The inspiration for Clayton M. Christensen’s seminal theory on disruptive technology came from watching the Digital Equipment Corporation’s fall in 1988. How could the management team that had been rightfully lauded for its brilliance by every popular business publication have stumbled so badly?
As Digital’s star fell, the business press blamed the ineptitude of Digital’s management. But Dr. Christensen observed that every other minicomputer company collapsed at the same time. Since no one colludes to fail, something more was at work. He concluded that the ultimate reason for the implosion of the minicomputer industry was not just the rise of the personal computer, but what the PC represented: a disruptive technology to which the minicomputer companies could not respond.
His theory of disruptive technology became the basis of The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail (Harvard Business School Press, 1997). Named the best business book of that year by the Financial Times/Booz Allen Hamilton Global Business Book Awards, its impact was all the more potent because it prescribed no new management rules or standardized solutions, but instead confronted companies with Dr. Christensen’s chilling vision of how the world works. A company can do all the right things — listen to its customers, invest in research and development, compete aggressively — and yet fall victim to a new technology or business model that seemed, at first, almost irrelevant.
Whether it was Digital Equipment and the PC; Sears, Roebuck and Company confronting Wal-Mart Stores Inc.; or the makers of cable-activated earth excavators encountering hydraulics, leading companies declined and sometimes died not from competitors’ advances, but from new players with lower-quality solutions.
Conventional wisdom holds that as companies get big and successful, they become risk averse and avoid innovation. Dr. Christensen found that this was not the case.
Large companies successfully embrace innovations that are what he calls sustaining technologies, which are often responsible for performance breakthroughs. He defines a sustaining technology as any innovation that enables an industry’s leaders to do something better for their existing best customers. A disruptive technology, on the other hand, is a product or service that your best customers can’t use and that has substantially lower profit margins than your business can support. Companies ignore disruptive technology innovations for perfectly rational reasons, but to their ultimate peril.
Businesses get blindsided because they focus on their best, most profitable customers, and ignore other potential markets, or customers seeking lower-cost products. This narrow view, Dr. Christensen says, ignores the fact that every market is characterized by three distinct change trajectories:
- Performance improvement that customers can readily utilize (i.e., it matches their own changing needs).
- Technology advances driven by sustaining technological improvements.
- New performance introduced by a disruptive technology, which typically begins at a lower level of performance, but rapidly improves until it meets the majority of customers’ needs.
It is the tendency of all successful companies to match their performance to their most demanding customers, exceeding the needs of most of their customers, which creates an opening for disruptive technologies, he says.
A successful entrepreneur before returning to Harvard Business School in his early 40s, Dr. Christensen cofounded the Ceramics Process Systems Corporation, a manufacturer of products made from injection-molded powdered metals, high-performance ceramics, and ceramic-metal composites.
He bases his theory on a rigorous observation of business phenomena, a meticulous classification of the conditions that affect those phenomena, and an endless cycle of testing the theory against the observations. Too many business theorists, he says, indulge in what he calls academic malpractice, propounding theories and selecting cases to support those theories without ever subjecting them to the rigors of the real world.