CASE ANALYSIS

BY KOUSTAV BOSE
ROLL NO-40
MBA-DAY (17-19)

DISRUPTIVE
INNOVATION
A HARVARD BUSINESS REVIEW ARTICLE BY CLAYTON M.
CHRISTENSEN, MICHAEL E. RAYNOR AND RORY MCDONALD
DISRUPTIVE INNOVATION

In business theory, a disruptive innovation is an innovation that creates a new market

and value network and eventually disrupts an existing market and value network,
displacing established market-leading firms, products, and alliances. The term was
defined and first analysed by the American scholar Clayton M. Christensen and his
collaborators beginning in 1995, and has been called the most influential business
idea of the early 21st century. For the past 20 years, the theory of disruptive innovation
has been enormously influential in business circles and a powerful tool for predicting
which industry entrants will succeed. Unfortunately, the theory has also been widely
misunderstood, and the “disruptive” label has been applied too carelessly anytime a
market newcomer shakes up well-established incumbents.

In this article, the architect of disruption theory, Clayton M. Christensen, and his co-
authors correct some of the misinformation, describe how the thinking on the subject
has evolved, and discuss the utility of the theory.

The original theory focused on disruptive technologies. Over time, the same theory
has been used to explain all kinds of disruptive innovations. This is a mistake. Different
kinds of innovations have different competitive effects and produce different kinds of
markets. They should be treated as distinct phenomena. This article summarizes what
the academic literature has to say about two specific types of disruptive innovations—
namely, business‐model innovations and radical (new‐to‐the‐world) product
innovations. It argues that even though they share many similarities to what
Christensen calls disruptive innovations, they are still different phenomena: they
create different kinds of markets, pose radically different challenges for established
firms, and have radically different implications for managers. It is only when the topic
of disruptive innovation is broken down into these finer categories that progress can
be made.
Table 1-Critical Performance Attributes Emphasized by Established and New
Business Models

Industry Performance Attributes Performance

Emphasized by Established Attributes Emphasized
Business Models by New Business
Models

Banking Extensive, nationwide branch network 24‐hour access,

and personal service convenience, price

Insurance Personal, face‐to‐face advice through Convenience and low

an extensive agent network commission rates

Airlines Hub‐and‐spoke system, premium Price, no frills

service, meals, baggage checking

Brokerage Research and advice Speed of execution and

price

Photocopying Speed of copying Price, size, and quality

Watches Accuracy and functionality Design

Steel Quality Price

Motorcycles Speed and Power Size and price

Bookstores Chain of superstores offering nice Wide selection, speed,

environment and service price, convenience
 Car Rental Location (e.g., airports) and quality of Location (e.g.,
cars downtown) and price

Computer Speed, memory capacity, power Design and user‐

friendliness

They start by clarifying what classic disruption entails—a small enterprise targeting
overlooked customers with a novel but modest offering and gradually moving
upmarket to challenge the industry leaders. They point out that Uber, commonly hailed
as a disrupter, doesn’t actually fit the mould, and they explain that if managers don’t
understand the nuances of disruption theory or apply its tenets correctly, they may not
make the right strategic choices. Common mistakes, the authors say, include failing
to view disruption as a gradual process (which may lead incumbents to ignore
significant threats) and blindly accepting the “Disrupt or be disrupted” mantra (which
may lead incumbents to jeopardize their core business as they try to defend against
disruptive competitors).

Since innovators emphasize different dimensions of a product or service, their

products or services inevitably become attractive (at least originally) to a different
customer from the one desiring what the traditional competitors offer. As a result, the
markets created around the new competitors tend to be composed of different
customers and have different key success factors than the established markets.

Since the new markets have different key success factors, they also require a different
combination of tailored activities on the part of the firm. For example, the value chain,
internal processes, structures, and the culture that Amazon needs in place to compete
successfully in the online distribution of books is demonstratively different from the
one Borders or Barnes & Noble needs to compete in the same industry using their
business model.

Not only are the new activities required different, but also, they are often incompatible
with a company's set of activities because of various trade‐offs or conflicts existing
between the two ways of doing business. For example, by selling its tickets on the
Internet just like its low‐cost competitors, British Airways risks alienating its existing
distributors, the travel agents. In the same way, if Unilever moves aggressively into
private label, it risks damaging its existing brands and diluting the organization's strong
culture for innovation and differentiation. The existence of such trade‐offs and conflicts
means that a company trying to compete in both positions simultaneously risks paying
a huge straddling cost and degrading the value of its existing activities. The task is
obviously not impossible, but it is certainly difficult. This logic led to propose more than
20 years ago that a company could find itself stuck in the middle if it tried to compete
with both low‐cost and differentiation strategies.

The authors acknowledge that disruption theory has certain limitations. But they are
confident that as research continues, the theory’s explanatory and predictive powers
will only improve.

The basic thesis of this article is that not all disruptive innovations are the same. In
particular, I propose that technological, business‐model, and new‐to‐the‐world product
innovations should be treated as distinct phenomena. All three types of innovation may
follow a similar process to invade existing markets and may have equally disruptive
effects on incumbent firms, but at the end of the day they produce different kinds of
markets and have different managerial implications. It is only when the topic of
disruptive innovation is broken down into these finer categories that progress can be
made.
 Bibliography

• www.google.co.in
• www.wikipedia.com
• www.hbr.org