In our previous post we referred to the innovators’ dilemma expressing it through the following question: How is it possible that quite often small companies −new market entrants− displace the established leaders in a given industry?
“Why do some companies fail, even when they are well managed?” Professor Clayton Christensen “concludes that they often fail because the very management practices that have allowed them to become industry leaders also make it extremely difficult for them to develop the disruptive technologies that ultimately steal away their markets”.
The Theory of Disruptive Innovation has two underlying principles:
- According to the various authors, the reason why industry leaders are displaced by new entrants is that when the latter introduce a “disruptive innovation”, the industry leaders are not able or willing to respond to it.
- Industry leaders may protect themselves from new entrants’ attacks only if they learn the Theory’s principles and methods.
From the above stated and according to Professor Christensen, it can be inferred that a new entrant can only conquer its market through a disruptive innovation and, as clarified in subsequent papers, it also depends on the innovation being disruptive enough. This message has been received by many entrepreneurs and small and medium size businesses who have adopted the Disruptive Innovation Theory as their path to success. But, according to our research, only a few cases of displacement of the industry leaders by new entrants are caused by “disruptive innovations”.
Having said this, it is now time to explain what Christensen considers a “disruptive innovation”. His working papers and publications do not provide us with a detailed definition. Nevertheless, we can say that the term refers to innovations that follow this diffusion path:
- The initial performance of products and services based on the innovative technology is limited when measured by traditional metrics, while at the same time it opens a wide range of opportunities for the technology to be applied.
- The new entrants find a large number of new customers −initially different from those of the established leaders− who value the new possibilities the technology offers.
- The diffusion of the innovation implies a new business model which differs widely from that of the industry leaders.
- The development of the new technology generates performance improvements, surpassing the traditional technology even when measuring its performance in terms of traditional metrics.
- New entrants displace traditional industry leaders in many important customer segments or even in the whole market.
Christensen’s firm belief in the fact that only disruptive innovation offers new entrants the opportunity for success is illustrated by his words as published by Business Week in its 2007 interview of Professor Christensen. He stated then that: “But the prediction of the theory would be that Apple won’t succeed with the iPhone. They’ve launched an innovation that the existing players in the industry are heavily motivated to beat: It’s not [truly] disruptive”.
Additionally we want to mention that his prediction could not be more mistaken. The new entrants, led by Apple and its iPhone, have notably displaced the sector leaders who had shaped the mobile telephony industry, mainly, Motorola, Nokia and Ericsson. Apple’s success with its iPhone is undeniable.
To understand the reasons for Christensen’s predictive error we should answer the following questions:
- At which point in time can we consider a given innovation a disruptive one?
- How do we measure the disruption potential of the innovation?
- Are disruptive innovations the only ones capable of displacing industry leaders?
In our next posts we will provide the answers to these primary questions.