INNOVATION TALK:FOR THE PAST 15 years, it has been nearly impossible to think about innovation without also thinking about disruption. In business management theory, they are two sides of the same coin, with every innovation creating both opportunity and risk; opportunity for the innovator, risk for the incumbent.
How to be on the right side of that equation, and avoid seeing your business model disrupted beyond repair, is an obsession for managers in a whole range of businesses. The innovation/disruption dichotomy became conventional business wisdom in 1997, when Harvard Business School professor Clayton Christensen published The Innovator’s Dilemma.
The case studies of disrupted businesses Christensen used, such as steel mills and computer disk manufacturers, were the products of his extensive research, and he concluded that incumbents and upstarts have vastly different attitudes to marginal and full costs, with risk-averse incumbents repeatedly losing out to more adventurous upstarts.
Since that time, the process of disruption has vastly accelerated – a whole range of businesses that could scarcely have imagined facing an existential threat from a then-nascent worldwide web have been plunged into crisis, with upstart companies causing no end of headaches for formerly impregnable incumbents.
In a new book, How Will You Measure Your Life?, Christensen has adapted some of his theories into a grand-unified theory of living a good life – a kind of self-help meets business management tome. I guess avoiding unexpected disruption in one’s own life is a good idea, but he also argues that our tendency to “employ the marginal-cost doctrine” can be very costly in the long term.
Whatever the applicability of Christensen’s ideas to real life, the pervasiveness of his ideas in business circles makes him one of the most influential thinkers in the field. An insightful profile in the New Yorker recently described him as “the guru of disruption”, but since he first formulated his big idea and became a prophet of innovation, disruption itself has become disrupted.
Christensen’s examples focus on incumbents getting their business eaten away by low-end rivals offering cheaper, often less efficient alternatives that gradually improve to the point that they own the market. In Christensen’s classic case study, the big steel mills got the rug pulled out from under them by small operators who started making cheap steel for rebar. Intel’s former chief executive Andy Grove famously took Christensen’s advice on board and introduced a low-end chip, the Celeron, which kept low-end disruptors at bay.
One of Christensen’s proteges from Harvard is Horace Dediu, a leading analyst who focuses on the mobile industry. If any industry is a crucible of disruption, it’s mobile – the smartphone is upending traditional businesses left, right and centre, to the degree that it’s very difficult to predict anything, as a library of foolish analyst forecasts can attest.
Dediu, on the other hand, applies Christensen’s concepts with astute results – he gave a well-received talk at the Apple-centric Ull conference in Dublin in April that showcased his analysis. But instead of concentrating on low-end disruption, Dediu also implements another of Christensen’s ideas – the idea that customers “hire” items or services for “jobs to be done”.
In mobile, this is a considerably more useful approach – those seemingly impregnable incumbents such as Nokia and RIM have been disrupted not by a low-end rival, as befits Christensen’s model, but by the iPhone and Android, a completely new sort of rival altogether. This sort of disruption is harder to model – it’s not low-end, it’s not low-margin, it’s out of left-field, unforeseeable. Through the prism of disruption, every business looks vulnerable to some upstart doing the same thing, but cheaper. But through the prism of hiring solutions to problems, patterns of change become somewhat easier to discern.
Digital cameras, for example, are hired to satisfy the desire to record moments for posterity. Camera phones are hired to satisfy that desire in a more convenient way. That doesn’t augur well for Canon or Nikon. Take TV. It has traditionally been hired to entertain us in our homes. Now the internet is hired to pipe a wider range of entertainment to us in a more convenient way, and tablets are the perfect vehicle for that. Broadcast television is going to be overwhelmed by video-on-demand services in the not too distant future. Or another example – newspapers were hired to inform us about current affairs. Now there is no shortage of services that can be hired to do just that, in a much more convenient way.
The disruption that Christensen wrote about in The Innovator’s Dilemma is very real for these industries, but these three examples are being disrupted not by low-end rivals but by a single threat – mobile technology, the smartphone in your pocket or the iPad in your bag. The user is hiring a single device for a range of jobs to be done, and the result is a concentration of disruption, a perfect storm of change that threatens business models built up over generations. And for that particular dilemma, there is no business management guru offering easy solutions.
Through the prism of disruption, every business looks vulnerable to some upstart doing the same thing, but cheaper
