Disruptive innovation has been a buzzword since Clayton Christensen coined it back in the mid 1990s. But with everyone discussing disruption when it comes to each new business or product that emerges, how can we distinguish between new entrants that pose a threat and those that are best ignored?
Here are four key things to remember when assessing whether the next new company is likely to disrupt your business:
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The common understanding of disruption IS NOT disruption according to Christensen
Let’s start with the basic understanding of disruption. According to Merriam Webster, disruption is "to cause (something) to be unable to continue in the normal way: to interrupt the normal progress or activity of (something)." If this definition is applied to business, then really anything that enters a market and is successful can be seen as "disruptive." But is this how Christensen defined the word when writing in the 1990s?
A great article by Ilan Mochari discusses the misuse of the word disruption when referring to business. As he clarifies, disruption is "what happens when the incumbents are so focused on pleasing their most profitable customers that they neglect or misjudge the needs of their other segments."
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Disruption can be low-end or new-market
These differences are laid out in Disruptive Strategy with Clayton Christensen. Low-end disruption refers to businesses that come in at the bottom of the market and serve customers in a way that is "good enough." These are generally the lower profit markets for the incumbent and thus, when these new businesses enter, the incumbents move further "upstream." In other words, they put their focus on where the greater profit margins are.
New-market disruption refers to businesses that compete against non-consumption in lower margin sectors of a market. Similar to low-end disruption, the products offered are generally seen as "good enough," and the emerging business is able to be profitable at these lower prices. The main difference between the two types of disruption lies in the fact that low-end disruption focuses on overserved customers, and new-market disruption focuses on underserved customers.
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Christensen's disruption is a process, rather than a product or service
When innovative new products or services – iPhone, Tesla’s electric cars, Uber, and the like – launch and grab the attention of the press and consumers, do they qualify as disruptors in their industries? Writing in Harvard Business Review, Christensen cautions us that it takes time to determine whether an innovator’s business model will succeed. He cites Netflix as an example that didn’t threaten Blockbuster at first – its DVDs-by-mail service didn’t satisfy the needs of customers who wanted to get their hands on the latest new release instantaneously – but, in shifting to an on-demand streaming model, was able to siphon away Blockbuster’s core customers before the company could stage an adequate response.
Will the next hot new launch be a flash in the pan, or a formidable competitor? Keeping a close eye on the process – is that product or service evolving its business model to better serve customers’ needs? – will help you evaluate the extent of the threat.
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Choose your battles wisely
If you are a current incumbent and want to be on the lookout for a possibly disruptive emerging business, the clarification of what disruption is certainly helps. Every fire that is started doesn’t necessarily need to be put out, nor will it threaten your house. If you treat every fire as dangerous because someone else calls it “disruptive,” you will soon discover that it isn’t possible to put them all out, and you will waste your resources in attempting to do so. The fires you have to worry about are the ones that truly threaten you, and understanding the correct meaning and application of the word disruption certainly will help you in identifying and targeting the truly disruptive fires.
Understanding disruption is also helpful if you are looking for opportunities to start or scale your business. An understanding of disruption, coupled with Christensen’s other theory of "jobs to be done" can help you create products and services that will be desired by customers, and if you play your cards right, will be left alone by incumbents.
Want to learn more about disruption and other theories from Professor Christensen? Disruptive Strategy will equip you with the tools, frameworks, and intuition to make a difference.
