Disruption theory (and practice)

Disruption theory (and practice)


Ever since Joseph Schumpeter, the heterodox Austrian economist whose two extraordinary publications at the dawn of the twentieth century opened the eyes of the world to the importance of economic growth and business cycles, economic literature had known only two types of innovation: radical and incremental. There was the steam engine, then the railways, the first automobile. Innovations that had changed the world, to paraphrase a famous book from MIT: “radical” because they proposed a new product idea through a new technology. But success also depended on the ability to imitate and differentiate with respect to competitors, to know how to better serve a market without changing the product concept and technology: the ability to make “incremental” innovations, that is, by innovating in an evolutionary fashion. For example, when Alfred Sloan at the head of General Motors shrewdly came up with the idea of ​​selling cars "for every purse and every purpose," he undermined Ford's dominant market share that was based on the belief that the aggressive price strategy and functionality of its single-color Model T were enough to dominate the market.
But then, in 1997, Clayton Christensen came. The publication of his doctoral thesis on the computer disk drive industry resulted in the book The Innovator's dilemma. When new technologies cause great firms to fail which became a New York Times and Financial Times bestseller and introduced us to the term “disruption”, a third category of innovation. Christensen, being very religious and having been mythologized as a "guru" by many managers over time, had a biography which if read today has an air of predestination. An undergraduate degree from Brigham Young University (he was a Mormon) with a major in economics, MPhil at Oxford, MBA at Harvard, and then a very promising career as a consultant to multinational corporations such as BCG, he made the unusual decision at a rather advanced age to pursue a PhD at Harvard, which he received when he was forty years old. The then Assistant Professor of Strategy and Technology at Boston University observed that in some markets, innovation was far subtler than had been realized until then. The classic case of mini-photocopiers helps us better understand what is meant by "disruptive innovation".

The desktop mini-copier is a small copier and as such it certainly cannot be defined as a radical technological innovation, compared to xerography. Defining it as incremental is also limiting, since to design and develop it, you need to distort the architecture of the product by equipping it with technological components that are not only smaller but also characterized by an engineering interdependence in a more limited space that imposes new elements and excludes others. Its launch changed the market forever. In fact, despite the fact that the product was conceived for small offices and for individuals who could not afford the large, high-performance Xerox copiers, Canon's determination to work on technological quality over time and maintain a relatively low price has changed the tastes of the entire market over the years, turning it into the most desired product concept.
Apart from disk drives and mini-copiers, Christensen's merit, as the subtitle of his book also highlights, is not so much tied to identifying a third category of innovation halfway between incremental and radical, but in illustrating the consequences that disruptive innovation has on large multinationals – the reason for the enormous success of his model. In fact, in the case studies analyzed, large companies often have disruptive innovations in their bellies. And it would be odd if they didn’t have them, since they spend sums on R&D that vary from 3% to 25% of total turnover depending on the industry. The problem is that even when they patent innovations, firms often cannot manage to put them on the market - they listen closely to the customers already served, who typically like the current offer, and do not have the courage to cannibalize the market share of their own products. Hence, some competitor, from another sector or in the form of a start-up, who lacks these cognitive and economic forms of inertia, manages to launch it and over time the product becomes a real "disruptor", forcing the leading company suddenly to follow rather than lead the market. These disruptive innovations, among other things, enter the lower market segments and progressively position themselves higher because they make the new concept the dominant one in the market over the long term. Famous in this regard is the case of Sony which owned the MP3 patent but did not want to challenge Napster in the digital world of content distribution in 1999, only to realize that with the introduction of the iPod by Apple in 2001 the world would no longer want CDs but MP3s.

The success of the theory is also linked to the moment of its release, when the world was becoming more digital and guided by the logic of the internet and social networks. Many services and products that have since emerged in the digital world recall the logic just highlighted and have been associated with disruption. The Airbnb platform is a case in point: it certainly cannot be defined as a radical innovation (it has not created a new hotel service) or incremental (it has not segmented the hotel business up or down). It was born as an economically efficient solution with variable quality of service (the customers of the platform, as we know, are not professionals, but normal owners who decide to make their homes available) to solve the problem of reservations in "fully booked" destinations. Ignored by the big names in the sector such as Marriott and Sheraton, the platform has slowly redefined the concept of service in tourist accommodation from the "bottom" of the market, becoming the market leader and causing the hotel industry leaders to follow its behavior.
Disruption theory has been validated by many case studies and by various industry analyses carried out by Christensen and colleagues through replication studies. But various ideas advanced by the original model have been falsified and the model itself has come under heavy criticism for the excessive divulgation and trivialization it has produced. Harvard historian Jill Lepore's trenchant critique in the New Yorker is famous, or the more sophisticated article by colleague Andy King of Boston University in the Sloan Management Review. Even in the special issue on Disruptive Innovation of a journal very popular in innovation studies, Journal of Product Innovation Management, the editorial accused the theory of potentially being dangerous, as any fund set up on disruptive innovations would have to close a few years after its opening due to the difficulty of identifying them correctly.
Christensen passed away prematurely two years ago. Today if we google "disruption" we get 160 million results. With the expression "disruptive innovation" they are halved, but 71.5 million remain. Clayton Christensen produces "only" 10.5 million entries, proof that the term disruption has lost its technical meaning in managerial jargon and public language, to become an expression dear to the executives of this digital age. We might say that disruption has created disruption in the scientific and managerial worlds themselves.
In its most sober and original form, however, disruption theory is still taught today in technology management courses and included in the main textbooks on the subject, confirming the solidity of the idea and the importance of the implications that arise from it. More generally, for those who do research, the disruption model reminds us of the importance of the constant tension between solidity and impact: rigor must be put at the forefront, but it is important that it is addressed to topics that help our audiences improve their own awareness and knowledge of the issues they manage.

by Gianmario Verona, Rector and Full Professor of Innovation Management
Translated by Alex Foti

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