What Is a Disruption?
Nowadays, everyone is talking about disruption. Disruption has become a buzzword for companies, products, and especially start-ups that wants to be seen as the new up and coming firm shaping our future. But what is the fuss all about, and what is actually a disruption?
Prof. Christensen’s starting point
It all started in 1997 with the theory of the so-called Innovator’s Dilemma. Business Harvard School Professor Christensen wondered why great companies keep failing. So, he studied the cases of why former leaders come down and found the following pattern.
In his theory established companies (incumbents) improve their products by adding new features and enhancing performance through sustaining innovations. This process ends in overperformance - by offering features the mainstream does not want to pay for. Even though customers want better products over time, established companies are way faster in offering better products than actually needed by customers. In the end, established companies are offering a fancy product that most people do not (necessarily) need. They do not need these new decorative features or the let's call it premium product performance.
While the incumbent (e.g. market leader) steadily increases its product performance, a new company launches a innovative product to customers in the low-end segment (or at a niche segment). The disruptive company improves its new product over time and at one point meets the demand of the mainstream. Now the disruptive company satisfies the demand of the mainstream customers for a lower price than the former great company does and it simply takes over most customers of the incumbent.
Innovator’s Dilemma by Christensen
Source: adapted from Christensen (1997) or Christensen et al. (2015)
What is the dilemma for established companies?
Established companies (incumbents) do everything right, they frequently improve their products (sustainable innovations), they focus on the more profitable high-end customer segment, and they increase profitability by offering appealing features and thereby collecting higher prices. But by pursuing perfection and following the business textbook by conducting sustainable innovations of their products, the established companies open the possibility of getting disrupted by an (in static view) inferior company in the first place and when the established company outruns the mainstream market, the disruptive company can fill this gap.
By being successful, companies are too concentrated in their current core business and too confident or even cocky. They do not consider new entrants in the low-end market as a potential threat. Also, they are too comfortable with their current success that they have no urge to think about creating something new (that might cannibalize their successful products or even could disrupt their current business model) or change their current strategic path. Or differently phrased
today's success is the enemy of tomorrow's success
Competition as an accelerator
Another reason why incumbents constantly improve their proposition lies in the competition as competition can push companies to constantly improving their product. For instance, being hustled by Samsung and other rivals, Apple has no other choice than to develop its products by its design, features, and brand image and thereby outruns the mainstream market.
What is meant by disruption?
Christensen’s theory started a discussion about disruption and about which company is actually disruptive and which is not. Many authors consider more companies as disruptive than Christensen does. For Christensen, a company is only disruptive when it fits into his model. Other authors extend the definition of disruptive companies to everything that disrupts existing companies.
For example, for Christensen Tesla is not a disruptive company because Tesla started at the high-end customer segment and not at the low-end (where a disruption should start according to his model). On the contrary, many others consider Tesla as a disruption.
The same applies to Uber. Uber also did not start at the low-end market, and neither did taxis overperform (Taxis did not increase the performance of their products over time, or at least not a lot). So, Uber is for Christensen not a disruptive company, whereas for most authors and especially most people who talk about disruptions Uber is disruptive.
Notably, there is no consistent definition. However, the most significant and agreeable characteristics for a disruption are:
Disruption is a process
Disruption does not happen from one day to another
The competition distinguishes from the usual competition
Because after a disruption took place the new competitors have different products with different propositions and therefore the competition is different than if the competitors have the same product just with a different brand and slightly different features
A disruptive company often creates a function in a new manner
E.g., Apple created a new function with the iPhone, now having touchscreen and apps
A disruptive company usually has new components in the proposition to the customers
E. g. in the case of digital cameras. In the beginning, digital cameras had worse photo quality than conventional cameras. But the new component of being able to save and send photos made the new technology more popular despite the worse photo quality.
Disruptive companies have a different business model
That allows them to have lower costs or to offer a different, innovative proposition to customers
That companies struggle in regular competition, does not mean they are getting disrupted!
