Disruption: bringing the concept to the digital era
Disruptive innovation is a concept that has been introduced by an article in the Harvard Business Review, written by Bower and Christensen in 1995. It is defined as a process whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses. There is a lot of confusion about the difference between innovation and disruption. Those words have been thrown around so much that they lost their original meaning. Several players which have strongly ‘disrupted’ a market and are seen by many people as disrupters are not considered as disrupters according to the old definition.
What’s in a definition?
Take Uber, for instance, the popular application that connects people who need a ride with drivers. Uber has been a major challenge for taxi companies, which are highly regulated and therefore not very innovative, and changed the industry forever. But they do not check all the boxes of a disrupter. Traditionally, disrupters get started in markets that incumbents overlook. This is not what Uber did. The app was launched in San Francisco, a city with plenty of taxis, and Uber’s clients were generally taking taxis already. They just chose Uber because it was more convenient and cheaper. Only later in its development Uber started searching for overlooked market segments.
Another great example is Tesla. This electric car builder turned the whole concept of disruption upside down. The classical theory suggests that disrupters start at the bottom of the curve, and slowly work their way up. In other words, in order to be a disrupter, Tesla should have started by building cheaper cars before getting to the more advanced stuff. Instead, they do the exact opposite. Tesla builds expensive, technologically very innovative cars and only recently started to work its ways down the market by selling cars at lower prices.
Both examples have a few elements in common that made them into a success. They both provide a service or product that fits perfectly with a demand or need in the market, with a specific target group in mind, using new technology as an enabler. By doing so, they put a new light on disruption and bring the whole concept as initially defined into question. Christensen, one of the inventors of the term in 1995, redefined disruption in 2013 as a process that “displaces an existing market, industry, or technology and produces something new and more efficient and worthwhile. It is at once destructive and creative.” (Forbes, 2013)
One can also wonder whether it really matters if a company is a disruptor or not. Both Tesla and Uber prove that you can change a market forever by being an innovative, yet not disruptive, player.
How not to become disrupted
More important than the ambition to become a disrupter is avoiding to become disrupted. Kodak is the classic example of how bad being disrupted can get. At its peak, this company was worth 28 billion dollars and employed around 140,000 people. Back in the seventies, Kodak also invented the first digital camera. However, the limited performance of those first cameras and the high price tag made Kodak believe that this could never become an interesting market. They lacked the vision to look beyond the production process of photography as they knew it.
The rest is history. Digital photography started booming in the 2000s while analog photography went down. In 2012 Kodak was worth less than 100 million dollars and filed for bankruptcy. That same year Instagram, a company with only 13 employees, was acquired by Facebook for 1 billion dollars.
The Kodak story learns us a few important lessons about how you can avoid being disrupted as a company.
First of all, never close your options too early. Kodak decided early on that they weren’t pursuing the digital market and did not devote any resources to it before it was too late.
Secondly, the company was too attached to its history of paper-and-chemicals photography which made them blind for what the future could bring. In the end, all products are doomed to become outdated at some point.
Do not ignore small, innovative ideas, however insignificant they can seem at first. It is easy to see something small far away and think that it will just go away.
Don’t be afraid to do something new. And last but not least, mind the littles ones. Disruptions hardly ever come from big companies. It’s the small start-ups you should be more worried about.
Last but not least, stay in touch with your customers. Understand their behavior and anticipate their needs. Digital technology can help your company to stay relevant and be an enabler to make the life of the customer easier and more comfortable. If Kodak had understood this, they might still exist today.
Conclusion: disrupt yourself
It’s not easy to disrupt yourself, few companies have done it, yet if you don’t want to become obsolete you need to be on top of new opportunities.
The thing that both Kodak and traditional taxi companies have in common, is that they had no eye for the upcoming digitalization. Why call a taxi on the street standing in the rain, if you can just order it from your phone inside? Why print your photos if you can just look at them on your smartphone or laptop? Listen to your consumer, what makes their life more convenient? In many cases the answer can be found in digital opportunities. Thanks to Instagram, everyone has become a photographer. Thanks to Uber, everyone with a car has become a potential taxi driver. Thanks to Airbnb, everyone with a free room in their apartment can become a landlord.
Digital opportunities have grown markets for the past decade and they are not about to stop. There are still a lot of possibilities out there ready to be discovered. Or as Ed McNierney, the man who learned a lot from running Digital Strategy at Kodak, puts it: there is more ahead of you than behind you.
- J.L. Bower, C.M. Christensen, Disruptive Technologies: Catching the Wave, in: Harvard Business Review, January-February 1995, https://hbr.org/1995/01/disruptive-technologies-catching-the-wave
- C.M. Christensen, M.E. Raynor, R. McDonald, What Is Disruptive Innovation?, in: Harvard Business Review, December 2015, https://hbr.org/2015/12/what-is-disruptive-innovation
- P. Diamandis, Lessons from Kodak, in: Huffingtonpost.com, 6/5/2016, http://www.huffingtonpost.com/peter-diamandis/lessons-from-kodak_b_10287774.html
- Howard, Disruption Vs. Innovation: What’s The Difference?, in: Forbes, 27/3/2013, https://www.forbes.com/sites/carolinehoward/2013/03/27/you-say-innovator-i-say-disruptor-whats-the-difference
- MIT, You Press the Button. Kodak Used to Do the Rest, in: Technologyreview.com.br, 9/12/2011, http://www.technologyreview.com/printer_friendly_article.aspx?id=39219
- Niu, Tesla has literally flipped disruption theory on its head, in: Businessinsider.com, 27/12/2015, http://uk.businessinsider.com/tesla-disruption-theory-starts-at-top-2015-12
Prof. Dr. Sarah Steenhaut is Managing Partner and Customer-centric Strategist at Callebaut Collective.