Tuesday, December 1, 2015
The theory of "disruptive innovation," which was first announced by Harvard Business School professor Clayton Christensen in 1995, has become the talk of the town. It has become especially prominent in land use circles with the rise of sharing economy uses such as Uber and Airbnb that are redefining how cities operate. The question, though, is whether Christensen's theory of disruption is properly applied to the rise of the sharing economy; on a broader scale, the theory of disruption has become so hot that people seem to be applying it to everything. Are they doing so correctly?
In a new article out in this month's edition of the Harvard Business Review, Christensen and several colleagues crystallize, and in part, revise, the original theory of disruptive innovation on this its 20th anniversary. It is an important read for those that want to keep up to date on how new on-demand technologies are affecting how we use personal and real property and the commensurate regulation of those enterprises.
Here is an excerpt from the article:
First, a quick recap of the idea: “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. (See the exhibit “The Disruptive Innovation Model.”)
Is Uber a Disruptive Innovation?
Let’s consider Uber, the much-feted transportation company whose mobile application connects consumers who need rides with drivers who are willing to provide them. Founded in 2009, the company has enjoyed fantastic growth (it operates in hundreds of cities in 60 countries and is still expanding). It has reported tremendous financial success (the most recent funding round implies an enterprise value in the vicinity of $50 billion). And it has spawned a slew of imitators (other start-ups are trying to emulate its “market-making” business model). Uber is clearly transforming the taxi business in the United States. But is it disrupting the taxi business? According to the theory, the answer is no. Uber’s financial and strategic achievements do not qualify the company as genuinely disruptive—although the company is almost always described that way. Here are two reasons why the label doesn’t fit.
Because the article is behind a paywall, I must cut the excerpt off there. Here is the cite for those with access to HBR:
CHRISTENSEN, CLAYTON M., MICHAEL RAYNOR, and RORY MCDONALD. "What Is Disruptive Innovation?." Harvard Business Review 93.12 (2015): 44-53. Business Source Premier. Web. 1 Dec. 2015.