Masterclass
Christensen updates disruption theory
Stephen Denning
Stephen Denning (steve@
stevedenning.com) is the
author of The Leader’s
Guide to Radical
Management
(Jossey-Bass, 2010). His
forthcoming book, The
Dumbest Idea in the
World, will be published
later in 2016. His essays
appear at Forbes.com:
http://blogs.forbes.com/
stevedenning/[1]
PAGE 10 STRATEGY & LEADERSHIP
n 1997, Clayton Christensen published his classic book, The Innovator’s Dilemma, in
I which he described a new form of competition that he called “disruptive innovation.”
Like the relentlessly competitive Borg villains of Star Trek fame, disruptive innovators
stealthily invaded unattractive market segments, at first seeming to pose no threat to the
original industry innovators. But by constantly improving their products the upstart
disruptors eventually defeated incumbent titans. By offering a perceptive analysis of the
disruptors’ strategy and suggesting unconventional defensive maneuvers, Christensen
became recognized as one of the world’s leading management gurus.
“That book,” wrote As Alan Murray noted in 2010 in the Wall Street Journal, “documents how
market-leading companies have missed game-changing transformations in industry
after industry – computers (mainframes to PCs), telephony (landline to mobile),
photography (film to digital), stock markets (floor to online) – not because of ‘bad’
management, but because they followed the dictates of ‘good’ management. They
listened closely to their customers. They carefully studied market trends. They allocated
capital to the innovations that promised the largest returns. And in the process, they
missed disruptive innovations that opened up new customers and markets for
lower-margin, blockbuster products.”[2]
“For a generation of CEOs,” writes analyst Vivek Wadhwa in the Washington Post, “Clayton
Christensen’s The Innovator’s Dilemma was a guiding light on how to survive industry
disruptions. His book educated business executives on where competition would emerge
from and how to respond to the threats. . . Christensen’s ideas have
had a positive impact on industry. Companies such as Proctor and
Gamble, GE, and Salesforce credit them with having helped them stay
ahead. They provided an excellent way of thinking about innovation.”[3]
Yet more recently, observers of the battle between incumbents and
challengers have turned the field of disruptive innovation into contested
territory. “Of late,” writes Wadhwa, “journalists and academics have
questioned the accuracy of Christensen’s industry analyses and
challenged his broad generalizations. . . they teach companies to look
in the wrong places for competitive threats and encourage them to
separate the innovative disruptors [in their companies] from the core
businesses; to put them in new company divisions.”
Christensen chose to play defense: “Unfortunately,” he wrote in
Harvard Business Review in December 2015, “disruption theory is in
danger of becoming a victim of its own success. Despite broad
dissemination, the theory’s core concepts have been widely
misunderstood and its basic tenets frequently misapplied. Furthermore,
VOL. 44 NO. 2 2016, pp. 10-16, © Emerald Group Publishing Limited, ISSN 1087-8572 DOI 10.1108/SL-01-2016-0005
‘‘Recently, observers of the battle between incumbents and
challengers have turned the field of disruptive innovation
into contested territory.’’

essential refinements in the theory over the past 20 years appear to have been
overshadowed by the popularity of the initial formulation. As a result, the theory is
sometimes criticized for shortcomings that have already been addressed.”
To help sort things out, I explored the issues in a conversation with Christensen in
December 2015.[4]

What exactly is disruptive innovation?

“Disruption, as Christensen defines it, “is a theory of competitive response. It tells you: if I
innovate in this way, then this is what I can expect incumbent competitors to do. If I
introduce a sustaining innovation, incumbents will generally try to mount a defense and try
to eliminate me. If it’s disruptive innovation, they are likely to ignore me or flee rather than
fight.”
The classic pattern of disruptive innovation identified by Christensen in 1997 is one in which
an unobtrusive competitor eats away at the low end of an incumbent’s market with a lower
quality product. The incumbent is happy to concede the low-value customers and
concentrates on adding more features for its base of high-value customers. Next the
disruptor steadily improves quality to move up-market, and then devours the whole market
of the incumbent, who often doesn’t perceive the threat until it’s too late.
Cisco provides a typical example. “Cisco disrupted the circuit switching of Lucent and
Nortel with disruptive router technology, which was cheaper and initially not good enough
to compete in the area of voice. While Cisco was developing and improving the router
technology, it made no sense for Lucent or Nortel to pay attention to the disruptive
technology. If Lucent listened to their existing customers and asked whether they were
interested in router technology, the answer was that they weren’t: initially it was good
enough to handle data transfer but it simply wasn’t fast enough to handle voice. Data
transfer wasn’t as profitable as voice, so they focused on circuit switching, making ever
more reliable equipment. But the router just kept on getting better and better until all of a
sudden the router was fast enough to do voice. The router had improved to the point where
it put circuit switching out of business.”[5]
So according the tenets of good management – using a strategy of focusing resources on
the market with the greatest return on investment– it made no sense for Lucent or Nortel to
go down market and compete at the bottom when there was so much more money to be
made so much more easily at the top. As a result, in due course the disruptors prevailed.
Before long Cisco’s wins against Lucent and Nortel were history, and now a new generation
of disruptors eyes its markets. “Now underneath Cisco, you see blade servers and soft
switches coming up. Just as Cisco killed Lucent with disruptive technology, so Cisco is
facing a similar threat from below.”[6]

