DisruptiveInnovation.Org - Critiques & Responses

Crossing the Chasm to Disruptive Innovation

By Ezra W. Zuckerman

No theory or framework is perfect. And one common imperfection, which is present in Clayton M. Christensen’s theory of disruptive innovation as well as many other frameworks, is that it is not entirely clear what is the core idea and what is peripheral. This ambiguity has in turn made it unclear how valuable the theory is and what adjustments might make it more valuable. My own view is that there is a very useful core idea at the heart of the theory, one that scholars and executives alike would do well to heed, but this idea has yet to be articulated clearly, either by Christensen or by critics such as Andrew A. King and Baljir Baatartogtokh. This core idea is what I call “the surprisingly bridgeable chasm.”

Let me back up. When we consider any management theory or framework, it is useful to start by asking a few basic questions:

What question is the theory meant to address?

Does the theory improve upon (as a complement or substitute for) other answers to the question it addresses?

What ideas are at the core of the theory and what is peripheral?

Let’s consider the theory of disruptive innovation through the lens of those three questions.

1. What question is the theory meant to address?

Christensen’s theory of disruptive innovation is animated by an excellent question:

How is it that capable, motivated incumbent companies are unseated by startups that tend to have weaker capabilities and fewer resources? This would seem improbable, yet it happens more frequently than one would expect. Why?

Regardless of what one thinks of the theory of disruptive innovation’s answer to this question, the question remains a good one. In my view, this is the main weakness of Harvard University historian Jill Lepore’s prominent critique of the theory of disruptive innovation in a 2014 article in The New Yorker. Lepore raised a set of interesting points. A chief weakness of her critique, however, was that she did not adequately acknowledge the importance of the question that the theory of disruptive innovation addresses. I suspect this comes in part from the fact that Lepore is an outsider to the business field. She does not have to confront the question of why capable, motivated incumbent companies might be vulnerable. But we (both managers and management scholars who aspire to guide them) do.

2. Does the theory improve upon (as a complement or substitute for) other answers to the question it addresses?

One of the downsides of the great popularity of the theory of disruptive innovation is that that popularity has obscured the fact that there are other good answers to the question the theory addresses. In particular, two compelling answers to the question of why incumbents are vulnerable are “competency traps” (a phrase that was introduced by Barbara Levitt and James G. March in 1988 and that describes the paradoxical fact that it is more difficult for companies that are highly capable in one area or with one approach to develop new capabilities than it is for a new entrant to do so) and internal competition (that a company’s units have difficulty sharing common resources such as their brand and sales channels when the units compete for the same business).

Christensen and his coauthors are well aware of each of these issues and discuss them as part of their framework. But one does not need the theory of disruptive innovation to appreciate these points of incumbent vulnerability. The question is whether the theory has a distinctive insight to add to complement existing insights. Are incumbents vulnerable even when they do not fall prey to competency traps and are not riven by politics? Christensen and colleagues counsel that the answer is “yes.” But how and why is that?

3. What is at the core of the theory and what is peripheral?

Here is where things become fuzzy. In their article in the fall 2015 issue of MIT Sloan Management Review, King and Baatartogtokh argue that one key claim of the theory of disruptive innovation is that incumbents (precisely because they are so competent and motivated) overshoot customer requirements. And King and Baatartogtokh demonstrate convincingly that this customer overshoot usually does not occur. It is not clear to me, however, that the customer overshoot concept is at the core of the theory. When I teach the theory of disruptive innovation, I barely mention customer overshoot. Rather, I see it as essentially a secondary, reinforcing process but not a core one. My question is:

If we remove this assumption from the theory of disruptive innovation, does the theory still have a distinctive answer to the question of incumbent vulnerability?

A related question can be asked about “high-end disruption.” Since the earliest formulations of the theory of disruptive innovation, Christensen has been adamant that disruption can only come from “below” — in other words, beginning with customers that have zero or low willingness to pay for the dominant technology. Christensen’s premise seems to be the following: Since customers with low willingness to pay are the most dissatisfied with the existing technology, those with high willingness to pay will be most satisfied with current technology, and so incumbents who are capable and motivated to serve them are less vulnerable to losing those customers. The problem, however, is that those with high willingness to pay might be willing to pay even more if incumbents were willing or able to deliver products that better met their needs. And good research on “high-end encroachment” by Joseph Van Orden, Bo van der Rhee, and Glen M. Schmidt now indicates that incumbents can often be displaced from above — in other words, by entrants that begin by attacking customers with a high willingness to pay. (Schmidt and van der Rhee explained the practical implications of that research in a 2014 MIT Sloan Management Review article.)

