Does your business have the appetite for disruption
Ivy league academic debates rarely set our hearts racing at Brand Genetics (‘Life is so unlike theory’ as Anthony Trollope wrote), but when one challenges a cornerstone of innovation thinking we start to get interested. So Harvard professor Jill Lepore’s out attack on the concept of disruptive innovation and on Clayton Christensen, the Harvard professor who coined it, was worth taking notice of and has given us lots of food for thought.
In a nutshell, Lepore’s article in The New Yorker is a challenge to ‘the gospel of innovation’. Not only does Lepore suggest ‘innovation’ has become an overused catch-all phrase, that is exalted and showered on shareholders and consumers alike, but she also attacks Christensen’s theory of ‘disruptive innovation’. She suggests it is built on flawed evidence of cherry-picked cases, lacks predictive power and is circular in argument (“If an established company doesn’t disrupt, it will fail, and if it fails it must be because it didn’t disrupt.”)
Christensen presented his original theory of disruption in his book The Innovator’s Dilemma. The dilemma is that the innovations that satisfy a business’ need for growth require risks that are often unacceptable to that business – in short they are disruptive. However, even if these companies choose to play it safe, ‘successful, outstanding companies can do everything “right” and yet still lose their market leadership – or even fail – as new, unexpected competitors rise and take over the market’.
This is because the most fertile environment for disruptive innovation – and typically the biggest growth opportunities too – tend to lie in ideas that replace existing products or services. Digital photography replacing film; email replacing post; cars replacing horses etc etc. People are rarely convinced to consume something extra, but they are much more easily convinced to swap and consume something cheaper or easier or faster.
So while established companies might talk about wanting to change their market, few are willing to do so given the potential that disruptive innovation might cannibalise an existing core revenue stream (Kodak’s aversion to digital photography was largely driven by the size of its film business).
On the other hand start-ups and challengers have little to lose (relatively at least) – they have no worries about ‘sunk costs’ or ‘ways of working’, they simply see a new way to solve an old challenge and off they go – like a bull in a china shop. Think Uber for taxis, Napster for record sales, Google Maps for sat-nav manufacturers, camera-phones for cameras, the list goes on. And as Christensen points out – the scary thing about Disruptive innovation is that it is the new entrants that nearly always win…
But Lepore criticises the would-be disruptors suggesting that these ‘upstarts in start-ups’ are taught by the gurus of disruption to “forget rules, obligations, your conscience, loyalty, a sense of the commonweal.” And she argues not all industries are right for disruption – “Innovation and disruption are ideas that originated in the arena of business but which have since been applied to arenas whose values and goals are remote from the values and goals of business.”
At Brand Genetics we like to understand what science and scholarship there is behind innovation – too often ‘gut feel’ and ‘experience’ are not as valid as we would like them to be. We agree that disruptive has become an overused buzzword that is now used to describe little more than a “funky way” – but originally Christensen intended it as a very precise term to describe what happens when ‘a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors.’
Equally, we believe she forgets that it is ultimately the consumer who decides whether an industry is disrupted or not: plenty of start-ups go bust, just as plenty of innovations fail. Will MOOCs replace Universities, will blogs replace journalism… ultimately the market will decide based on the value they deliver.
So while Lepore may be right that the theory of disruption is not a law of innovation – with the power to explain and predict – it is a constant of capitalism. Just as evolution is not so much the survival of the fittest as the culling of the weak, so this ‘creative destruction’, as Joseph Schumpeter noted, is a process of evolution and mutation “that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.”
And when you look at the broader evidence an increased rate of disruption seems all too clear. The lifespans of top companies is shrinking fast: according to an Innosight study of the S&P 500 Index, the 61-year tenure for the average firm in 1958, narrowed to 25 years in 1980, to just 18 years in 2012. At current churn rate, 75% of the S&P 500 will be replaced by 2027.
To survive businesses need to build up their appetite for disruption by taking a more future-focused view of innovation. Looking ahead to try to forecast what will happen, rather than remaining focused on what is happening today (or worse, what happened yesterday). They must create agile business and innovation models that allow them to act more like a digital start-up and less like an industrial behemoth, to keep in tune with the ever faster pace of change. In short, they must accept that – whatever the rights and wrongs of it – their challenge is simply this: ‘disrupt or be disrupted’.