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The Disruption FAQ

Q1. What is disruption?

Disruption happens when the strong are defeated by the weak. More precisely it’s when those with unconstrained access to resources have them taken away by those with minimal or no resources. It’s a phenomenon that is in contrast to sustaining competition where the strong get stronger.

Q2. How can disruption happen? Don’t the strong always have an advantage over the weak?

The strong can be defeated when the fight is unfair. More precisely, “strength” is only a perception based on convention or historic precedent. The entrant may be weak in resources but may be strong in a way that is not seen as conventionally useful or valuable such as agility or a willingness to learn.

Q3. What makes a fight unfair?

A fight is unfair if the opponents fight according to different rules. This is also called asymmetric competition. Asymmetry is an important concept in game theory, economics and military science.

Q4: Is there a way to know disruption is about to happen?

Disruption theory is an attempt to reliably identify winning challenges. It includes a method of analysis of “the setting” of the fight and “the weighing” of the fighters. In other words, it measures whether the challenger is sufficiently asymmetric and whether the incumbent is flexible enough in their likely response. If there is insufficient asymmetry the theory would suggest the challenger will lose, and vice versa.

Q5: How often does it happen?

In some industries it happens quickly and in some industries slowly and in some never at all. Determining the cause of the rate of disruption is an important research topic. We can hypothesize that industries which show frequent disruption also show a high degree of wealth creation. The inverse is also true: industries that don’t get disrupted don’t create much wealth.

Q6. How do incumbents react to asymmetric challenges?

This quote (mistakenly attributed to Gandhi) describes it best: “First they ignore you, then they laugh at you, then they fight you, then you win.” The main test of asymmetry is to ask whether a challenger’s entry is ignored (or welcomed) by the incumbents. Most asymmetric challenges are not taken seriously because they initially benefit the incumbent. The side-effect is that it lulls them into a sense of security resulting in a lack of response. Challengers have the child-like advantage of rapid growth and learning while incumbents are encumbered by their size and lack of flexibility.

Q7: Why don’t challengers respond in kind?

Mainly because they don’t feel that they need to. The newcomer is either not seen as a threat or welcomed because the customers they obtain that are not seen as valuable. In some cases the business model of the entrant is contrary to that of the incumbent. In other words, the challenger makes money in a way that would cause the incumbent to lose money. Often the challenger is actually invisible because she misdirects attention. They may be seen as competing in one market with a certain set of competitors but their effect is in another market which never had to deal with a challenger.

Q8: If there are different ways disruption can be observed, doesn’t that mean there are different types of disruptions?

Yes. When a competitor challenges with a cheaper product that seems to perform poorly and has low margins and the incumbent accepts the entry because it allows them to concentrate on more profitable customers then this is called a “low-end disruption”. Here the asymmetry is in cost structure. The entrant has lower costs and accepts lower profit margins and may “make money” in new or different ways.

When a competitor misdirects attention by selling a product that draws usage from existing customers and adds non-consuming new customers because it enables new uses, then the incumbent feels no pain from the entry because they don’t sense a reduction in customers. We call this a “new market disruption“. The challenger gains a foothold and grows/evolves, eventually capturing customers exclusively. Here the asymmetry is in the basis of competition and measurement of “performance”. The new product does not actually do the same thing as the incumbent product or does a subset of valuable tasks poorly while excelling at menial tasks. The entrant may be highly profitable but they are not taking profits away from incumbents because they “grow the pie”, capturing value by fulfilling unmet needs.

Disruption can also happen to professions and institutions when less skilled individuals are enabled to perform complex jobs or when professionals can establish good enough services that used to take institutional support. This is called professional services disruption.

Technological change is often (but not always) the core enabler in creating disruptions. The analogy is that technology is a weapon that allows asymmetric combat but the combatant is the disruptor, not the weapon[1].

Q9: It sounds like the trick to spotting disruption is in perceiving when the fight becomes “unfair” and an outsider advantage is gained. Does the theory make this easy?

It makes it possible but not easy. Understanding when a basis of competition changes and where competition is shifting is still very difficult. It is notoriously difficult to sense when it’s happening to you because you are working toward a strategy with assumptions that have been tested and proven to be correct. In other words, you, your colleagues, your competitors and everyone you’ve ever met knows the rules of the fight. Insider status makes you an expert, your knowledge is far beyond a lay person’s and you have a track record of winning. Hubris and pride makes it difficult to accept a challenge from an ignorant outsider.

