“Disruptive Innovation” Key to America’s Future
There is a rumor that in 1899 Charles H. Duell, Commissioner of the U.S. Patent Office, urged the closing of the Patent Office because “everything that can be invented has been invented.”
If Mr. Duell were alive today he might have an interesting meeting with Harvard University Prof. Clayton Christensen, the high priest of the “disruptive innovation” concept.
What is disruptive innovation and why is it so important?
Harvard Business Review What is Disruptive Innovation? by Clayton M. Christensen, Michael E. Raynor and Rory McDonald defines disruptive innovation:
“’Disruption’ describes a process whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses. Specifically, as incumbents focus on improving their products and services for their most demanding (and usually most profitable) customers, they exceed the needs of some segments and ignore the needs of others. Entrants that prove disruptive begin by successfully targeting those overlooked segments, gaining a foothold by delivering more-suitable functionality—frequently at a lower price. Incumbents, chasing higher profitability in more-demanding segments, tend not to respond vigorously. Entrants then move upmarket, delivering the performance that incumbents’ mainstream customers require, while preserving the advantages that drove their early success. When mainstream customers start adopting the entrants’ offerings in volume, disruption has occurred.”
On the other hand, “sustaining” innovation, (according to the Harvard Business Review article) make good products better in the eyes of an incumbent’s existing customers: the fifth blade in a razor, the clearer TV picture, better mobile phone reception. These improvements can be incremental advances or major breakthroughs, but they all enable firms to sell more products to their most profitable customers.
The creation of the automobile was not a disruptive innovation but Henry Ford’s development of the assembly line was. The creation of the iPhone might be regarded as destructive innovation, but the advances in the technology are clearly sustaining innovation.
Twenty-five years ago, if one were to guess what the five largest businesses in America, one might suggest: AT&T, General Motors, U.S. Steel, Exxon, Proctor & Gamble, General Electric and the like. Today, it’s Google, Amazon, Apple, Microsoft, Wal-Mart and the like. The difference: Disruptive Innovation. Not only are new entities the largest companies in terms of market capitalization and value, they also represent the nation’s biggest employers.
As the United States today competes in a global market where nations all over the world can produce manufactured products cheaper and more efficient than the United States, our survival has to be based on destructive innovation. Clearly it has been destructive innovation that has revolutionized agriculture.
America’s future will be based on renewable energy, the driverless car, battery and fuel cell technology. The technology revolution in Israel is yet another example of the development of destructive innovation.
If the United States is going to continue to be the leader of the world through a highly productive, full employment economy it will have to be through destructive innovation. Both government and industry has to make major investments in education, research and development.
Our survival depends on it.
Tagged: Amazon, Apple, culture, disruptive innovation, economics, General Electric