Disruptive Innovation Theory and Entrepreneurship
What is the disruptive innovation theory of entrepreneurship?Disruptive innovation theory of was developed by Harvard Business School professor Clayton Christensen in his famous book entitled The Innovator’s Dilemma (2003).
Christensen’s core argument is that new entrants succeed when they pursue disruptive innovation whereas incumbents tend to pursue sustaining innovations. Disruptive innovations are technologies, products and business models that are lower performing than incumbent offerings along traditional dimensions of performance, but compensate with increased simplify, convenience, customizability, or affordability. For example, the Nintendo Wii disrupted the Xbox and Sony Playstation by offering lower quality graphics in exchange for the simplicity in the intuitive movements offered by gyroscopic technology added to the controllers. This allowed younger children, game novices, and older gamers to be able to learn to play with a minimal learning curve.
Sustaining innovations, on the other hand, improve technologies, products, and business models along traditional performance dimensions. For instance, the movie theater incumbents are pushing 3D movies, which offer increased stimuli over the visual sense.
New entrants, such as startups, are able to defeat incumbents with disruptive innovations because they come in at the bottom of the market, offering marginal customers solutions that are good enough for them, but not yet good enough for expert users. For instance, while the Wii attracted many new users to console gaming, it did not affect the market share of PC games catering to hard core gamers.
Incumbents typically respond to disruptive innovations by moving up-market, pursuing higher margin customers rather than competing on the low end. This is often a mistake, however, because new entrants quickly improve their innovations until they start to challenge the incumbents in mainstream markets. One suggestion is that incumbents should create new divisions to compete along disruptive dimensions, but this approach is difficult because it implies a certain level of self-cannibalization.
While the theory has gained popularity, empirical studies have found mixed support for the theory (Markides, 2006). There is some evidence that incumbent firms are becoming increasingly willing to be the disruptors, and even to self-disrupt. This may be a result of the theory's widespread use in teaching in business school with curricula around managing innovations. Perhaps after two decades of grads with exposure to the theory penetrating the ranks of management, organizations are learning to harness disruption rather than being disrupted by newcomers.
Christensen, C. M. (2003). The innovator's dilemma: The revolutionary book that will change the way you do business. New York, NY: HarperBusiness Essentials.
Markides, C. (2006). Disruptive innovation: In need of better theory. Journal of product innovation management, 23(1), 19-25.