Multiple patterns of innovation

Christensen himself recognizes multiple patterns of disruption in the marketplace of today.
For example, firms like Whole Foods, Tesla and Apple’s iPhone have achieved market
disruption by introducing a premium product and then rapidly enhancing it to appeal to an
increasingly discerning market. The iPad’s camera, for example, was improved so rapidly
after introduction that it soon was adopted by professional film makers.

VOL. 44 NO. 2 2016 STRATEGY & LEADERSHIP PAGE 11

 Yet other disruptive competitors like Google Maps have introduced a totally new
technology so rapidly, and their trajectory of improvement is so steep, that incumbents
have no chance of defending themselves.[7]
“The theory of disruption,” says Christensen, “is a theory of competitive response.
Disruption is a process, not an event, and innovations can only be disruptive relative to
something else. Over the last twenty years, little by little, we have realized that we need
additional theories to account for what’s going on.”

Three types of innovation

“The concept of disruption is adjacent to growth,” says Christensen. “But it’s not about
growth. So when we were discussing growth, we discovered that there are three types of
innovations, only two of which we had caught in the theory of disruption.”
Market-creating innovations. “One type of innovation are market-creating innovations,
which are disruptive in the sense that these are innovations which transform products that
are complicated and expensive into things that are so much more affordable and
accessible that many more people are able to buy and use the product. You have to hire
more people to make it and distribute it, sell it and service it. This is where growth comes
from.”
Sustaining innovations. “The second type of innovation are sustaining innovations. Their
role in the economy is to make good products better. They are very important in the
economy, because sustaining innovations keep margins attractive and they keep the
market competitive and vibrant. They can improve profitability, and create some top-line
growth through price increases, but they typically don’t create growth from new
consumption, nor do they generally create jobs.”
Efficiency innovations. “The third type of innovation,” says Christensen, “which we missed
in earlier versions of disruption theory, are efficiency innovations. The purpose of efficiency
innovations is to do more with less. This includes some of the innovations that have followed
disruptive pathways to mainstream dominance. From a competitive point of view, they have
the same impact, and incumbents can be eliminated. But their purpose in the marketplace
is to increase efficiency. For example Walmart, had the effect on department stores of
disruption because those stores weren’t able to respond. But from a growth point of view,
they made retail much more efficient and resulted in net fewer jobs. And in the steel
industry, mini-mills don’t create new growth, because they are an efficiency innovation.”
These three types of innovations “play very important roles in an economy. The role that
market-creating innovation plays is growth. Sustaining innovations make good products
better. Efficiency innovations eliminate jobs. That’s also an important implication.”

Different kinds of incumbents

“We’ve recently had an important insight about how the trajectories of technological
improvement are different in different industries,” Christensen says. “In some industries the
trajectory of technological improvement is very steep, like the disk drive industry where
every eight years some firm was getting eliminated. In others, the trajectory of improvement
is gentler, like in discount retailing. And finally in others, the trajectory is flat.”[8]
At one extreme, some incumbents were not innovating at all, such as universities and taxis
companies. At the other extreme, some incumbents in the Creative Economy, such as

‘‘Disruption, as Christensen defines it, is a theory of

competitive response.’’

PAGE 12 STRATEGY & LEADERSHIP VOL. 44 NO. 2 2016

‘‘We discovered that there are three types of innovations, only
two of which we had caught in the [original] theory of
disruption.’’

Uber, Google Apple and Tesla, are focused on creating new value for customers and are
aggressively pursuing both market-creating and sustaining innovations. Some of this
innovation creates massive disturbance in the marketplace, even if it is not “disruption from
the bottom” in the classic sense of disruptive innovation.
Some incumbents are moving upmarket to create disruption for other incumbents, for
example, Apple. “First, there was the iPod,” says Christensen. “It competed and disrupted
the Sony Walkman. It was integrated with iTunes. It disrupted the traditional way of
distributing music. Then Apple’s iPod was disrupted by Amazon, because the modularity
made it very easy for customers to get any music they really wanted. So Apple went
up-market to flee Amazon.”
“Then what happened was Apple said, ‘Right next to us, there’s the laptop. I bet that we
could take this little device and disrupt the laptop. We could make it into something that is
not just a phone. We could make it into a smart-phone that works like a laptop.’ So it was
intended to disrupt to the laptop.” So “a firm could go in different directions, up-market or
down-market, or to the left or right. Sometimes there’s a better way to grow than just staying
in your part of the market,” Christensen says.