One way to address this issue is to assert categorically that examples of high-end encroachment are not cases of disruption because by definition they come from the high end. This is essentially the approach that Christensen has taken. But the question I ask about Christensen’s insistence that disruption can only come from the low end is the same one I raised with respect to overshooting:

If we eliminate this assumption from the theory of disruptive innovation, does the theory still offer a distinctive answer to the question of incumbent vulnerability?

Put differently, what really is the core idea of the theory of disruptive innovation?

My own view is that the core insight of the theory of disruptive innovation can be captured — without requiring us to assume that disruptions always entail customer overshoot by incumbents and must always start with low-end customers — when we relabel it the “theory of the unexpectedly bridgeable chasm.” I take the term “chasm” from Geoffrey A. Moore’s classic 1991 book on technology marketing, Crossing the Chasm. Moore’s core insight was that new technologies often fail to parlay their popularity among early adopters into mass-market appeal; the reason is that, since mass-market customers typically have different needs and desires, early adopters serve as negative reference points.

Ironically, even though Moore’s book has been enormously influential, it has rarely been recognized that its core idea is in significant tension with what I believe is the theory of disruptive innovation’s core idea. Moore argued that niches are often very hard to use as springboards for “crossing the chasm” to the mass market. Christensen argued the opposite — that such “springboarding” happens more often than we might expect. Incumbents generally assume that innovations appealing to a niche will never threaten them because their customers have different needs, but surprise, surprise — sometimes those customers change their minds. And by that point, it is often too late for incumbents to play catch up.

If disruption is viewed in this broader way as a “theory of unexpectedly bridgeable chasms,” how is it that chasms that seem unbridgeable may be bridged? There are at least three well-known processes of bridging chasms by increasing returns — experience curves, network effects, and demand discovery — whose shape cannot be known until one starts to embark upon them. The first of these processes is the idea made prominent by the Boston Consulting Group in the 1960s and 1970s — the idea that the more that one engages in (or invests in) a production process, the better one gets at it. The second of these is the idea that became widely known with the rise of Microsoft in the 1980s — that demand is often driven by the number of other users that use a platform either directly or indirectly, causing markets to quickly tip from one platform to another. And the third is the very straightforward point (exploited to the hilt by Steve Jobs) that people often do not know what they like until they see it. None of these processes for bridging chasms is surprising in the abstract. But when one or more of these processes is salient, surprises can happen because no one can say in advance what particular shape these processes will take.

A second key question is why, in this broader view of the theory, incumbents are more vulnerable to such surprises than entrants. Here Christensen points to an important factor — that incumbents face a higher hurdle rate (in other words, expected rate of return above which they will invest) for investments in nascent markets than entrants. One reason for this applies to public companies: Pressure to maintain their current valuation “multiple” can dissuade them from pursuing opportunities in small, emerging new markets that appear to promise a lower multiple. Another reason, which draws on recent work in economic sociology, is that investment in a different niche can signal lower commitment to existing stakeholders (customers, employees, and investors).

The upshot of the above is that there is indeed a very useful idea at the core of the theory of disruptive innovation. In short, it is quite instructive to recognize that niches can potentially be the launching pads for ventures that unexpectedly come to compete successfully with the most capable, motivated incumbent companies. It is just one part of a larger set of ideas we have for understanding the vulnerability of incumbent companies. But it remains a very valuable insight, and we have Christensen and colleagues to thank for it. One hopes that in the future, the theory of disruptive innovation is recognized for what it is rather than promoted or attacked for what it is not. It is only through such judicious use and thoughtful revision that ideas become most valuable for clarifying thinking and action.

Ezra W. Zuckerman is the deputy dean of the MIT Sloan School of Management as well as the Alvin J. Siteman (1948) Professor of Strategy and Entrepreneurship at the MIT Sloan School.

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