Furthermore, an outside analyst who is not suffering from these psychological weaknesses may not have the means to measure change because they don’t have access to market metrics. So you can’t typically hire a consultant to help you spot it. This is where the theory helps. If you are a practitioner then you can use the theory as a lens to see the patterns in the operating data.

The proper application of the theory requires domain knowledge or deep reading of weak signals. It’s best employed by incumbent operating managers analyzing their own industry. It’s a tool that can be used to overcome the perception of incumbent invulnerability. It is not a tool that can be used by armchair generals. They can pick up the lens but, not having any data to look at, they have have no patterns to recognize. (This last point is disputed. See comment.)

By the way, entrants don’t benefit much from it either because they act disruptively by instinct. They enjoy the freedom of having nothing to lose.

Q10: How long does this take? Isn’t a shift in competition natural over a few decades?

The speed of disruption is changing rapidly. It used to take decades but now it takes years and in some software industries it could be happening in less than one year. When it used to take decades it did not matter much because the “victims” of a disruption usually could spend a career in the firm being disrupted and would not have to adjust their behavior or assumptions. The consequences would have been felt by future generations. The rate of disruption today is so rapid that many careers and lives and families are having to deal with the consequences, sometimes more than once. Estimating the acceleration and scope of disruptive change is a great research topic.

Q11: Is the theory complete? Can’t we just write an app for it?

It’s not complete. It cannot be encoded as a deterministic algorithm. It’s not even likely that expert systems or neural networks or machine learning can help. This is because perception of change in competition is a skill informed as much by intuition as by data and rules. If the theory is developed further, through a process of theory building, then it might become an app.

Q12: If the theory is not complete, then isn’t it useless?

A theory is not useless if it’s imprecise or difficult to use. Data that would make conclusions precise is often missing or unavailable. The theory relies on weak signals and explains what used to be unexplainable. Many sciences developed from empirical analysis similar to where we are with disruption theory. Theories benefit from development.

Q13: Is the theory being developed further?

Yes. There is a process for theory building which has been ongoing for over a decade where many researchers, students of disruption and practitioners are contributing.

Q14: Can the theory be applied outside of business competition?

Yes, institutions can be disrupted as can individuals. Possibly even economies and states. This is because a growing technological base and communications enable asymmetries of ever-greater scope and speed. The research needed to establish how this happens is under way. However it’s important to know the limits of the phenomenon. Incumbents are getting wiser as they wield the theory and some “settings” show resistance to change and thus prohibit technological cores to be utilized disruptively. The study of these anomalies is essential to the process of theory building.

Q15: Is disruption a force of nature? Has it always existed? Will it never end?

Oral traditions suggest that people have been aware of disruptive forces for all of history. We feel it in the school playground and in many personal relationships. It’s in the Bible and the classics that predate it. It’s visible in all cultures. Disruption theory as applied to business and government is only an extension of this causal individual behavior into complex systems. It’s possible that awareness of it might cause the behavior to change, or, put another way, that if you observe and understand the phenomenon, that knowledge could cause it to stop happening. But the systems involved are vast and learning curves are long. Enlightenment may take a few lifespans.

Update:

Here are questions which have been added based on reader feedback. Please feel free to suggest others in the comments.

Q16: Isn’t Disruption just evolution of business models?

Business models evolve, but if the evolution sustains an existing incumbent then it’s not a disruption. If an evolution is  adopted by an entrant who then proceeds to strip the assets and profits from an incumbent then it’s a disruptive change. The key question is why do some changes get adopted and not others.

Q18: What have been the major improvements in the theory since its introduction in 1997’s The Innovator’s Dilemma?

From Clay Christensen’s work alone: New Market Disruptions, Professional Disruption, Value Chain Evolution Theory, Jobs to be Done Theory. The Innovator’s Solution including how to respond with autonomous self-disruption, the role of acquisitions, the study of Healthcare and Education as targets of (and anomalies to) disruptive change. The process of theory building. The Capitalist’s Dilemma and how economies create incentives and disincentives to disruptive innovations.  Many other contributions from researchers too numerous to cite here.