Different dynamics of sustaining innovations

Given Christensen’s well publicized warnings you would think that in most battles over
sustaining innovation introduced by a new entrant, today’s incumbents would immediately
recognize the threat and use superior resources to counter it. In other words incumbents
would generally win those battles.
However, recently new entrants are winning those head-to-head competitive battles, as is
the case with Uber and the taxis companies and Tesla and the car companies. In some
cases, that’s because of the gap between the mastery of new technology by the new
entrants and the failure to master new technology by the incumbents. In part, it is because
some of the new entrants are extremely well-funded, and also partly because of the ubiquity
of other technologies like smart phones.

Differing speeds of innovation

Because the pace of change is now so rapid there is often no time for the incumbent to get
its act together and respond. The new entrant may arrive with a superior product with an
unbeatable price – free – and win global market share almost overnight, as was the case
with Google Maps versus hardware navigation devices.

Differing responses to innovation

At times, analysts have taken the pessimistic view that there is no escape from the threat
of disruptive innovation. It is simply part of the inexorable life and death of firms. “In
biological evolution,” said Christensen in 2012, “individual organisms don’t evolve. They
are born and they die. But the population evolves. The mutants gain more market share.
You get the same sense in corporate evolution.”[9] That is, some incumbents in the Fortune
500 evolve, even as others fail to adapt and fall by the wayside.
Defensive evolution via business models: “Business units are designed to evolve,” he said.
“They have a business model. They make money in a particular way. They serve a

VOL. 44 NO. 2 2016 STRATEGY & LEADERSHIP PAGE 13

 particular group of people. But a corporation can evolve if it sets up and shuts down
different business units. That’s how IBM evolved now into a very successful servicing
company. None of the individual entities evolved. They just did what they were to do and
when that game was over, they shut them down. That’s the only thing that historically has
worked.”
“There are some examples,” says Christensen, “of firms that have escaped the innovator’s
dilemma. Disruption has happened over and over again in the computer business. There
were about nine companies that made mainframes. The mini-computer disrupted the
mainframe. Only one of the mainframe computer makers made it into the mini-computer
business: IBM. The other eight were killed.”
“The way IBM did it,” says Christensen, “was that they made the mainframes in
Poughkeepsie and went to Rochester, Minnesota to make the minis. That was a different
business model. Gross margins in mainframes were 60 percent. In the minis, gross margins
were 45 percent. There were about eight companies that made mini-computers. When the
personal computer disrupted the mini-computer, all of the other companies were killed
except IBM.”
“IBM went to Florida and set up yet again a different business model that could make
money at 25 percent gross margins. Under the corporate umbrella, you had different
business models: one with gross margins of 60 percent, one with gross margins of 45
percent and one with gross margins of 25 percent. Everybody else got killed.”

When IBM’s disruptive business unit didn’t fit with its corporate culture
A closer look is warranted as to what IBM’s actions in setting up separate business units actually
accomplished. Thus it’s true that IBM survived the threat of the PC by setting up a special business
unit in Florida with authorization to bypass normal company restrictions. The team abandoned
established IBM practices of doing everything in-house and built the machine with “off-the-shelf”
parts from other manufacturers. They used an existing “off-the-shelf” IBM monitor and an existing
Epson printer model. They also decided on an open architecture, so that other manufacturers could
produce and sell peripheral components and compatible software without purchasing licenses.
The new PC was delivered amazingly quickly–in about a year. The commercial results from these
bold and rapid changes were extraordinary. IBM took over the entire PC market.

But then IBM squandered the gains. The changes introduced in the PC unit were contrary to IBM’s
corporate culture. Once the IBM PC had become a commercial success, IBM’s centurion guards
took over and further developments of the PC were brought back under the traditional
management. IBM focused on making money by deliberately restricting the performance of
lower-priced models in order to prevent them from “cannibalizing” profits from higher-priced
models. As a result, IBM steadily lost ground in the PC market as other manufacturers cannibalized
IBM’s market. In 2009, IBM gave up the struggle and sold its PC business to Lenovo.

