By the book: Disruption, innovation and COVID-19

Will tough times foster disruptive innovation as consumers and businesses look for cheaper ways to get things done?

How Clayton Christensen's groundbreaking theory can help your business survive and thrive.

By Engel Schmidl

If you've ever used the term “disruptive innovation”, you owe a debt to the late Clayton Christensen.

The Harvard Business School professor's groundbreaking 1997 book, The Innovator's Dilemma, is a classic in the canon of business books, and it introduced the world to his theory of disruptive innovation.

Published when digital technology was beginning to make its seismic impact felt, Professor Christensen's theory offered a compelling explanation as to why disrupters could blindside and overtake even the best-managed companies.

At the heart of his theory was a paradox: Good management itself was the cause of failure.

Christensen wrote: The very decision-making and resource-allocation processes that are key to the success of established companies are the very processes that reject disruptive technologies: listening carefully to customers; tracking competitors' actions carefully; and investing resources to design and build higher-performance, higher-quality products that will yield greater profit. These are the reasons why great firms stumbled or failed when confronted with disruptive technological change.

His theory explained disruptive innovation in diverse sectors such as hard disk drives, electric vehicles, mechanical excavation machinery and steel mills. He also applied it to industries like retail.

The theory’s broad sweep gave it immense power and influence, with Steve Jobs and other Silicon Valley titans often citing Christensen’s work.

The theory posited that by focusing on doing all the right things, successful companies left themselves open to disruption.

Yes, successful firms had to worry about their main competitors; but the real danger of disruption came from the firms producing an often technically inferior “good enough” product that satisfied a marginal, or niche, set of customers, with the product redefining user expectations.

Different kinds of innovation

The theory rests on the understanding that there are two main kinds of innovation: sustaining and disruptive.

Most successful firms aim to keep their customers happy and create technically better products for them – sustaining innovation. Sustaining innovation aims upmarket.

Entrant firms often come into a market with a product that's useful to a set of customers that has been overlooked by the established firms – disruptive innovation. Disruptive innovation starts downmarket, which is where most incumbents are vulnerable to attack.

According to Christensen, entrant firms can gain an advantage in “low-end footholds” (lower price) or in “new market footholds”, where disrupters create a new market.

"Products based on disruptive technologies are typically cheaper, simpler, smaller, and frequently, more convenient to use," Christensen wrote in The Innovator's Dilemma.

Disruptive innovation in a disrupted world

In a world shaken by the COVID-19 pandemic and with the global economy teetering on the edge of severe recession or even depression, what lessons do Christensen's theory hold for entrepreneurs and businesses today?

Will tough times foster disruptive innovation as consumers and businesses look for cheaper ways to get things done? Will the new business landscape favour incumbents or disrupters?

INTHEBLACK asked Rich Alton, the director of emerging research at the Clayton Christensen Institute, about what the theory of disruptive innovation might tell us about the post-COVID-19 business landscape.

Alton, who analyses technology trends through the lens of disruptive innovation and its related theories, says disrupters tend to flourish even in difficult economic times.

"Historically, we have seen disruptive trends continue to drive growth even during recessions," he says.

"For example, the smartphone market experienced accelerated growth during the last major recession. Similarly, software-as-a-service companies like Salesforce.com saw their growth trajectories continue during the same period. The revenue growth opportunities available to disrupters are often so large that they are not derailed even by a global financial crisis."

Alton says a struggling economy may accelerate the shift to lower-end options as more people experience budgetary constraints, but whatever opportunities for low-end disruption exist now were already set in motion before the crisis.

"Low-end disruptions will usually succeed on their own merits irrespective of economic conditions," he says. "This is because the low end of a market is always there, with consumers who are ready to adopt solutions that solve their problems without the bells and whistles (and cost) of higher-end products."

The current crisis is revealing several areas where disruptive innovations are gaining traction, rapidly moving from marginal applications to mainstream adoption. As new discretionary spending patterns emerge, and people seek to satisfy unique wants and needs, a new range of opportunities may arise for businesses.

"Telemedicine is an example of a disruptive trend that has long held the potential to lower the cost of, and improve access to, healthcare. Now that the COVID-19 crisis has caused many providers and patients to experiment with telemedicine out of necessity, it may gain a foothold to eventually disrupt aspects of in-person care."

Alongside healthcare, areas like e-commerce, food and grocery delivery, cleaning and hygiene have also shown strong growth during the crisis. However, whether these areas continue to grow is still uncertain.

"While the growth trajectory of some of these trends will normalise as the COVID-19 threat recedes, it will be fascinating to see the degree to which the crisis catalysed greater adoption by introducing these services to people who would otherwise have been later adopters," Alton says.

He says the ultimate success of any disruptive innovation rests on how well it solves a problem in people's lives at an attractive cost. 

Disrupt yourself

The fact that consumers, both businesses and individuals, are facing an increased set of novel challenges could widen the foothold for disrupters capable of meeting new demands.

Incumbents, including well-established successful companies, might find economic uncertainty and the shifting sands of consumer needs loosen their grip on existing markets, allowing disrupters to slide in and unexpectedly steal market share.

In The Innovator's Dilemma, Christensen counselled business leaders of incumbent firms to tackle the disrupter challenge by creating standalone divisions or units within their company that could concentrate on the business of disruptive innovation. In a nutshell, to disrupt from within.

Business leaders like Jeff Bezos have embraced the advice in their firms, continually searching for ways to disrupt themselves before others could. In his book about Amazon, The Everything Store, Brad Stone writes that Bezos and his executive team would follow "Christensen's dictates as if they were instructions in a recipe".

Alton's advice to leaders right now echoes Christensen.

"The current crisis highlights the need for companies to experiment with and implement disruptive growth strategies continually," he says.

"One of the best hedges against a tough economic environment is a portfolio of disruptive businesses that can compensate for declining revenue in more mature businesses."


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September 2020
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