Q19: What industries cannot be disrupted

Industries which experience no disruptions are “anomalous” in that the theory suggests that technological progress forces change and technologies have proliferated in almost all industries..  Industries or institutions which have remained largely undisrupted include Energy, Education, Government, Healthcare, Airlines and Hotels. The study of these anomalies continues and explanations identify conditions that prevent growth. Dependencies on regulation, infrastructure, and absence of technological core enablers caused some of the atrophy to date. However signals of change are appearing in all these industries and paths to disruption are clearly possible.

Q20: How is it possible that companies which were claimed to be disrupted are still around and some which are claimed to be disruptors have vanished?

Being disrupted does not mean ceasing to exist. Being disrupted is a loss of a specific encounter, but not necessarily a terminal loss. Being a disruptor is a win in a specific encounter and not a guarantee of immortality. Indeed many disruptors come to be disrupted and the theory suggests sustainable growth requires self-disruption. Also a disrupted company can be re-configured post-disruption into another entity or can muddle along with limited value indefinitely. Sometimes they can rise up and become disruptors again.

Notes:
  1. See David vs. Goliath: using a projectile allowed David to overcome Goliath but only when wielded skillfully []
  • http://www.collideconsult.com/ Ed Dietrich

    Horace, have you read “The Sling and the Stone” – great book on Asymetrical Warfare? Lots applicable to business too. Good Post!

  • Fran_Kostella

    In the late 90s I was working for an entrepreneur when Christensen’s book was making the rounds. This fellow claimed that those patterns had been known among tech entrepreneurs for as long as he’d been involved, 15 years at that point. I can’t speak for the veracity of that claim, so I would find it interesting to hear about earlier versions of disruption theory.

    I have another model of incumbent behavior that I’ve seen in various consulting engagements. The incumbent correctly perceives the disruption and understands that they have to address it but finds that their organization is unable to respond in a timely or meaningful manner. I’ve seen this a number of times, people at the C level understand the threat, but organization silos are unable to change or unwilling to relinquish control over their part of the process, and the leaders are unable to radically restructure the organization or break up fiefdoms.

    Two years ago I was working with a group trying to assist a large, established market leader in dealing with new web based challengers who were eating away at their low end. A classic situation. But despite the entire leadership understanding the danger, the budgeting process and historical ownership of new technologies made it impossible for them to field an effective response in less than four years. Or more. We eventually abandoned the effort and the company decided to hope that they come up with an effective response while they capture the profits from the high end. A real tragedy, but one they are not willing to address because of the company culture and internal processes. I think that ultimately it boils down to a lack of leadership.

    • Arhi Kivilahti

      Disruptive innovation builds on earlier theoretical models of innovation development and industry transformation. Most notable being numerous papers by Utterback & Abernathy starting from the 70’s. Also Tushman (from HBS) & Anderson did numerous papers on discontinuous change in industries. Henderson & Clarke (1990?) did a classification of different kinds of innovations and if I remember correctly Christensen refers to these in the early papers from the dissertation.

      These are some of the important streams of research in the field of management. Marketing, economics… have other important theories that most probably have been influencing.

      • Arhi Kivilahti

        My perspective about Clayton Christensen and his great impact is that it is more on the practical side: greatest management thinker awards, mention in Jobs book…
        His not maybe as important academically in terms of publishing in the highest impact journals like Tushman or Utterback.

      • Arhi Kivilahti

        One more: there’s a lot research done on why many incumbent companies see the threat and yet are unable to respond.
        Some (especially Rothermael) argue that many incumbents have also been very successful in some industries.
        Additionally technological framing research (started by Orlokowski in 90s) is interesting on how and why similar companies perceive same technologies very differently.

    • DarwinPhish

      Well, Sun Tzu wrote the Art of War over 2500 years ago. As I recall, it became very popular with business people in the late 80’s and early 90’s.

  • Claude Hénault

    Given the definition in Q1:, how is corporate self-disruption possible?

    • jinglesthula

      The definition is fairly broad. I think it’s intended to introduce the concept. A company need not ‘lose’ in an unrestricted sense to be disrupted.

      Tim Cook: “In terms of cannibalization and how we think about this, I see cannibalization as a huge opportunity for us. One, our base philosophy is to never fear cannibalization. If we do, somebody else will just cannibalize it, and so we never fear it.”

      A corporation may be the winner and loser at the same time if their traditional flagship product/service suffers due to the success of a new product/service produced by that same corporation. Dwindling iPod sales and record profits for Apple due to iPhone/iPad sales are a great example.

