Defining and defending disruptive innovation

Clayton Christensen, the doctor of "disruptive innovation," is about as celebrated as business thinkers get. Yet he was just back in the Harvard Business Review patiently trying to explain the big idea that made his career.

There wouldn't seem to be much left to say about his theory of how new products or services knock out the leaders in a market. But it turns out he'd had a disruptive couple of years.

A colleague from Harvard blasted him in the pages of the New Yorker magazine. More recently the MIT Sloan Management Review published a review of his 77 case studies going all the way back to when Christensen's classic book, "The Innovator's Dilemma," was first published in 1997. The authors decided that most of these cases don't completely fit his theory.

To the skeptics in business this could be welcome news. Another management fad that started with a B-school professor has finally begun to wane.

It seems more likely, however, that as an idea disruptive innovation isn't going away. And rather than rolling their eyes, executives need to make sure they first really understand it.

Maybe the biggest problem with disruptive innovation is the very popularity of the term. Back when his first book came out, Christensen's work was groundbreaking stuff, but lately disruptive seems to be applied to just about anything new.

Christensen thinks the term's been badly overused, although he did some of this muddying of the waters himself by jumping into fields such as health care and education.

As an idea it's even become popular enough for TV sitcom writers to mock, as some of the funniest scenes in the first season of HBO's show "Silicon Valley" took place at an over-the-top competition for technology start-ups called TechCrunch Disrupt.

Here's the best part of the joke: It's an actual event. The next TechCrunch Disrupt will be held in May.

Christensen, with two co-authors, tried to have a last word on disruption in the recent HBR article. But he managed to annoy his critics further when he dismissed the ride-sharing service Uber as a new business concept that clearly wasn't disruptive.

If what the booming Uber is doing to the traditional taxi business isn't disruptive, his critics wanted to know, what is?

I can certainly agree that it must be plenty disruptive to taxi company owners to see an unregulated competitor blow into town and completely upend their business. But that isn't the kind of disruption Christensen's been talking about.

He has it right on Uber. What it has done is go after the mainstream taxi customers with a better mousetrap.

The important thing to understand about what Christensen came to call a low-end disruption is that better mousetraps aren't the products that undermine and then eventually topple market leaders.

It's lousier mousetraps.

Christensen got onto this line of research by puzzling over why some of the most successful companies fell on hard times. He seems to be generous by nature, and he hoped to learn that it wasn't just shortsighted or lazy executives running their businesses into the ground.

Something was happening to these companies and their generally savvy managers, he suspected, that they didn't see coming or at least didn't see coming in time.

Christensen eventually came up with lots of examples of this, from high-tech products to things like steel reinforcement bar and hydraulic excavators. He's maybe best known for his early work describing the changes in the market for disk drives, the little devices inside electronics used to store data.

In disk drives, the leaders of the industry had big research and development budgets and were launching new and better products all the time. They were listening closely all the while to their best customers.

What the market leaders weren't interested in doing, however, was introducing smaller and cheaper drives. The 8-inch drives were cheaper per megabyte of storage, with quicker access times. They were simply far better, so why build a cheaper, 5.25-inch drive? None of the big customers wanted them.

The customers who did buy the inferior products were customers the big players didn't know about or didn't want. But the suppliers of the smaller, slower drives kept improving their products until they started taking the market share of the mainstream providers.

The most important lesson is that the managers who ran the big successful companies didn't do anything conventionally wrong, yet they still ended up losing their market to upstarts.

As for the real-world practicality of this teaching, examples are all around us. It took no time at all last week to come up with a back-of-the-envelope list of situations here with at least the potential for just this kind of disruption. A great example is in financial services, one of the key industries here in the Twin Cities.

Within a five-minute walk of my office in downtown Minneapolis are the headquarters of two Fortune 500 companies, Ameriprise Financial and Thrivent, in the business of providing financial advice through well-trained advisers. But in the past half-dozen years, at least a couple of hundred automated investment adviser services have been launched, the so-called robo advisers.

With robo advisers, the clients (and it seems odd to even use the word client) answer a bunch of questions about their goals and investment risk tolerance on an online form. Then some computer algorithms run, and out comes a personalized portfolio of investment funds.

The service from a robo adviser isn't nearly as good as what clients can get from human financial advisers. As an innovation robo advising is not a better mousetrap, it's a far worse mousetrap.

But they are cheaper. They seem easy to use. And they will get better.

lee.schafer@startribune.com • 612-673-4302