Disruptive Innovation

Clayton Christensen's theory of how simpler, cheaper products can topple powerful market leaders, and how the idea is often misused.

Why do successful, well-managed companies sometimes collapse when new competitors appear? Harvard professor Clayton Christensen offered an influential answer in his 1997 book The Innovator’s Dilemma.

Sustaining versus disruptive innovation

Sustaining innovations improve existing products for existing customers: faster computers, better cameras. Established leaders usually win these races.
Disruptive innovations start with products that are simpler, cheaper and initially worse on traditional measures, aimed at customers who are overlooked or not served at all.

How disruption happens

Leaders focus on their most profitable, demanding customers, adding features and raising prices.
A newcomer offers a basic, cheaper product to low-end or new customers that leaders ignore because margins are low.
The newcomer improves over time.
Eventually, the product becomes good enough for mainstream customers, who switch.
The leader, which rationally ignored the low end, is left behind.

The dilemma

The innovator’s dilemma is that leaders fail not because they are badly managed, but because they do what seems sensible: listening to their best customers and chasing higher margins.

Examples

Personal computers disrupted minicomputer makers.
Digital photography undermined film companies.
Mini steel mills started with low-grade steel and moved up, taking share from large integrated mills.

Misuse of the term

Christensen himself warned that “disruption” is often used loosely for any new or successful technology. For example, he argued that Uber, which started by serving existing taxi customers with a better service, was not a classic disruptive innovation.

Responses

Christensen suggested that established firms can respond by creating separate units with the freedom to pursue low-margin, disruptive products.

Small cars, big change

A company launches a basic, low-cost vehicle for families who could previously only afford scooters. Established carmakers ignore it because margins are thin. Over years, the newcomer improves quality and moves into larger cars, eventually competing directly with the leaders.

Thinking every new technology is disruptive

Disruption in Christensen's sense means starting at the low end or with non-customers and moving up. Many innovations are sustaining improvements.

Key takeaways

Sustaining innovations improve products for existing customers; leaders usually win.
Disruptive innovations start simpler and cheaper, serving overlooked customers.
Leaders often fail because they rationally focus on their best customers.
The term is often misused for any new technology.