    • http://www.asymco.com Horace Dediu

      To answer most succinctly: Corporate self-disruption is possible only if management acts against the wishes of the owners.

      • Sacto_Joe

        …or the owners act against the wishes of management (Steve Jobs vs management gave us the Mac). Isn’t the key here that internal conflict is allowed or even encouraged to proceed to completion?

      • Arhi Kivilahti

        “I hate it when people call themselves “entrepreneurs” when what they’re really trying to do is launch a startup and then sell or go public.

        They’re unwilling to do the work it takes to build a real company, which is the hardest work in business.

        That’s how you really make a contribution and add to the legacy of those who went before. You build a company that will still stand for something a generation or two from now. That’s what Walt Disney did, and Hewlett and Packard, and the people who built Intel. They created a company to last, not just to make money. That’s what I want Apple to be.”

        This short quote from “Jobs” I think illustrates nicely the great learnings Steve Jobs (during his time away from Apple?) drew from the great old companies that have endured much longer than Apple or Google or Amazon.

        Mentality of building something that creates long term contribution lasting generations. If you build something that stands for something for generations, then the focus moves from the internal structures resisting change to the bigger picture which remains as technologies and the society changes.

      • pavan rajam

        Also worth noting what Jobs said his passion was, from a few paragraphs before this quote:

        “My passion has been to build an enduring company where people were motivated to make great products.”

      • John R. Moran

        Horace, to that point – you address in the FAQs that the more an incumbent overserves the market, the more vulnerable they are.

        Is there a corollary that the more profitable (high-margin / high ROI) an incumbent, the more vulnerable they are? I think about the Dell/Asus example, and how Amazon targets high-margin categories.

        I also think about Gillette, where I worked briefly – they are the poster-child of sustaining innovation and over-serving, and are also insanely profitable. They are run by very smart people and absolutely have the ability to disrupt themselves – but not the motivation. They would all be fired immediately if they upset their near-perfect business model. They would not be fired if someone else did.

        This article (which Christensen tweeted) explored this dynamic: http://rampantinnovation.com/2011/09/21/can-gillette-disrupt-itself/

      • DesDizzy

        I think perhaps you would want to clarify this statement vis-a-vis short term and long term owners.

    • @valuemgmt

      See Apple eg Mac vs Apple I I, iPhone vs iPod, ipad v iPhone. Apple learned to pivot early (see Lean Startup).

  • victor

    Hi horace,
    Michael Raynor, in his book innovators manifesto, reports experiments where disruption theory could improve predictions (survival or failure of new business) of mba students after exposing them to the theory for one or two hours. I believe we are underestimating the theory when we say that it requires domain knowledge or deep reading of weak signals to be proper applied.

    • http://www.asymco.com Horace Dediu

      Good point.

  • RichardinMelbourne

    See some academic criticism of Disruption Theory: by Prof Tellis, USC Marshall in 2006.
    in an article titled “Ten Most Pressing Issues in Innovation”.
    https://archive.ama.org/archive/Community/ARC/gated/Pages/Connections/TalkingPoints.aspx

    Prof Tellis says “However, researchers have not tested disruption by a formal large-scale study. Indeed, the concept raises some basic questions: How exactly does one define disruption before disruption occurs? Can one identify a disruptive technology before a technology is introduced? If so, on what characteristics? What percentage and which types of incumbents suffer disruption? How can they prevent it?”

    Looks like very similar question to those mentioned above.

  • WFA67

    In the June 23 “New Yorker,” Jill Lepore launches a broadside against the culture of disruption, including Christensen:

    “Disruptive innovation is a theory about why businesses fail. It’s not more than that. It doesn’t explain change. It’s not a law of nature. It’s an artifact of history, an idea, forged in time; it’s the manufacture of a moment of upsetting and edgy uncertainty. Transfixed by change, it’s blind to continuity. It makes a very poor prophet.

    “The Disruption Machine”:
    http://www.newyorker.com/reporting/2014/06/23/140623fa_fact_lepore?currentPage=all

    It turns out that Mark Zuckerberg recently backtracked on his “Break Stuff” motto. Why? In addition to being (to my ears) a remarkably adolescent motivation, it simply doesn’t work.

    • http://www.asymco.com Horace Dediu

      The Lepore essay is social commentary. I have no idea how that can be discussed objectively.

