DISRUPTIVE CREATION:

'Disruptive technology' key to creating growth, scholar tells Japan (TAKASHI KITAZUME, 9/12/05, Japan Times)

If you want to beat the industry leaders, you shouldn't try to outperform them in an established market, but "disrupt" them by creating a situation where they want to flee from you.

And if you want to create a new growth business, you should start by competing against nonconsumption, by offering products and services so simple and affordable that people who lacked access to them will be delighted to use them, even they may be low-quality at first.

This is the growth-creation advice to Japan offered by Harvard Business School professor Clayton Christensen, who discussed "disruptive technology" at Keidanren Kaikan on Sept. 2 in a seminar organized by the Keizai Koho Center.

According to the professor, the incumbent leaders of an industry will "almost always" survive the fight over sustaining innovations in the established market. "The leaders figure out a way" to make better products they can sell for higher profits to their best customers, he said.

"But every once in a while we see a different kind of technology come into an industry, and we call this a 'disruptive technology,' " Christensen said.

Such a technology is disruptive not because it brings about a breakthrough in performance, but because it redefines the market by introducing a product that is not as good as what the leaders make but is simple and affordable and can improve later to meet the needs of mainstream customers, he explained.

"And what we learn is that, almost always, entrant companies win the battles of disruptive innovation," he said. [...]

In the auto industry, for example, he said that Toyota, Nissan and Honda sold low-price, low-quality cars in the 1960s that drove their American competitors into higher segments of the vehicle market. Nippon Steel, Sony, Seiko and Canon did the same thing.

"Now each one of those Japanese companies is now at the high end of the market, making finest-quality products in the world," he said.

The question is: What they would do if there was no room for growth at the high end?

When the American companies got stuck in the high end of the market after being disrupted by Japanese competitors, their employees left and collected venture capital to start new waves of disruptive growth, the professor said.

"So even though the individual companies stalled and began to fail, the (American) economy kept going because we could start new waves of growth business," he said.

However, the Japanese economy as it is today is not structured to start new waves of growth business, Christensen warned. "Venture capital does not work well here, employees tend not to be willing to leave their employers, and so if Japan played the game once, the game is essentially finished."

Which is why developed nations don't manufacture stuff--there's always someone coming along behind who'll make essentially the same stuff but cheaper.

MORE:
-INTERVIEW: Disruption is Good (Apr. 1, 2001, CIO Magazine )

So what can managers do once they know about the concept of disruptive innovations? Your recent research mentions a few litmus tests that CIOs might apply to recognize them.

The first question CIOs should ask is, Does this technology innovation constitute a threat to me or is it in fact a great growth opportunity? If you look back in history, the disruptees always viewed new technology as a threat. In reality, they were all poised on the brink of a big growth opportunity. But because the way they reacted was first to discount this innovation as meaningful and second to frame it as a threat, they ended up getting killed. So the first thing is to look at disruptive technology as a growth opportunity and not as a threat.

Now, there is a problem with this. There's a lot of work in cognitive psychology that suggests that if you take a phenomenon to somebody and pose it to him as a threat, it elicits a far deeper response than if you take the very same phenomenon and pose it as an opportunity. So there are deep reasons why people frame change as a threat. In fact, if a manager hopes to elicit an aggressive response, framing it as a threat is almost critical.

It's in the pursuit of the growth opportunities that these litmus tests can really become relevant. One of the litmus tests is that, in almost every case, a disruptive technology enables a larger population of less skilled people to do things that historically only an expert could do. And to do it in a more convenient setting. In hundreds of industries, this is a very common characteristic. So whenever CIOs are looking at an investment, they just need to remember that sometime in the future, somebody is going to figure out a way for an even less skilled population of people to do the job that now more skilled people have to do.

Capturing the Upside (Clayton Christensen, IT Conversations)
-Q&A: Clayton Christensen on "Innovator's Dilemmas" and "Innovator's No-Brainers": The Harvard B-school prof and author talks about how the Net changes the rules of business (Business Week, March 15, 1999)
- The Industrialized Revolution: Clay Christensen's idea of "disruptive innovation" made him the unintended mascot of the dotcom boom. So what's he thinking now? (Polly LaBarre, November 2003, Fast Company)

Posted by Orrin Judd at September 11, 2005 10:58 PM