Disruptive Innovation Revisited

The recent New Yorker article, - The Disruption Machine: What the gospel of innovation gets wrong, - by Harvard history professor Jill Lepore, has led to a flurry of opinions on disruptive innovation.  The New Yorker described the article as “Rethinking the innovation craze.”  Others called it an “absolutely devastating takedown of disruptive innovation,” a concept that Lepore said is a “competitive strategy for an age seized by terror.”  It’s also a takedown of her fellow Harvard professor Clayton Christensen, - considered the father of disruptive innovation based on his 1997 bestseller The Innovator's Dilemma, and a number of subsequent books and article, - whom she accused of poor scholarship, misreading history, and myopia. 

As I wrote last week, disruptive innovation has been often misused, as happens with popular concepts which become trendy buzzword.  Many are truly tired of all the talk of disruption, even if they could not do without their smartphones and the Web.  Lepore’s article may well be part of a growing backlash against the relentless advances in technology.  It’s important to examine the impact of technologies on society, especially by those who can best write about the societal changes in their wake through the lens of history and human nature.  I was hoping that Lepore had written such an article, but in the end, her aggressive attacks on Christensen turned me off. 

John Hagel, - co-chair of Deloitte’s Center for the Edge, - had a similar reaction in his blog post The Disruption Debate - What’s Missing?   “I admit that I’m mystified by Jill Lepore’s article in the New Yorker attacking Clayton Christensen and his theory of disruptive innovation,” he wrote.  “Not only does it have a meanness that isn’t warranted, but it leaves the reader with an unanswered question: if Clay's theories are not helpful (and I still believe they are), how do we explain the cascading disruptions that are playing out in markets and industries around the world?” 

Hagel then proceeds to examine the growing forces of disruption, which he views “simply as the sudden demise of leaders or incumbents in particular markets or arenas. . . Disruptions turn the assets of incumbents into potentially life-threatening liabilities. . . “[D]isruption is occurring with increasing frequency in the business world.  Whether it is good or bad, it is happening and becoming increasingly widespread.”  ”

We’ve generally studied disruption by looking at case studies of individual companies, including companies like DEC, Wang, Polaroid and Borders that are no longer around.  But, a company doesn’t have to disappear to have been severely disrupted.  Some go through a painful near-death experience but are able to survive and reinvent themselves, like IBM and Xerox.  Others survive, but are now shadows of their former selves, like Kodak, Blackberry and US Steel. 

Lepore actually cites US Steel as one of the cases that she believes Christensen mishandled.  “U.S. Steel’s struggles have been and remain grave, but its failure is by no means a matter of historical record.  Today, the largest U.S. producer of steel is - U.S. Steel.”  Yet, a few days after her article appeared, we saw this headline:  US Steel Gets Booted from S&P 500.  “The struggling Pittsburgh-based steelmaker . . . was the world’s first billion-dollar company and was once so huge it was known simply as The Corporation.  It was one of the most valuable companies in the index for much of the early half of the 20th century.” 

According to Hagel, you can discern a more fundamental and systemic trend beyond the individual case studies.  Something profound is happening.  He cites the evidence collected in the Shift Index project, an initiative he co-leads at the Center for the Edge to measure and quantify the long term impact of the digital revolution through 25 different metrics.  One of these metrics is the topple rate, a measure of how rapidly companies lose their leadership position.  The topple rate has increased by almost 40% since 1965. 

Another measure of market turbulence is the average lifespan of companies on the S&P 500.  The tenure of companies on the S&P 500 was 61 years in 1958; it’s now 18 years.  If these trends continue, 75 percent of the S&P 500 companies will have changed over the next 15 years.  “At the same time that humans are significantly increasing their lifespan, large companies have been heading rapidly in the opposite direction.” 

What’s going on?  Most of us who’ve studied or lived through them find Christensen’s work to be a useful explanation and organizing framework for understanding technology-based disruptions.  I’ve often used his ideas when discussing the creative destruction aspects of innovation, such the near-death experience that IBM went through about 20 years ago.  I’ve also found his framework to be equally useful when discussing the creative construction aspects of innovation, including my personal experiences with IBM’s Internet initiative. 

Technology-based disruptions are now new.  In her 2003 book, Technological Revolutions and Financial Capital:  The Dynamics of Bubbles and Golden Ages, Carlota Perez observed that since the onset of the Industrial Revolution we’ve had 5 major technology-based revolutions and economic cycles, each one lasting roughly 50-60 years.  First was the age of machines, factories and canals starting in 1771.  This was followed by the age of steam and coal, iron and railways starting in 1829; steel, electricity and heavy engineering in 1875; the age of oil, the automobile, and mass production in 1908; and our present age of digital technologies, information and telecommunications which Perez pegs as starting in 1971. 

