Disruptive Innovation : Removing the Innovators ’ Dilemma

The objectives of this research are to co-create understanding and knowledge on the phenomenon of disruptive innovation in order to provide pragmatic clarity on the term’s meaning, impact and implications. This will address the academic audience’s gap in knowledge and provide help to practitioners wanting to understand how disruptive innovation can be fostered as part of a major competitive strategy. This paper reports on the first eighteen months of a three year academic and industrial investigation. It presents a new pragmatic definition drawn from the literature and an overview of the conceptual framework for disruptive innovation that was co-created via the collaborative efforts of academia and industry. The barriers to disruptive innovation are presented and a best practice case study of how one company is overcoming these barriers is described. The remainder of the research, which is supported by a European Commission co-sponsored project called Disrupt-it, will focus on developing and validating tools to help overcome these barriers. Thomond, P., Herzberg, T. and Lettice, F. (2003). "Disruptive Innovation: Removing the Innovators’ Dilemma". Knowledge into Practice British Academy of Management Annual Conference, Harrogate, UK, September 2003. 2 1.0. Introduction and Background. In his ground breaking book “The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail”, Clayton Christensen first coined the phrase ‘disruptive technologies’. He showed that time and again almost all the organisations that have ‘died’ or been displaced from their industries because of a new paradigm of customer offering could see the disruption coming but did nothing until it was too late (Christensen, 1997). They assess the new approaches or technologies and frame them as either deficient or as an unlikely threat much to the managers’ regret and the organisation’s demise (Christensen 2002). In the early 1990s, major airlines such as British Airways decided that the opportunities afforded by a low-cost, point-to point no frills strategy such as that introduced by the newly formed Ryanair was an unlikely threat. By the mid-1990’s other newcomers such as easyJet had embraced Ryanair’s foresight and before long, the ‘low cost’ approach had captured a large segment of the market. Low-cost no frills proved a hit with European travellers but not with the established airlines who had either ignored the threat or failed to capitalise on the approach. Today DVD technology and Charles Schwab are seen to be having a similar impact upon the VHS industry and Merrill Lynch respectively, however, disruption is not just a recent phenomenon it has firm foundations as a trend in the past that will also inevitably occur in the future. Examples of past disruptive innovations would include the introduction of the telegraph and its impact upon businesses like Pony Express and the transistor’s impact upon the companies that produced cathode ray tubes. Future predictions include the impact of Light Emitting Diode’ (L.E.D.) technology and its potential to completely disrupt the traditional light bulb sector and its supporting industries. More optimistically, Christensen (2002) further shows that the process of disruptive innovation has been one of the fundamental causal mechanisms through which access to life improving products and services has been increased and the basis on which long term organisational survival could be ensured (Christensen, 1997). In spite of the proclaimed importance of disruptive innovation and the ever increasing interest from both the business and academic press alike, there still appears to be a disparity between rhetoric and reality. To date, the multifaceted and interrelated issues of disruptive innovation have not been investigated in depth. The phenomenon with examples has been described by a number of authors (Christensen, 1997, Moore, 1995 Gilbert and Bower, 2002) and practitioner orientated writers have begun to offer strategies for responding to disruptive Thomond, P., Herzberg, T. and Lettice, F. (2003). "Disruptive Innovation: Removing the Innovators’ Dilemma". Knowledge into Practice British Academy of Management Annual Conference, Harrogate, UK, September 2003. 3 change (Charitou and Markides, 2003, Rigby and Corbett, 2002, Rafi and Kampas, 2002). However, a deep integrated understanding of the entire subject is missing. In particular, there is an industrial need and academic gap knowledge in the pragmatic comprehension of how organisations can understand and foster disruptive innovation as part of a major competitive strategy. The objectives of this research are to co-create understanding and knowledge on the phenomenon of disruptive innovation in order to provide pragmatic clarity on the term’s meaning, impact and implications. This will address the academic audience’s gap in knowledge and provide help to practitioners wanting to understand how disruptive innovation can be fostered as part of a major competitive strategy. The current paper reports on the first eighteen months of a three year academic and industrial investigation. It presents a new pragmatic definition drawn from the literature and an overview of the conceptual framework for disruptive innovation that was co-created via the collaborative efforts of academia and industry. The barriers to disruptive innovation are presented and a best practice case study of how one company is overcoming these barriers is described. The research contributes to “Disrupt-it”, a €3million project for the Information Society Technologies Commission under the 5th Framework Program of the European Union, which will focus on developing and validating tools to help organisations foster disruptive innovation. 2.0 Understanding the Phenomenon of Disruptive Innovation. ‘Disruptive Innovation’, ‘Disruptive Technologies’ and ‘Disruptive Business Strategies’ are emerging and increasingly prominent business terms that are used to describe a form of revolutionary change. They are receiving ever more academic and industrial attention, yet these terms are still poorly defined and not well understood. A key objective of this research is to improve the understanding of disruptive innovation by drawing together multiple perspectives on the topic, as shown in Figure 1, into a more holistic and comprehensive definition. Much of the past investigation into discontinuous and disruptive innovation has been path dependent upon the researchers’ investigative history. For example, Hamel’s strategy background leads him to see disruptive innovation through the lens of the ‘business model’; whereas Christensen’s technologically orientated past leads to a focus on ‘disruptive technologies’. What many researchers share is the view that firms need to periodically engage in the process of revolutionary change for long-term survival and this is not a new Thomond, P., Herzberg, T. and Lettice, F. (2003). "Disruptive Innovation: Removing the Innovators’ Dilemma". Knowledge into Practice British Academy of Management Annual Conference, Harrogate, UK, September 2003. 4 phenomenon (Christensen, 1997; Christensen and Rosenbloom, 1995; Hamel, 2000; Schumpeter, 1975, Tushman and Anderson, 1986; Tushman and Nadler, 1986, Gilbert and Bower, 2002; Rigby and Corbett, 2002; Charitou and Markides, 2003; Foster and Kaplan, 2001; Thomond and Lettice, 2002). Disruptive innovation has also been defined as “a technology, product or process that creeps up from below an existing business and threatens to displace it. Typically, the disrupter offers lower performance and less functionality... The product or process is good enough for a meaningful number of customers – indeed some don’t buy the older version’s higher functionality and welcome the disruption’s simplicity. And gradually, the new product or process improves to the point where it displaces the incumbent.” (Rafi and Kampas p 8, 2002). This definition borrows heavily from the work of Christensen (1997), which in turn has some of its origins in the findings of Dosi (1982). For example, each of the cases of disruptive innovation mentioned thus far represents a new paradigm of customer offering. Dosi (1982) claims that these can be represented as discontinuities in trajectories of progress as defined within earlier paradigms where a technological paradigm is a pattern of solutions for selected technological problems. In fact, new paradigms redefine the future meaning of progress and a new class of problems becomes the target of normal incremental innovation (Dosi, 1982). Therefore, disruptive innovations appear to typify a particular type of ‘discontinuous innovation’ (a term which has received much more academic attention). The same characteristics are found, except that disruptive innovations first establish their commercial footing in new or simple market niches by enabling customers to do things that only specialists could do before (e.g. low cost European airlines are opening up air travel to thousands that did not fly before) and that these new offerings, through a period of exploitation, migrate upmarket and eventually redefine the paradigms and value propositions on which the existing industry is based (Christensen, 1997, 2002; Moore, 1995; Business Model Charitou & Markides, 2003 Hamel, 2000