      • scot mcphee

        Apart from the data where it clearly indicates – gives numbers that show – Christensen’s data is highly selective, and even, wrong?

      • http://www.asymco.com Horace Dediu
      • scot mcphee

        Well, that’s a defense, yes. But it’s no more “objective” than the original article.

      • http://www.asymco.com Horace Dediu
      • scot mcphee

        OK, sure they are now claims that the data is now verified by science, but this still does not invalidate the take-down of Christensen’s thesis and it’s use of highly selective data. It looks as if it’s likely there is a predictive theory, but it’s still not shown by Christensen.

        Two additional points:

        1. Deloitte is not a scientific or scholarly journal (ditto Tech Crunch).

        2. When I look at Thomas Thurston’s website (the author of the TC article), I see a lot of ‘Fast Money’ and other business publications, but in the section marked “Academia” there is only one article listed, in the “Thunderbird International Business Review” v 55.1 pp 115-20 (2013) that seems be relevant. Which doesn’t appear to me to be “massive vetting” (as claimed by Thurston in the TC article).

        And Thurston is not a disinterested academic, either.

      • Walt French

        @scot mcphee writes, “this still does not invalidate the take-down of Christensen’s thesis and it’s[sic] use of highly selective data.”

        The take-down was that “disruptive innovation” has become a pop term, stripped of its original meaning through misuse. I’m reminded of how “paradigm shift” (from Structure of Scientific Revolutions, a great book about changes to our thought processes) similarly went from being a useful phrase to some mushy buzzword. (Ditto, “quantum jump” that went from being a shift from A to Z without visiting B, C, …)

        Christensen might bear SOME responsibility for the term’s misuse, but (a) not much, and (b) it’s really off-topic as to whether the phenomenon is important to businesses, industries or the economy. And Mr Dediu has perhaps done better than anybody to show a range of product revolutions over the decades, covering huge categories of products such as major appliances, cars and communications networks. (He & Christensen ALSO note likely reasons why disruptions have NOT occurred in some highly-regulated industries, as well as discussed other non-disruptions. By covering virtually ALL consumer products, the “selective data” meme becomes obviously ridiculous.

        Which is not to say that “low-end disruption” is a perfect explanation for everything that could possibly happen. In my industry (finance), weak, startup competitors (e.g., discount stock brokers; no-name, dirt-cheap mutual funds) entered without disrupting the incombents.

        But the fact that not all seeds grow into flowers does not invalidate genetics. Without claiming to be a D.I. acolyte, the opening sentence here (“Disruption happens when the strong are defeated by the weak)” seems to say it all, and as I read the 6000 words from Lepore, as well as the handful from you, I see not the slightest refutation of that use.

        As to “highly selective data,” the charge would matter if somebody were to claim that asymmetric competition always succeeds, or that is likely to succeed as shown by empirical observation. Based on the fact that thousands of small businesses start, and fail each year in the USA alone, clearly no such claim is viable; the closest I have seen somebody make, however, that disruption always happens, is in Lepore’s refutation of her strawman.

        Rather than get all excited about an apparent controversy, please DO let us know a claim made in DI theory that you see is false. Otherwise, it just looks like stirring up shit.

      • scot mcphee

        Walt, I’m not trying to refute the theory. I have no interest either way if it is true or false. That would be Lepore who is trying to refute the theory.

        I don’t trust either side in this debate. Thurston is not a disinterested party, in the strict formal scholarly sense, and his claim to his own ‘massive vetting’ is apparently a single paper in a single journal.

        I don’t need to let you know about a false claim: Lepore does. Christensen claimed that Seagate was disrupted by new entrants to the market in the 1980s. So disrupted, in fact, that when I need to buy a disk, Seagate is still one of my essentially two options.

        It’s pretty clear that disruption is a thing: Apple clearly disrupted the smart phone market, and SSDs are disrupting the disk drive business right now, iPads are disrupting sections of the PC market. But this is hindsight. The general critique of the theory (as I read the critique) appears to be is whether the theory can provide a predictive measure for who will disrupt whom.

        When I see claims not only companies and market segments can be disrupted, but also individuals, economies, and states, I don’t see a predictive, quantitative theory in action, but a story that’s being told to an audience about a entire series of potentially disparate social forces that in essentials is no different to Lapore’s “social commentary”.