Since disruption became such a fuzzy buzzword in the business world, it is important to know what is meant in the particular context: whether it refers to Christensen’s model or another broader definition. Possibly, sometimes when the word disruption is used, it does not mean an actual disruption since, to be a disruption, there has to be an existing company that actually gets disrupted.
Digital transformation vs. digital disruption
Business modeling and especially digital technologies are taking a remarkable role in disruptions, nowadays. Digital technology provides many opportunities for how to change things. Digital technology serves as a basis for future disruptive companies to utilize leaner business processes or to offer new products, respectively, services that have the potential to disrupt established companies. However, not every new digital company, business model, or product has the possibility of being disruptive even though it might change how things are done, simply because they do not disrupt another company. That is why it is important to know the difference between digital disruption and digital transformation.
Another company or industry gets disrupted
By a new proposition that is more appealing to the customers
Driven by digital technology
Changes the „game”, industry, competition
E.g., Netflix disrupted Blockbuster
Organizations adapt their processes, applications, infrastructure, etc. to the new digital age (change process)
Companies are still in the conventional competition (but they can generate advantages)
Could trigger disruptions
E.g., data analytics in marketing or internet of things in production
Digitalization is the basis for digital transformation. The digital transformation will lead us to the new digital age by including digital processes, applications, and so on everywhere in the business world whereas digital disruption is something more than just changing how things are done. Disruptive companies create an innovative proposition that will, by time, attract the mainstream customer and then disrupt the established companies and hence change the industry. At digital transformation, on the other hand, companies might get a disadvantage at acting too late to prepare for the digital age. However, that companies struggle in regular competition for example by acting too late and too slow to transform the company digitally, does not mean they are getting disrupted!
Read about how to avoid getting disrupted here!
Christensen (1997): The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail, Boston
Christensen (2012a): Clayton M. Christensen on Disruptive Innovation, YouTube, published 1.7.2012, youtube.com/watch?v=WxwR_TTuKdc [12.5.2020]
Christensen (2012b): How To Escape The Innovator's | Keen On... Clay Christensen, YouTube, published 2.4.2012, youtube.com/watch?v=gfr3uLbC22Y [12.5.2020]
Christensen / Raynor / McDonald (2015): What Is disruptive Innovation?, hbr.org/2015/12/what-is-disruptive-innovation [12.5.2020]
Fuchs / Golenhofen (2019): Mastering Disruption and Innovation in Product Management: Connecting the Dots, Munich
Gründerszene (2020): Disruption, gruenderszene.de/lexikon/begriffe/disruption?interstitial [15.1.2020]
Lefkes / Berth / Schultz (2017): Perspektivenwechsel im Handel: von disruptiven Geschäftsmodellen lernen und Gegenstrategien entwickeln, at: Schallmo et al.: Digitale Transformation von Geschäftdsmodellen, Wiesbaden
Li (2016): The Innovator's dilemma, YouiTube, published 11.7.2016, youtube.com/watch?v=NrC_tR8hxjQ [12.5.2020]
Meck / Weiguny (2015): Disruption, Baby, Disruption, faz.net/aktuell/wirtschaft/wirtschaftswissen/das-wirtschaftswort-des-jahres-disruption-baby-disruption-13985491.html [12.5.2020]
Pelard (2014): Christensen's Innovator's Dilemma, YouTube, published 10.2.2014, youtube.com/watch?v=ExC0zl1JaT4 [12.5.2020]
Reinhard (2018): Was bedeutet Disruption?, wois-innovation.de/was-bedeutet-disruption [20.1.2020]
Schimpf (2016): Disruptive Innovation Teil 1: Versuche einer Begriffserklärung, blog.iao.fraunhofer.de/disruptive-innovationen-teil-1-versuche-einer-begriffsklaerung [17.1.2020]
Servatius (2016): Woran erkennt man ein disruptives Geschäftsmodell?, competivation.de/2016/07/27/woran-erkennt-man-ein-disruptives-geschaeftsmodell [20.1.2020]
Sethi (2015): Innovating at Scale: The Companies That Don't Let Size Slow Them Down, medium.com/@arjunsethi/how-companies-can-avoid-the-innovator-s-dilemma-3f980ae533a7 [28.10.2020]