Disruptive Innovation 

Why do very successful companies sometimes stumble and fail -  often in a very short period of time

Dr Clayton Christensen

Dr Clayton Christensen is a Professor at Harvard Business School and is regarded as one of the world’s top experts on innovation and growth.

During his work with innovation, Dr Christensen often focused on the eternal question of “…why do the best companies fail?” His research highlighted that in general, the companies that failed were –

• enormously successful
• dominant in their market
• widely regarded and were considered an extremely well managed firm
• extremely customer centric 

The research also highlighted that, in many instances, the very same characteristics that lead to the initial success of a company was often the very cause of its collapse –

• In nearly every instance, they remain very close to the customer and were constantly adjusting their value proposition to meet the requirements of their customers

• their size and dominance often meant they missed out on or ignored new innovations in their industry or market. 

Disruptive Innovation

Dr Christensen coined the concept of disruptive innovation to describe and explain this phenomena of why very successful companies sometimes stumble and fail, often in a very short period of time. Examples of some these spectacular failures include Kodak, Nokia, Yahoo, and Blockbuster videos.

Dr Christensen identified that these companies were very customer centric and it was this intense focus on their customers that lead to their ultimate downfall. More specifically Dr Christensen found that failed companies only focused on their current markets and often on their most demanding (and profitable) customers. These companies listened to their best customers to try to understand their changing requirements, and provide new features and products to match these new requirements. They believed this focus on their current customers would lead to greater profitability and growth.

In this quest to constantly improve the value proposition for their customers, the levels of performance improvements eventually exceeded what the customers wanted or could absorb. Each round of performance improvements create products with features with high margins and high costs for the customer. Ironically, these companies gave their customers more than they needed or consequently more than they were willing to pay for.

These established companies were harvesting their market share rather than growing their market share. They failed to consider new customers or markets where they could sell their current products or at least adapt and modify their products to meet the requirements of new customers or markets.

This neglect to look for new customers and new markets created an opportunity for new, significantly smaller companies to enter the market. These new companies could only compete against the established companies by introducing new and innovative technologies.

These technologies materially alter or disrupted the way companies or even industries operate. These technologies frequently compel companies to change business practices in an attempt to stop them losing market share or becoming irrelevant. For example, Uber Vs the traditional taxi. 

The New Entrants

New market entrants were able to build a presence within the market or industry without triggering a response from the establish companies. They did this by selecting those customers that the established companies had ignored. In some respect, these new companies created new markets or customers.

It is important to note in order to be successful, the new companies need to “stick to the shadows” and not directly challenge the established companies. If the new companies were to challenge the established companies head-on from the outset, they would have faced the full fury of the incumbents.

These new companies introduced a very different value proposition to the market. Initially, they underperform established products but introduce products that had attributes that the new customer valued. These products typically cost less and were simpler, smaller and easier to use.

When they had achieved critical mass, these new companies are able to challenge the established companies and eventually dominated the market at the expense of the established company.  

Non Market and Non Consumption

The incumbents failed because the new product or market didn’t make sense – until it was too late. From their point of view, there was no market and markets that don’t exist can’t be analyzed, sales forecasted or product made and delivered. Because of this, this “non-market” and the new companies were ignored until it was too late.

To help describe this phenomena, Christensen introduces the idea of “non-consumption”. With established products and markets, it is easy to see consumption (your current customers) but trying to see the market for new products (non-consumption) is very difficult. Ironically, the non-consumption market is often bigger than the consumption market.

Companies need imagination and creativity to change the context of how they see their product or services. They need to introduce their product or services to new markets and customers, adapting or modifying the features or attributes to match the market.  

Markets instead of Market share

Business success means creating and developing new, innovative products and services, but it is critical that this innovation also includes finding and developing new markets. You can’t ignore your current markets, but you should always be looking to find and develop your future markets and customers.

The growth of your business is not a matter of increasing your market share but increasing the number of markets that you compete in.