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A Working Definition of Disruptive Innovation

· October 2, 2012

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At an MIT event last week, Jack Dorsey of Twitter and Square fame contrasted the phenomena of “disruption” with “revolution.”  As described by Lauren Landry for BostInno:

What Dorsey and his team were able to prove, however, is that what we’re dealing with is an outdated industry ripe not for disruption, but for “revolution.”

“Disruption is confusing,” Dorsey told the crowd, claiming disruption has no leadership, values or direction. What does, however, is “revolution,” and that’s where entrepreneurs should be keeping their focus.

The term “disruption” is indeed confusing.   It might even sound unfavorable, but many pundits and business academics view the word as a defined term with a specific positive connotation.  (Ali’s previous mythbusting post about disruption led to some talk on Twitter about the merits of disruption:  CASH Music’s Jesse von Doom tweeted:  “…disrupting is necessary and not bad in and of itself, but it’s a terrible goal. Disrupt to heal = rad!”)

As Ali previously pointed out, some criticism of “disruption” reacts to an interpretation of that term not equivalent to Clayton Christensen’s disruptive innovation theory.  Most successful entrepreneurs — disruptive, revolutionary, or otherwise — succeed because they possess the characteristics that Dorsey argues disruption does not have: leadership, values, and direction.   As a column I happened upon yesterday points out, Southwest Airlines had a clear direction when it upset the apple cart in the airline industry by providing cheap, spartan service on underserved routes.  For this reason, urging ‘revolution’ over ‘disruption’ mixes apples and oranges.  We’re contrasting a generalized term with a defined term.

So, with that being said, what does the defined term mean?  What makes an innovator disruptive?  According to Christensen:

  1. They begin servicing a new, niche market, generally with a simpler and cheaper good or service, produced at lower margins.  In the Internet context, for example, this may manifest as a freemium or ad-based business model;
  2. They are overlooked by established industry incumbents who are focused on feature-rich, higher-margin, ‘more interesting’ products and who don’t want to cannibalize revenue streams from existing products by pursuing this new, lower-margin product that the incumbents’ most profitable customers aren’t even asking for.
  3. Disruptors take market share from incumbents as the disruptive product or service’s performance improves and customers turn from the old market to the new entrant for the very characteristics that initially caused incumbents to eschew the ‘disruptive’ market (e.g., it is smaller, less complex, more efficient, more portable, easier to use, etc.).

That, in a nutshell, is disruptive innovation.  There’s nothing wrong with the more liberal, casual use of the term by startups seeking capital and tech journalists seeking eyeballs. In the policy context, however, technology industries need to evangelize the disruptive process described above because substantial movements toward (a) efficiency, convenience, and cost reduction in existing markets, and (b) growth in new markets can be attributed to disruptive, rather than merely sustaining, innovations.

At the same time, disruptive innovation necessarily means that someone else’s lunch is being eaten.  That ‘someone’ has been around longer, and will generally have a greater ability to manipulate political processes to squash disruptive changes with regulatory responses.  (E.g., here, here)  That doesn’t happen with sustaining technological innovation.  But if all we ever had was sustaining innovation — if incumbents were able to choke off disruptive changes in the marketplace — then I might be drafting this post on a really fast typewriter.

That is why disruptive innovation matters.

Competition

Some, if not all of society’s most useful innovations are the byproduct of competition. In fact, although it may sound counterintuitive, innovation often flourishes when an incumbent is threatened by a new entrant because the threat of losing users to the competition drives product improvement. The Internet and the products and companies it has enabled are no exception; companies need to constantly stay on their toes, as the next startup is ready to knock them down with a better product.

Innovation

New technologies are constantly emerging that promise to change our lives for the better. These disruptive technologies give us an increase in choice, make technologies more accessible, make things more affordable, and give consumers a voice. And the pace of innovation has only quickened in recent years, as the Internet has enabled a wave of new, inter-connected devices that have benefited consumers around the world, seemingly in all aspects of their lives. Preserving an innovation-friendly market is, therefore, tantamount not only to businesses but society at large.