27 July 2017

Five Myths About Disruption

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Larry Downes and Paul Nunes are co-authors of “Big Bang Disruption: Strategy in the Age of Devastating Innovation.” Downes is a research fellow with the Accenture Institute for High Performance, where Nunes serves as global managing director. 

Writing recently in the New Yorker, historian Jill Lepore contends that the prevailing theory of business change — known as “disruptive innovation” — is grounded in poor research and circular logic. While it’s true that talk of disruption is thrown around carelessly (the meaningless advertising phrase “new and improved!” has been replaced with “disruptive and innovative!”), it’s equally obvious to any teenager with a month-old smartphone that the pace of business disruption is accelerating.

1. Disruptive innovations begin as inferior replacements for existing products. 

Harvard business professor Clayton Christensen, the focus of Lepore’s article, argued in his 1997 book, “The Innovator’s Dilemma,” that successful companies can be upended by new technologies that first appear as cheaper products with fewer features, but improve quickly and ultimately take over. Think personal computers vs. mainframes.

But not anymore. Our research shows that especially in industries dominated by digital technology, the disruptors now arrive better and cheaper than existing goods, right from the start — think free integrated smartphone navigation apps vs. stand-alone GPS devices. “Disruptive innovation” is increasingly “devastating innovation,” or what we call “big bang disruption.” Businesses that wait for the disruptor to arrive before figuring out how to incorporate it in their products — as Christensen recommended — are already too late.

Companies can compensate for the increasing pace of change by watching for the early signs of emerging technologies while they’re still in the lab. Then they can start experimenting before it’s too late. Or, almost as good, before their competitors.

2. The further you are from the technology industry, the safer you are from disruption. 

It would be comforting if only industries at the center of the information revolution — computing, communications, media, entertainment — felt the pain of disruption.

But with computers getting faster, cheaper and smaller over the past half-century, it has now become cost-effective to embed computing capability in nearly every product or service. Even the most non-digital industries — such as heavy manufacturing, transportation, energy and education — are feeling the pressure of digital technology as entrepreneurs look for the biggest opportunities for disruption.

In health care, for example, cheap sensors, cameras and displays (made cheaper by economies of scale, thanks to the sale of more than 1 billion smartphones and tablets since 2007) are being combined in wearable devices that can track a range of vital signs — baby steps toward giving patients access to their own health information and bringing spiraling medical costs under control.

What is true is that the more regulated an industry, the harder for the disruptors to enter. But those industries — health care, energy and transportation are good examples — are often the most inefficient, making disruption by better and cheaper technology irresistible. And often, when innovators finally break through, the disruption is all the more explosive. Recall how e-mail turned the U.S. Postal Service from a profit center to a financial black hole.

3. The best innovations come from proprietary R&D. 

In the past few years, we’ve seen a wave of new companies — Oculus ,WhatsApp , Instagram — acquired for billions of dollars, sometimes before they’ve even launched a commercial product. It’s not as crazy as it sounds.

What these start-ups have in common is that each quickly built a devoted audience of millions of consumers, often by giving away its experimental products and encouraging users to collaborate with developers. Cloud computing, reusable software and globally sourced parts make experimenting easy.

Click here for the full column in the Washington Post.

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