The first 4 revolutions led to the industrial economy of the past 200 years, based mostly on the manufacturing and production of physical goods of all kinds.  Is our digital technology revolution similar to these previous ones, or is it leading to a very different digital economy and information-based society? 

Hagel believes that digital technologies are quite different from past ones, which helps explain the sustained and increasing patters of disruption all around us.  Past disruptions were characterized by a rapid burst of technology advances and market innovations, as the technologies emerged from the lab into the marketplace, and entrepreneurs then started all kinds of new companies.  After a while, the improvements in the core technology slowed down, and the major innovations were now taking place in infrastructure, mass production and distribution, as the technologies and their many applications became ubiquitous across the economy.  Think of electricity and cars. 

“Digital technology is different – in fact, it’s unprecedented in human history,” writes Hagel.  “It’s the first technology that has demonstrated sustained exponential improvement in price/performance over an extended period of time and continuing into the foreseeable future (based on interviews with scientists and technologists pushing the boundaries of this technology).” 

From exponential technologies to exponential innovation, a 2013 Shift Index study he co-authored, notes that:

“These rapid advances have the power to disrupt industries. The disruptive potential of exponential technologies is amplified when they interact and combine in innovative ways.  The impact is further amplified when technologies coalesce into open platforms and ecosystems.  These reduce the investment and lead time required to drive the next wave of innovation into markets by enabling people and technologies to rapidly build on previous waves of innovation.” 

“Exponential innovations are rapidly moving across boundaries, causing traditional definitions to blur and blend. They are combining with entirely new categories of technology such as molecular biology and materials science, enabling advances and causing disruptions across an ever-expanding range of industries, functions, and disciplines.” 

These exponential innovations have the power to disrupt incumbents in 3 main ways: by rendering obsolete a significant part of their existing assets and installed base; by forcing them to cannibalize their existing revenue and profit streams; and by challenging their existing business models, market assumptions and overall culture. 

How should incumbents respond to these continuing disruptions?  It requires, first of all, an acceptance that the changes are indeed happening and that the company should identify and track them as early as possible.  It requires answers to a few key questions:  What is the nature of the change?  How likely is it to happen?  Is it inevitable no matter what you do?    How quickly should you move

Once convinced that the change is indeed coming, whether you like it or not, the company needs to make some tough strategic decisions.  What are the implications to your business and what should you do about it?  Will the change disrupt your business models, as well as those of competitors?  How can you best leverage your existing assets, including products, customer relationships and brand?  Is it possible to integrate the coming changes into the company’s overall strategies?

In the end, this is the essence of strategy and innovation.  The answers to these questions, and the ensuing actions you take, can spell the difference between being severely disrupted, or turning the disruption from a threat to a competitive advantage, - an opportunity to develop new products, service, markets and business models to help propel the company into the future.

Comments

[dinesh vadhia]

Enjoyed both articles written by a practitioner. It is interesting that books, articles and blog posts are typically aimed at understanding and helping out the incumbent. An alternative view is that we should foster the disrupters more and bring the change to society and business faster.

[James Drogan]

Vadhia makes an interesting comment in "...foster the disrupters more and bring the change to society and business faster."

Suppose we did this. What are the consequences? Can the human accommodate increased disruption, change, and shorter cycle times?

There are limits (frequency and intensity) to the human's natural ability to hear sound. My hypothesis is that similar limits exist with respect to the human's natural ability to accommodate change.

[Tim Walters]

Well, the first good reason why gurus and authors address the incumbents is that they generally have a lot more money, and are (or can be) motivated to spend it in order to understand the disruption. Moreover, I'm not at all sure that whether we authors and analysts "fostered" or favored the disruptors that it would make any appreciable difference in the pace of change.

In fact, I've noticed that commentators (James McQuivey, Larry Downes, Jill Lepore, and, maybe, Dinesh Vadiha [with all due respect!]) tend to (over)emphasize the role of the human actors, the disruptors. One of the things I like about some of John Hagel's work (partially replayed by Irving here) is that it helps us grasp the systematic aspects of disruption. Speaking only of digital disruption, my correction to the "subjectivist" view is to emphasize that *digital is itself a/the disruption* -- even when it is not embodied in the form of those sneaker-wearing, scooter-driving, coffee-guzzling disruptors that so frighten Lepore.