I just read Andrew King and Baljir Baatartogtokh's article in the MIT Sloan Management Review (Fall, 2015) titled "How Useful is the Theory of Disruptive Innovation?" The article is a critique of Clayton Christensen's disruption theory. I thought it made a number of interesting points, including the following (with my personal comments in boldface):
- Based on the authors' research, incumbents often lack the capabilities needed to respond to a new entrant's product/service -- when they have the capabilities they frequently do respond.
- Some incumbent products/services (local meatpacking) don't show any meaningful sustaining improvement over time, so there's no opportunity for overserving. In this situation you have the opposite of overserving: the product doesn't improve at all, or doesn't improve fast enough to keep up with user needs (a perennially underserving product/service). This kind of mediocre/poor product then gets replaced by something better. The entrant's better product is often based on capabilities that the incumbent making the mediocre/poor product lacks, making it impossible for the incumbent to respond.
- Based on the authors' research, 78% of Clayton Christensen's examples from The Innovator's Dilemma and The Innovator's Solution don't involve overserving. If accurate, this would mean the concept of low end disruption for overserved users is inapplicable to these examples.
- I think it's important to note that overserving isn't as relevant with new market disruption. A new market product creates an entirely new market of consumers because the entrant emphasizes different product performance attributes than those emphasized by incumbents (the vertical "P" axis). These different performance attributes either: (1) make the product affordable to people who couldn't afford prior alternatives; or (2) allow the product to be used in a new, non-traditional situation/context, creating a new market of consumers for that new context (desktop computer as mainframe for your desk, smartphone as computer for your pocket). See Concepts page and discussion of Clayton Christensen.
- In emphasizing different performance attributes, the new market entrant creates a non-traditional "value network" with a distinctive cost structure, different suppliers, different operating processes, and different sales channels. This value network is crafted around sales to non-traditional, new market consumers.
- Incumbents typically lack the resources, processes, and priorities -- or what you could call the desire and capabilities -- needed to transition to the new entrant's non-traditional value network. This leaves incumbents stuck in the value network they've crafted for their traditional customers, unable to compete with the entrant for non-traditional, new market consumers.
- If the new market entrant improves its product it can eventually sell not just to new market consumers, but to the incumbents' traditional customers, taking more and more business from incumbents.
- The point of all this is that new market disruption can occur regardless of whether incumbents are overserving their traditional customers. An incumbent could be selling widgets that don't overserve its traditional customers (e.g., corporate customers that need powerful mainframes or minicomputers) and still have an entrant launch a product that emphasizes different performance attributes and creates a new market/class of buyers (e.g., individual consumers who need desktop computers). Incumbents with a traditional value network -- and resources, processes, and priorities tailored around this network -- would have difficulty competing in this new market. The entrant could then improve its product and eventually steal traditional customers from the incumbent, even though the incumbent's widget wasn't overserving traditional customers when the entrant came into the market.
- The big challenge for entrants trying to create a new market of consumers is creating a profitable new value network that can survive over the long term. A new market entrant needs early profits to continue improving and integrating its product around the job-to-be-done, ideally through a unique, trade-off based strategy. Otherwise the entrant ends up engaged in price-based competition with late-arriving competitors selling the same basic offering.
- Cut-throat price competition has played out in both the Windows PC market and the Android smartphone market. Apple has survived and prospered because the new market products it introduced, the Apple II, Mac, and iPhone, improved and became more integrated/differentiated over time (largely through Apple's ecosystem approach). See Concepts page and discussion of Clayton Christensen and Michael Porter.
- Advances and sustaining improvements in technology sometimes produce outcomes which are the opposite of those produced by overserving -- they can make the product simpler and easier to use and more accessible to less savvy consumers. They can also make the product more affordable to low end users.
- The authors counsel using disruption theory not for prediction, but as a warning to avoid overserving (which is typically caused by a series of meaningless sustaining improvements unconnected to the underlying job-to-be-done).
The boldfaced language discussing new market disruption has been amended since this article was first posted.
The author owns stock shares of Apple.