M. Christensen and S.D. Anthony, “Making SMaL Big: SMaL Camera Technologies,” Harvard Business School case no. 603-116 (Boston: Harvard Business School Publishing, 2003).

85. W.C. Shih, “Competency-Destroying Technology Transitions: Why the Transition to Digital Is Particularly Challenging,” Harvard Business School background note 613-024, August 2012, 9.

86. Ibid., 9.

87. C.E. Helfat, S. Finkelstein, W. Mitchell, M. Peteraf, H. Singh, D. Teece, and S.G. Winter, “Dynamic Capabilities: Understanding Strategic Change in Organizations” (Malden, Massachusetts: Wiley-Blackwell, 2007); and M.E. Porter, “The Five Competitive Forces That Shape Strategy,” Harvard Business Review 86, no. 1 (January 2008): 78-93.

88. R. Adner and D.C. Snow, “Bold Retreat: A New Strategy for Old Technologies,” Harvard Business Review 88, no. 3 (March 2010): 76-81.

89. FujiFilm Holdings Corp., “Annual Report 2014,” www.fujifilmholdings.com.

90. J. Alcacer, D.J. Collis, and M. Furey, “The Walt Disney Company and Pixar Inc.: To Acquire or Not to Acquire?” Harvard Business School case no. 709-462 (Boston: Harvard Business School Publishing, 2009).

91. “Clay Christensen on the Recent Debate,” June 27, 2014.

i. Specifically, our survey asked experts the following questions:
  Part A) Please think back prior to the advent of [NAME OF DISRUPTIVE INNOVATION] (e.g., [EXAMPLE OF DISRUPTIVE INNOVATION NAMED]) in the [BASE YEAR]. (1) Prior to that, were there firms engaged in [NAME OF INDUSTRY] with significant market share (e.g., > 5%)? (2) Prior to the advent of [NAME OF DISRUPTIVE INNOVATION], were firms in [NAME OF INDUSTRY] improving in performance? (3) Did this improvement rate exceed what most customers could absorb (e.g., some say that word-processing software added features faster than most consumers could learn them)? (4) Prior to the advent of [NAME OF DISRUPTIVE INNOVATION], did firms in [NAME OF INDUSTRY] have the ability to create a simpler, lower cost, but profitable product that would appeal to current non-customers? Part B) Please now think about how older companies in [NAME OF INDUSTRY] responded to the emergence of [NAME OF DISRUPTIVE INNOVATION] (e.g., [EXAMPLE OF DISRUPTIVE INNOVATION NAMED]). (1) Did legal or contractual barriers prevent these incumbent companies from developing or adopting [NAME OF DISRUPTIVE INNOVATION]? (2) Did leading firms in [NAME OF INDUSTRY] flounder as a result of [NAME OF DISRUPTIVE INNOVATION]?
  Coding: If any expert on a case responded to A1 or A2 “yes,” then we concluded leading companies with a trajectory of sustaining innovations existed. If the response to A3 was “yes,” then we concluded overshoot had occurred. If experts answered “yes” to A4 and there were no legal barriers (B1), then we judged that incumbents had the capability to respond. If experts responded “yes” to B2, we judged that incumbents had been disrupted. Note: In phone interviews, we explained that “floundered” could be interpreted as having lost significant market share. If multiple experts on the same case disagreed on the answer to a question, we gave the benefit of the doubt to the theory of disruption, and agreement with that element of the theory of disruption was judged confirmed.

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Comments (2)
Travis Barker, MPA GCPM
These findings indicate some cause of optimism for startups and new entrants who are interested in entering new markets.  Taking the perspective of startups in mind, the following 11-insights can be incorporated into the stages of idea generation, customer development, customer validation, and product/service launch:

#1 Not Exceeding Expectations: Focusing on customer needs may present an opportunity for a new entrant to provide a simpler product that is better matched to the target customer's needs

#2 Exceeding Expectations: Overshooting the incumbent's business model may also provide an opportunity to target customers currently not served well by existing products or services.

#3 Lower Level Innovation: Targeting lower innovation targets may present an opportunity to enter a market while the incumbent focuses on their more lucrative customers, leaving the incumbent exposed.

