The Controversy Of Disruptive Innovation Essay

Disruption occurs when a smaller company with fewer resources successfully disrupts the business practices of an incumbent business. Disruptive innovation has brought success to countless companies. However, though it is effective, it can also be dangerous. This is because many theories on the subject are misunderstood or misapplied. Christenson believes this is because users tend to focus on the concepts created 20 years ago, rather than reading books and articles that have been published with refinements since that time.

Many believe that disruption occurs any time an industry is shaken by an entrant but this is not true. Misunderstanding how disruptive innovation works creates criticism when the uninformed company fails while using this method. It is crucial that entrants understand that different types of innovation require different strategic approaches. Disruptive innovation is most effective when an entrant focuses on areas an incumbent business ignores. Incumbents are so focused on their most successful segments that they do not notice or care much to see an entrant target their smaller, less profitable segments.

Disruption occurs when mainstream customers begin to purchase the entrant’s products. This was the case with the integrated steel mills and the mini mills. Slowly but surely the mini mills took over production of the least profitable segments of the integrated steel mills. Over time the mini mills became more successful than the incumbent because they continued to move upmarket until little remained for the integrated mills to produce. An example of disruptive innovation misunderstood is Uber. Uber is a successful transportation company that is in 60 countries with a value of roughly $50 billion.

Though it has transformed the taxi business, it is not considered a disruptor for two reasons. The first is that disruptive innovations happen either in low-end or new-market footholds. The second is that these innovations do not enter the mainstream immediately. It takes time for low-end footholds to be created because the quality of the product or service must be close to that of an incumbent’s products. Uber entered in the mainstream of the taxi business, rather than in a low-end foothold and there was already a market for taxi transportation so it did not enter in the new-market foothold either.

This is considered a sustaining innovation as it makes the taxi experience more convenient by allowing customers to use a phone application to find a ride and to pay for the ride. There are four points that get overlooked in regards to disruptive innovation. The first is that disruption is a process. It focuses on getting the model right and not just the product and it takes time. This is why it tends to be overlooked by incumbents, much like Netflix and how Blockbuster did not expect them to put them out of business with their streaming capabilities.

The second point is disruptors build business models that differ from an incumbent’s. The example given was the Apple iPhone. The phone was considered to be a sustaining innovation in the cellular phone industry. However, it became a disruptive technology in the laptop industry. Apple created applications that gave the user everything they needed from a laptop in the palm of their hand. The third point is that some disruptive innovations succeed and some don’t. It is important to understand that failing to enter a market does not mean the concept failed.

Failure is not built into the definition of disruption. It is also important to remember that not all success comes from disruption, which is shown in the case of Uber. The final point is that the mantra “disrupt or be disrupted” can misguide us. Incumbents must understand that action is not always required when an entrant challenges the market. They should not reconfigure a profitable business until they are given reason to believe the entrant will have a significant impact on their current business operations. There is no need to try to solve a problem before there is one.

The theory of disruption assumes that when an entrant challenges an incumbent head-on, the incumbent will either begin offering better products and services or they will acquire the entrant. This is why it is important to attack at a lower level where immediate action is less likely to be taken by the incumbent. At one time, disruptive innovation was simply a statement about correlation. Incumbents were successful in sustaining innovation but underperformed in disruptive innovations. This was because the focus was put on existing customers for so long, it was difficult to shift investments to disruptive innovations.

What leads an incumbent to ignore entrants is also what compels those entrants to disrupt. Incumbents provide a price umbrella, which allows entrants to make a profit and soon those incumbents cede, allowing the entrants to move upmarket. This caused disruptive innovation to also become a theory of causation. There is still much to learn about disruptive theory. Continued research will help firms grasp key concepts and potentially gain footholds into new markets. Hamel and Prahalad’s Loose Brick approach is all about the element of surprise.

Within this strategy in the war for global markets, new and successful competitors stay below the threshold of response as to not alert their more powerful rivals. The focus is on areas of business that are under defended. Finding loose bricks requires managers to determine ways to challenge the competition and break into a new market. Research must be done to determine how a company defines itself within an industry so the entrant can learn what within that company would be useful to target for their own benefit. The goal is to attack right outside the market territory that is currently occupied by another industry leader.

When accomplished, the result is an uncontested profit of a particular segment, value chain, or geographic market. In order to protect loose bricks, companies must anticipate and track the movements of global competitors across product segments, businesses, value-added stages, distribution channels, and national markets. Hamel and Prahalad’s Process of Surrender involved entrants using their resources to overtake incumbents. Smaller rivals were gaining new technologies through licensing arrangements and learning and formulating new market strategies that would allow them to be competitive with the incumbent businesses.

Originally, rivals would try to attack at lower levels of the industry, rather than attack an incumbent head on. These would be dismissed as attempts to enter niche markets, rather than a search for loose bricks. The combination of unseen strategic intent, underestimated resourcefulness, and unconventional entry tactics surprised the incumbents. This resulted in a partial response to the rival, which then turned into a catch-up trap that resulted in lost battles. These losses made the incumbents believe it was inevitable that they would be pushed out of a market so they decided to leave the market.

Clayton Christiansen’s disruptive innovation theory and Hamel and Prahalad’s process of surrender are comparable but are also quite different. Both concepts involve attacking the incumbent companies to gain market share. However, disruptive innovation is about attacking the lowest segments of an industry or creating a customer base where there was originally no market. The process of surrender involves small steps in the beginning that when combined attack the incumbent head on. Disruptive innovation also focuses on creating a product that just allows the entrant to enter the new market.

Once they are there they then begin to refine their products to match the quality of the incumbent’s offerings. The process of surrender involves multiple layers of advantage along with expansion across related product segments to cause a greater amount of damage to the incumbent once it was realized that they were under attack. While both methods aim to enter new markets and increase market share, the process of surrender is more methodically thought out to cause a bigger blow to the incumbent than if the entrant was to enter using disruptive innovation.