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What Is Disruptive Innovation? Twenty Years After the Introduction of the Theory, We Revisit What It Does—And Doesn’T—Explain

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What Is Disruptive Innovation? Twenty Years After the Introduction of the Theory, We Revisit What It Does—And Doesn’T—Explain HBR.ORG DECEMBER 2015 REPRINT R1512B THE BIG IDEA What Is Disruptive Innovation? Twenty years after the introduction of the theory, we revisit what it does—and doesn’t—explain. by Clayton M. Christensen, Michael Raynor, and Rory McDonald This article is made available to you with compliments of Innosight, LLC for your personal use. Further posting, copying or distribution is not permitted. THE BIG IDEA WHAT IS 2 HarvardThis Businessarticle is Review made availableDecember to you 2015 with compliments of Innosight, LLC for your personal use. Further posting, copying or distribution is not permitted. FOR ARTICLE REPRINTS CALL 800-988-0886 OR 617-783-7500, OR VISIT HBR.ORG Clayton M. Christensen is is a director at Deloitte the Kim B. Clark Professor Consulting LLP. Rory of Business Administration McDonald is an assistant at Harvard Business professor at Harvard School. Michael Raynor Business School. Twenty years after the introduction of the theory, we revisit what it does—and doesn’t—explain. BY CLAYTON M. CHRISTENSEN, MICHAEL RAYNOR, AND RORY MCDONALD This article is made available to you with compliments of Innosight, LLC for your personal use. Further posting, copyingDecember or distribution 2015 Harvard is not Business permitted. Review 3 THE BIG IDEA WHAT IS DISRUPTIVE INNOVATION? The problem with conflating a disruptive in- novation with any breakthrough that changes an industry’s competitive patterns is that different types of innovation require different strategic ap- proaches. To put it another way, the lessons we’ve he theory of disruptive learned about succeeding as a disruptive innovator (or defending against a disruptive challenger) will innovation, introduced not apply to every company in a shifting market. If we get sloppy with our labels or fail to integrate in these pages in 1995, insights from subsequent research and experience into the original theory, then managers may end has proved to be a up using the wrong tools for their context, reduc- powerful way of thinking about ing their chances of success. Over time, the theory’s usefulness will be undermined. This article is part of an effort to capture the state innovation-driven growth. of the art. We begin by exploring the basic tenets of Many leaders of small, disruptive innovation and examining whether they apply to Uber. Then we point out some common entrepreneurial companies pitfalls in the theory’s application, how these arise, and why correctly using the theory matters. We go praise it as their guiding star; on to trace major turning points in the evolution of so do many executives at our thinking and make the case that what we have learned allows us to more accurately predict which large, well-established businesses will grow. First, a quick recap of the idea: “Disruption” de- organizations, including Intel, scribes a process whereby a smaller company with fewer resources is able to successfully challenge Southern New Hampshire established incumbent businesses. Specifically, as incumbents focus on improving their products University, and Salesforce.com. and services for their most demanding (and usually Unfortunately, disruption theory is in danger of most profitable) customers, they exceed the needs becoming a victim of its own success. Despite broad of some segments and ignore the needs of others. dissemination, the theory’s core concepts have Entrants that prove disruptive begin by success- been widely misunderstood and its basic tenets fre- fully targeting those overlooked segments, gaining a quently misapplied. Furthermore, essential refine- foothold by delivering more-suitable functionality— ments in the theory over the past 20 years appear to frequently at a lower price. Incumbents, chasing have been overshadowed by the popularity of the higher profitability in more-demanding segments, initial formulation. As a result, the theory is some- tend not to respond vigorously. Entrants then move times criticized for shortcomings that have already upmarket, delivering the performance that incum- been addressed. bents’ mainstream customers require, while pre- There’s another troubling concern: In our expe- serving the advantages that drove their early success. rience, too many people who speak of “disruption” When mainstream customers start adopting the en- have not read a serious book or article on the subject. trants’ offerings in volume, disruption has occurred. Too frequently, they use the term loosely to invoke (See the exhibit “The Disruptive Innovation Model.”) the concept of innovation in support of whatever it is they wish to do. Many researchers, writers, and con- Is Uber a Disruptive Innovation? sultants use “disruptive innovation” to describe any Let’s consider Uber, the much-feted transportation situation in which an industry is shaken up and pre- company whose mobile application connects con- viously successful incumbents stumble. But that’s sumers who need rides with drivers who are