Competence Destruction Theory of Entrepreneurship

Competence destroying innovations are expected to be brought to market more successfully by new entrants than competence enhancing innovations (Tushman & Anderson, 1986). 

Competence = abilities + resources

An incumbent firm's competence is destroyed when a technological innovation obsolesces the abilities and or resources that previously composed the competences of the firm. For instance, Blockbuster's retail competence was undermined by Netflix's online model

The theory goes that incumbents are reluctant to adopt competence destroying innovations because they prefer to preserve and enhance their existing competences. Besides, developing new competences often means shedding the old and that can involved painful layoffs or divestitures. These difficult organizational changes and the coalitions that form within organizations to try to stop them, create a friction that impairs adoption.

Instead, the new entrant benefits from adopting competence-destroying innovations because they to some extent inoculate against incumbents' competitive responses. While the incumbents struggle to make shrew and painful decisions, the entrepreneurs can develop new ventures with the technology. Therefore, competence-destroying innovations are ways for entrepreneurs to fly under the radar.

By contrast, if a new entrant comes to market with a competence-enhancing innovation, then they are at a disadvantage. There is nothing stopping an incumbent from adopting a competence-enhancing innovation. Given that incumbents usually have more resources and experience, the best course of action for a new entrant might be to try to secure intellectual property rights and to license the technology to the incumbents.

Interestingly, Christensen and Bower (1996) positioned the disruptive innovation theory as an alternative to the competence-destroying theory. They argued that managers have become increasingly willing to make shrew decisions allowing them to respond to competence-destroying innovations.