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Innovation and Disruptiveness

Posted on September 16, 2018 — 3 Minutes Read

Among the jargons that have been thrown around the most in the tech industry counts disruptive innovation. It was coined by the Harvard professor and businessman Clayton Christensen in his book, The Innovator’s Dilemma, published more than 20 years ago in 1997. Despite its popularity and that some even have gone as far as to say it is the most influential business idea of recent years, people still don’t seem to fully grasp the idea of technological disruptiveness that is centric in his book, to a point where company that operates in the complete reversal of the trajectory of a disruptive innovator is mistaken as one.

In December 2015, Christensen attempted to clarify his conception of disruptiveness with an example that was to many closest to life in an article in the Harvard Business Review. Disruptiveness is not to refer to a situation in which an industry is trembled and previously successful incumbents stumble to a degree where new competitive patterns emerge. While situation like this is with no doubt groundbreaking, there are situations and market breakthroughs that may lead to a drastic change in the competitive landscape that requires no emergence of a disruptive innovator. What Christensen had in mind as disruptive innovation in his book was instead of a process in which, a smaller company often a newcomer to a market with fewer resources, destroys industry incumbent by appealing to selected and underserved customer groups, with a more tailored and often cheaper despite inferior alternative, and then moving upmarket while being overlooked by the industry giants before it is all too late.

Case in point is Netflix who destroyed the market incumbent Blockbuster by initially appealing to movie bluffs who did not care about new releases, early adoption of DVD or e-commerce, with mail-in DVD subscription that allowed the customer to keep and watch a DVD for as long as they want before returning it for a new rental. This new business model completely forwent the late return fee that Blockbuster profited massively on, and that for Blockbuster to return a punch it would have to alter its business model and to damage its profitability in order to compete with this subscription service of Netflix. While Blockbuster was still making up its mind, Netflix secured early adopters and steadily moved upmarket to provide all-you-can-watch video on-demand at a price and at a quality that are in no way inferior to Blockbuster and eventually eliminated Blockbuster, in a process of 11 years from 2000 to 2010.

Often mistaken as an disruptive innovator is, Christensen pointed out, a company like Uber, who provided a more convenient car-hiring system targeting the focus customer group of the industry incumbent and then moved downmarket in a trajectory of the exact opposite of a disruptive innovator, instead of appealing to a selected and underserved customer group with a cheaper and perhaps inferior alternative. Almost three years since Christensen detailed that subtle yet crucial difference, Netflix’s share has grown at a compound annual growth rate of 53.26% from around US$100 to US$360 on Nasdaq while Uber was steadying at 12.18% from an US$51 billion valuation then to an US$72 billion today, and is attempting to reinvent itself with a move into the dockless electronic bike sharing market along with its self-driving car initiative. Like pretty much everything else, disruptive innovation is easier said than done, the first question to ask is still, who, if any, is underserved in your industry and what product they have been rid of that are much needed, and that the market incumbents are too stubborn or are reluctant to provide.