The Dangers of Disruption
Clayton M. Christensen’s theory of disruptive innovation, established in The Innovator’s Dilemma and expanded in The Innovator’s Solution, has permanently altered the public discussion surrounding the growth and decline of businesses. Disruption is now gospel in business schools. It is plastered across articles and books. It is on the lips of entrepreneurs, investors and analysts. It has earned a spot in our cultural consciousness.
A theory gains credibility from its explanatory power. Einstein’s theory of relativity is a “good” theory because it is predictive and verifiable. Before it, Newtonian physics was a “good” theory because it was tractable and generalizable.
But theories are not laws. They are, as Kuhn told it, subject to paradigmatic change in the face of anomalies. Disruptive innovation, particularly low-end disruption, has proved an indispensable tool in the analysis of enterprise market success. It is, however, facing a deafening anomaly in the prediction and explanation of success in consumer-facing markets.
Christensen defines low-end disruptive technologies as “products that address over served customers at the low-end of [a] value network”. Over time, the incumbent product improves at a rate that outpaces the trajectory of performance that customers can utilize — they are “over served”. They switch to using the “good-enough” product because it satisfies their performance expectations. Incumbent firms are incentivized to focus on their highest margin customers because the competition in the bottom-end of the market depresses the margins upon which the incumbent’s value network is predicated. Christensen’s Dilemma is that the seemingly good business practice of serving your best customers forces firms to retreat upmarket and leave the market’s underbelly exposed. Disruptive firms enter here and eventually capture the entire market on their upward march.
Christensen has famously applied disruption theory to disk drives, steel mills and mechanical excavators — products that are typically bought by businesses. He has infamously applied it to smartphones and electric vehicles — products that are typically bought by consumers. In the former, buyers are largely rational, purchasing decisions are motivated by cost and performance attributes are easily measurable (as Ben Thompson has noted). These are the assumptions that disruption theory makes. They do not hold in consumer markets.
Consumers largely buy products ‘irrationally’ — that is, their behavior is not explicitly motivated by cost and product performance. Consider the $30 Nike sweatshirt I bought last week. I didn’t buy it because Berkeley was having a cold spell and the “job-to-be-done” was to stay warm at a decent price. I didn’t buy it because it was a good-enough alternative to a North Face puffer jacket whose performance had surpassed my expectations. And I wouldn’t replace it with a low-cost Russell Athletic alternative that is good-enough along the measures of traditional sweater performance — warmth, durability and comfort. I bought because I like the brand, I like the emblematic swoosh and I like the feeling it gives me when I put it on.
That “feeling” is not quantifiable however, so disruption theory can’t account for it. The vertical axes of product performance on Christensen’s famous diagrams are hard disk capacity, bucket size or steel quality — explicit measures of product performance. We use these attributes to gauge products simply because they are measurable. But if consumers don’t make purchasing decisions based on those attributes then why craft business models that deliver them?
Christensen infamously predicted the demise of the iPhone because it is a “sustaining innovation”. According to the theory, a cheaper, low-cost and “good-enough” alternative should have eaten through the underbelly of its market. So what does its success tell us? The iPhone was in fact, as Ben Thompson and others have argued, obsoletive to existing smartphones, whose functionality was reduced to a green phone symbol or a blue mail icon in the iPhone’s bottom corner. iPhone buyers weren’t concerned by cost or functionality alone. They came because the user experience of owning an iPhone was unlike anything else out there.
Proponents of the theory have said that the iPhone was in fact disruptive to personal computers. But people didn’t line up for months at Apple stores around the world to get their hands on a new PC. Had the iPhone been a truly disruptive product Apple would have gone bankrupt years ago. How many products have we lost because managers brought disruptive technologies to markets where performance attributes aren’t explicitly measured by cost and performance; where user experience and brand equity are more important than pure functionality.
The theory of new market disruption has tried to account for anomalies like this. Christensen says that “new market disruptions compete with non-consumption because [they] are so much more affordable to own and simpler to use”. But the theory predicts that sales growth will occur further down the market as products become cheaper and easier to use for customers with less willingness to pay. The iPhone served new markets of higher margin customers willing to pay for a premium experience. Tesla has followed a similar trajectory in the electric vehicle market. A disruptive business model would have stifled growth, not promoted it. Disruption theory is dangerous because it incentivizes managers to develop products along irrelevant performance attributes and to ignore crucial aspects of consumer experience.
That disruption theory has failed to account for success outside of enterprise markets has not gone unnoticed. Ben Thompson has repeatedly shown that its underlying assumptions are not transferable between enterprise and consumer markets. Horace Dediu has tried to redefine the performance attributes that customers use to measure products. But we must fully recognize the theory’s chief shortcoming: the immeasurability of consumer experience when using a product.
Disruption theory isn’t wrong, but its predictive powers have been seriously called into question. We should change and adapt the way we think about the drivers of success in consumer markets. Like Copernican astronomy, it’s time to make way for new theories that don’t place disruption at the center of the universe.
