Monday, August 26, 2013

Some Just Don't Get Disruption

I was reading an article written by Judith Shulevitz for the New Republic earlier. In one sense, I get what the author implies in that 'disruption' has become more of a buzzword bantered about by tech and other CEO and management teams when any new product, add-on, or whatever is rolled out to the market. However, the author fails to realize the concepts behind true disruptive innovation. This passage was the key clue.......

You can’t blame Christensen and his co-writers for all the dumb things said and done in the name of disruption. But you can spot some unsavory habits of mind in their prescriptions. For one thing, they possess an almost utopian faith in technology: online or “blended” learning; massive open online courses, or MOOCs; cool health apps; and so on. Their convictions seem sincere, but they also coincide nicely with the interests of the Silicon Valley venture-capital crowd. If you use technology to disrupt the delivery of public services, you open up new markets; you also replace human labor with the virtual kind, a happy thought for an investor, since labor is the most expensive line item in all service-industry budgets.

This paragraph does not necessarily describe a disruptive innovation. In fact, it comes off as more describing a sustaining innovation. What the author fails to realize in the passage? Disruption innovation is not necessarily a product but more so a business model.

A far, far better critique and description was written at Tech Crunch earlier this year.

Disruptive products don’t have to be cheaper. A low-end disruption doesn’t have to be lower priced than existing products. Christensen says a low-end disruption must be simpler, cheaper or more convenient. Uber is a great example of a disruptive service that is more convenient, but more expensive than its taxi alternative.

Low-end disruptions are usually inferior. It is also possible to offer a low-end disruption through an inferior product. In fact, almost all disruptions start out with products that are inferior to those of the incumbents. This is possible when current customers are “over served” by existing products.

Ubiquiti, a supplier of Wi-Fi equipment that went public about a year ago, is an example of this kind of disruption. It sells dirt-cheap access points that are designed, manufactured and distributed by third parties. Ubiquiti’s products are dirt cheap because they offer far fewer features that appeal to the most cost-sensitive audience and because the company employs very few people. Not surprisingly, Ubiquiti is taking major market share from the incumbents.

A better product isn’t necessarily disruptive. Tesla has built new cars that I think are tremendous, but the company is not disruptive. It doesn’t address consumers who can’t solve their current problems with existing cars, and its cars are not far less expensive than the incumbents’ cars.
Kayak went public a few months ago and is thought by many to be disruptive. While it’s a better service than alternative travel sites, it is not disruptive by the Christensen definition, because it is not uneconomic for the incumbents to respond (and many have).

Business models, not products, are disruptive. People sometimes say a technology is disruptive. It’s more appropriate to call the business model disruptive. In order for a company to disrupt, the revenue and cost structure of the incumbents that the company faces must keep them from responding. It’s easy for other companies to add Kayak-like technology to existing products. The business model, not the technology, usually determines whether it is uneconomic for the incumbent to pursue the disruptor.

If you apply this model of disruption to past fads, you can predict with incredible reliability which products turn into long-term successful businesses and which ones don’t.

Is disruption innovation  overused, you betcha. But if you under stand the fundamental concepts behind the theory, you should be bale to understand the difference between real disruptive innovation and lip service.

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