willing much too broad a usage. to provide them. Founded in 2009, the company has 4 HarvardThis Businessarticle is Review made availableDecember to you 2015 with compliments of Innosight, LLC for yourCOPYRIGHT personal © 2015 use. HARVARD Further BUSINESS posting, SCHOOL copying PUBLISHING or distribution CORPORATION. is not ALL permitted. RIGHTS RESERVED. FOR ARTICLE REPRINTS CALL 800-988-0886 OR 617-783-7500, OR VISIT HBR.ORG Idea in Brief THE ISSUE THE RESPONSE THE BOTTOM LINE The ideas summed up in the The leading authorities Does it matter whether Uber, phrase “disruptive innovation” on disruptive innovation say, is a disruptive innovation have become a powerful part revisit the central tenets or something else entirely? of business thinking—but of disruption theory, its It does: We can’t manage they’re in danger of losing development over the past innovation effectively if we their usefulness because 20 years, and its limitations. don’t grasp its true nature. they’ve been misunderstood and misapplied. enjoyed fantastic growth (it operates in hundreds of copiers, offering an affordable solution to individu- cities in 60 countries and is still expanding). It has als and small organizations—and a new market was reported tremendous financial success (the most created. From this relatively modest beginning, per- recent funding round implies an enterprise value in sonal photocopier makers gradually built a major the vicinity of $50 billion). And it has spawned a slew position in the mainstream photocopier market that of imitators (other start-ups are trying to emulate its Xerox valued. “market-making” business model). Uber is clearly A disruptive innovation, by definition, starts transforming the taxi business in the United States. from one of those two footholds. But Uber did not But is it disrupting the taxi business? originate in either one. It is difficult to claim that the According to the theory, the answer is no. Uber’s company found a low-end opportunity: That would financial and strategic achievements do not qualify have meant taxi service providers had overshot the the company as genuinely disruptive—although the needs of a material number of customers by mak- company is almost always described that way. Here ing cabs too plentiful, too easy to use, and too clean. are two reasons why the label doesn’t fit. Neither did Uber primarily target nonconsumers— Disruptive innovations originate in low-end people who found the existing alternatives so expen- or new-market footholds. Disruptive innovations sive or inconvenient that they took public transit or are made possible because they get started in two drove themselves instead: Uber was launched in San types of markets that incumbents overlook. Low- Francisco (a well-served taxi market), and Uber’s end footholds exist because incumbents typically customers were generally people already in the habit try to provide their most profitable and demanding of hiring rides. customers with ever-improving products and ser- Uber has quite arguably been increasing total vices, and they pay less attention to less-demanding demand—that’s what happens when you develop customers. In fact, incumbents’ offerings often over- a better, less-expensive solution to a widespread shoot the performance requirements of the latter. customer need. But disrupters start by appealing to This opens the door to a disrupter focused (at first) low-end or unserved consumers and then migrate to on providing those low-end customers with a “good the mainstream market. Uber has gone in exactly the enough” product. opposite direction: building a position in the main- In the case of new-market footholds, disrupt- stream market first and subsequently appealing to ers create a market where none existed. Put simply, historically overlooked segments. they find a way to turn nonconsumers into consum- Disruptive innovations don’t catch on with ers. For example, in the early days of photocopying mainstream customers until quality catches technology, Xerox targeted large corporations and up to their standards. Disruption theory differ- charged high prices in order to provide the perfor- entiates disruptive innovations from what are called mance that those customers required. School librar- “sustaining innovations.” The latter make good prod- ians, bowling-league operators, and other small ucts better in the eyes of an incumbent’s existing customers, priced out of the market, made do with customers: the fifth blade in a razor, the clearer TV carbon paper or mimeograph machines. Then in picture, better mobile phone reception. These im- the late 1970s, new challengers introduced personal provements can be incremental advances or major This article is made available to you with compliments of Innosight, LLC for your personal use. Further posting, copyingDecember or distribution 2015 Harvard is not Business permitted. Review 5 THE BIG IDEA WHAT IS DISRUPTIVE INNOVATION? breakthroughs, but they all enable firms to sell more has certainly thrown the taxi industry into disarray: products to their most profitable customers. Isn’t that “disruptive” enough? No. Applying the Disruptive innovations, on the other hand, are theory correctly is essential to realizing its benefits.
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