Why Leaders Still Need To Heed Clayton Christensen’s Theory Of Disruptive Innovation
Creating diamonds in a laboratory offers a distinct contrast to the huge mining operations … [+]
Clayton Christensen, the distinguished Harvard Business School professor who died earlier this year, will in all likelihood be best remembered for his 1997 book The Innovator’s Dilemma and the concept of “disruptive innovation” that it introduced. Appearing as they did at the dawn of the internet age, the book and theory are often called upon to explain all those technology-based — or, as they are now referred to, digital — businesses that sprang up to challenge incumbent industries. Inevitably for a concept so widely referenced, disruptive innovation was often misinterpreted and misunderstood so that Christensen constantly explained and developed it.
And, although Christensen is no longer with us, it is still being developed and discussed. In an essay just published in the MIT Sloan Management Review, Columbia Business School professor Rita Gunther McGrath explains how the theory is as powerful as ever. “Christensen presciently explained that fast-moving disrupters entering the market with cheap, low-quality goods could undermine companies wed to prevailing beliefs about competitive advantage. In the last decade, however, the profile of disrupters has changed dramatically. The critical difference is that they now enter the market with products and services that are every bit as good as those offered by legacy companies. Their ascendance doesn’t undermine Christensen’s theory. In fact, they expand its reach and vitality — and make it harder than ever for traditional companies to compete.”
Just look at Amish Shah and his lab-grown diamond business ALTR. Shah knew all about the incumbent traditional diamond business because his family had been involved in it for 85 years. But with a background in technology — he was teaching others to use computers at the age of 12 — he saw an opportunity to put the family business at the forefront of a new trend. Companies had been creating diamonds for many years, but Shah saw that the technology made the process more accessible, with the result that consumers could be offered a genuine choice of created versus mined diamonds. In a recent interview, he explained that the diamond business had largely been based on selling consumers the idea that diamonds were expensive because they were rare. But buyers were becoming more questioning and — as with their purchasing in other areas — more concerned about the circumstances in which the items were produced. So this approach was under threat. “We need to start telling the consumer what the real value is,” said Shah, adding that it had a lot to do with emotion and sentiment.
What started in 2006 as a niche operation — one initially frowned upon by Shah’s family — has grown rapidly as customers have been won over by the opportunity to buy more impressive diamonds than they would previously been able to afford. Analysts are constantly revising upwards predictions of the value of this aspect of the industry and leading providers have introduced their own lines of created diamonds. “There has been an entire shift in buying patterns,” added Shah.
Another who was quick to realise how technology could open up new markets is Woodrow Levin, founder and CEO of Extend, a San Francisco-based company that helps companies make selling extended warranties for products bought online a seamless process. Levin had previously founded and sold a business, Estate Assist, that provides a digital safe deposit box for all online and offline assets to make access easier for the owner’s family after they have deceased and said in an interview this week that both businesses were firmly based in “a specific experience I have had.” He added: “I am an early adopter of technology and I am always looking for ways to be more efficient and more effective.”
Having said that, he responds to the suggestion that Christensen’s theory of disruptive innovation had maybe helped inspire too many start-ups that were not rooted in genuine need by insisting that he rigorously road-tests with family and friends all the business ideas that come to him. Having learned from an early venture — InStadium, which placed advertisements in the washrooms at sports stadiums — that even a good idea (selling to a captive audience with known interests thanks to the data held by the sports teams) would not necessarily translate into a sustainable business, he now ensures that any idea can be scaled up through technology. The problem with InStadium was that it required a huge human effort to put up the advertisements and remove them after each game at many different sites across the country.
Extend, which recently secured funding for the next stage of its development and has passed 60 employees in its first year, appears to be an example of Gunther McGrath’s point about the new generation of disruptive innovators improving on what went before. As Levin says, it is not the first company to do what it is doing, but he believes it has learned from the true pioneers to improve the customer experience and give consumers what they want rather than want the companies want to sell.
This is, of course, easier for truly digital companies than for legacy companies. But a note of caution on the amount of disruption being created is sounded by another recently published article referencing Christensen’s work. In the post on Forbes.com, Julian Birkinshaw, Professor of Strategy and Entrepreneurship and Deputy Dean (Executive Education and Learning Innovation) at London Business School, questions the extent to which incumbents are being overpowered by new entrants. While suggesting that the threat is more nuanced than has sometimes been suggested, he nevertheless acknowledges that it is real, with the incumbents that continue to survive adopting at least some of the armoury of the invaders. And that means that Christensen’s theory is likely to continue to be the subject of debate for some years to come.