The Schumpeter column (our favourite column in The Economist) this week discusses innovation and, in particular, the views of Clay Christensen, a professor at Harvard Business School, who is often cited as the world’s most influential management guru.
The title of this column is named after the Moravian economist Joseph Schumpeter who coined the phrase ‘Creative Destruction’ to decide the way that products and services are developed and how new businesses take over from incumbents.
The Economist explains that Christensen argues that ‘real’ disruptive innovations attack from the lower end of the market. In many cases this is true but in some (such as Apple with the iPhone) they can attack from a higher price position offering a superior product or service. He therefore argues that Uber is not ‘genuinely disruptive’, whatever genuinely means. Existing taxi drivers might see it differently.
Christensen’s work clearly has a great deal of merit. However, he tries to ‘shoehorn’ all examples into his theory whereas there is no ‘general theory’ of disruption.
An Alternative View
At MTP we are fans of the work of Constantinos Markides of London Business School. The book he wrote with Paul Gersoki, ‘Fast Second‘ published in 2005, provides an analysis of innovation into four types: Incremental, Major, Strategic and Radical.
Both Radical and Strategic innovation are disruptive to established firms. The distinction is that Radical innovations have a large impact on the behaviour of consumers (such as the invention of the motor car) whereas Strategic innovations do not (eg the low cost airline industry). They argue that Major innovations tend to be driven by the success of newcomers (Microsoft, Google) capitalising on new technology whereas Strategic innovation is largely driven by companies who find a new business model, such as SouthWest Airlines or Ryanair flying to smaller airports, where planes can land and take off in much less time than at major hubs such as Heathrow, thus significantly reducing the cost per flying hour.
So Uber is a disruptive innovation (a Strategic innovation in Markides’ definition) in the taxi market but by utilising a new business model rather than new technology.
However, no management guru is right all the time. Markides claims that the successful companies in Radical innovation will be newcomers, such as Ford in the motor car industry and Microsoft in software. Christensen has the same view in expecting disruptive innovation to come from new companies.
Yet, as the Economist points out perhaps the most successful disruptor of recent years has been Apple.
Christensen described the iPhone as having ‘limited’ chances of success and predicted that the Apple Store on 5th Avenue would be a failure.