#4 Customer Development Focus: Sustained innovation is more effective for some models than disruptive innovation when the business continues to engage and map out the customer's evolving needs to the product/services changing specifications. 

#5 Technology Adoption: Keeping up with the industry's technology, changing skill sets, and competencies presents as a challenge to incumbents dedicated to their existing business model. There are instances where adopting new technologies is essential to increasing efficiencies and providing added customer value. There are also examples where this is not true. Aligning technology acquisition with the business' core competencies and customer needs is key. Exceeding these can be costly. 

#6 Exit Planning: It is not always advantageous for incumbents to challenge disruptive innovation head on, particularly if the incumbent is unprepared to change their business model. Instead, exiting the market niche or refining the business' target (and reallocating unused resources to other projects) may be justified. 

#7 Culture: Creating a culture of change, agility, and disruptive innovation can strengthen the business' ability to compete, challenge, and gain traction in a new market. In contrast, legacy architecture will increase exposure to being undermined by new entrants. 

#8 Scaling: Business models that require a certain scale in order to be profitable can limit market entrants.

#9 Agile Business Model: When it comes to disruptive innovation, there is no one-size-fits-all explanation of where the challenges may surface. Business models that have the necessary competencies to adapt, both forwards and backwards, based on changing (or clarified) customer needs are better able to respond to market challenges.  When it comes to disruptive innovation, there is no one-size-fits-all explanation of where the challenges may surface. 

#10 Disruptive Elements: These change over time, and depend on understanding customer needs, industry evolution, 

#11 Rate/Type of Innovation: The model of disruptive innovation recommends exceeding the customer's expectations, which particularly makes sense as this can help engage some of the market's most valuable customers. But alternative product/service configurations remain essential to serve the rest of the market as well; only offering product/service offerings that exceed existing needs can relinquish market control to new entrants that are willing to provide lower level product/services. 

Utilizing many of the principles advocated in Steve Blank's customer development model, and tools available in the Lean UX field, new businesses are able to disrupt incumbent's hold on the marketplace through iterative innovation from the ground up. According to the research, incumbents have been found to be less likely to respond to attacks on lower value areas of the market and thus often miss the opportunity to protect themselves from future disruption as the new business gains stronger footing. This stronger footing can be achieved through disruptive innovation or exceeding customer's needs; but the research finds examples where neither of these was required to undermine incumbents.
 
The research indicates that examples of new business' ability to undermine an incumbent through lower innovation was enhanced when new business model characteristics were introduced; when the incumbents existing patents, trademarks, and projected intellectual property  limit the incumbents ability to respond. This refers to the known but basic premise that an incumbent's over-commitment to their business model can actually become a weaknesses that constraints their ability, and willingness, to respond to new entrants. In contrast, new technologies are not disruptive if incumbents are able and willing to respond.

As mentioned at the beginning of this response, the business' culture will determine what opportunities are exploited and those that are missed. Business' must continue to identify products and services that play to their strengths, while identifying changing needs, and seeking to build the technologies and competencies (both new & existing) to serve those needs. Disruptive innovation is not always about providing new product/service offerings that exceed what is currently available. It is more about understanding the market, the customers served, building upon your strengths, and exploiting your competitor's vulnerabilities.

Travis Barker, MPA GCPM
Innovate Vancouver
Harry Hawk
Re: The Yellow Pages businesses lacking the ability to innovate; they clearly had highly innovative tech and could have offered a variety of directory like services. 

Run by the RBOCs were barred from entering the information services marketplace. They had the data, they had the data in database(s), they had the technology (modems, Unix, etc).

As early as the late 1970's, and throughout the 1980's they could have offered these services on personal computers, and via telephone terminals through interactive voice response (IVR).

Pre and Post divestiture, online databases of phone numbers, businesses, addresses, services, and other data would have been disruptive. A case could be made that these databases would have evolved into directory services like Yahoo. These data services could have been connected to existing online services including The Source, The Well, AOL, Compuserve, independent BBS systems, Etc.   

As early as 1983-1984 there existed the commercial ability to offer two way data through cable systems. RBOCS could have partnered with independent cable systems and been highly innovative.