Setting up a business unit for PCs was thus a reprieve for IBM, not a cure. IBM’s experience in
launching the IBM PC could have been a learning experience so that the whole of IBM became
more nimble and thus better fitted for the challenges that lay ahead. Instead, IBM’s hierarchical
bureaucracy crushed the management innovations, so laying the groundwork for IBM’s next crisis
in the early 1990s.

IBM saved itself by setting up a series of traditional businesses, each focused on making money,
but without endowing any of the business units with the DNA to survive in a marketplace of rapid
change. Thus what we still see in IBM are spasms of innovation followed by long periods of milking
the cash cow.

Another approach: continuous innovation

At times, Christensen has also pointed to another possibility for dealing with the
protagonists of disruption: continuous innovation that creates value.[10] What if the firm is
driven, not by the goal of short-term profitability, but by the goal of continuous innovation

PAGE 14 STRATEGY & LEADERSHIP VOL. 44 NO. 2 2016

in service of finding new ways of delighting customers? The new bottom line of this kind of
organization becomes whether the customer is delighted –for example, as measured by the
Net Promoter Score.[11] Conventional financial measures such as maximizing shareholder
value are subordinated to the new bottom line. Profit is a result, not a goal. Experimentation
and innovation become an integral part of everything the organization does.
Apple, Amazon and Zara are examples of prominent firms that are pursuing this model.
Thus experimentation and innovation become an integral part of everything that each
company does. Companies with this mental model have shown a consistent ability to
innovate and to disrupt their own businesses with innovation, without setting up separate
business units.
Thus what is striking about continuous innovation is that it doesn’t just offer a short-term fix.
As James Allworth has written in the HBR blog, once you make the creation of value for
customers the top priority, “the fear of cannibalization or disruption of one’s self just melts
away.”[12] Is continuous innovation sustainable? Apple, Amazon and Zara have been at it
for more than a decade with extraordinary results. What’s interesting is that they are
consistently disrupting others, rather than being disrupted themselves. Will they survive for
50 or a 100 years? Time will tell. What we do is that they are doing a lot better than firms
pursuing business as usual.
The only permanent way out of the innovator’s dilemma is thus to change the game being
played and adopt a new corporate focus in which innovation is a necessity, not an option.
Instead of myopically concentrating on maximizing shareholder value as reflected in the
current share price – the very goal of the firm has to shift to delighting customers through
continuous innovation.
Achieving continuous innovation lies outside the performance envelope of most firms. It
requires major changes in mind and heart. It will need new roles for managers, new ways
of coordinating work, new values and new ways of communicating.

Christensen’s new disruptive innovation website

Christensen has decided to establish a web presence for disruption where the most current
thinking on the theory can be found. He envisions that “the website will be for people who are
continuing to study the theory of disruptive innovation. To start, he will post improvements to
the theory that are constantly happening. Ultimately he would like the site to become a place where
people can come and add to the theory and make it better. “Even people who are critical of the
theory will be welcomed with open arms so that they can make their suggestions. How can the
theory be improved if people aren’t describing what it can’t do?”[13]

Notes
1. This article draws on insights from the author’s blog at www.forbes.com/sites/stevedenning/201
4/05/26/clayton-christensen-do-we-need-a-revolution-in-management/
www.forbes.com/sites/stevedenning/2015/12/02/fresh-insights-from-clayton-christensen-on-disru
ptive-innovation/
www.forbes.com/sites/stevedenning/2012/04/05/clayton-christensen-and-the-innovators-
smackdown/
www.forbes.com/sites/stevedenning/2015/10/15/how-useful-is-christensens-theory-of-
disruptive-innovation/
www.forbes.com/sites/stevedenning/2014/11/18/clayton-christensen-how-management-
can-advance/
http://techcrunch.com/2012/04/02/keen-on-clay-christensen-how-to-escape-the-innovators-
dilemma-tctv/

2. http://online.wsj.com/article/SB10001424052748704476104575439723695579664.html

3. www.washingtonpost.com/news/innovations/wp/2015/11/23/what-the-legendary-clayton-
christensen-gets-wrong-about-uber-tesla-and-disruptive-innovation/

VOL. 44 NO. 2 2016 STRATEGY & LEADERSHIP PAGE 15

 4. www.forbes.com/sites/stevedenning/2015/12/02/fresh-insights-from-clayton-christensen-on-disru
ptive-innovation/

5. http://techcrunch.com/2012/04/02/keen-on-clay-christensen-how-to-escape-the-innovators-
dilemma-tctv/

6. http://techcrunch.com/2012/04/02/keen-on-clay-christensen-how-to-escape-the-innovators-
dilemma-tctv/

7. www.forbes.com/sites/stevedenning/2015/12/02/fresh-insights-from-clayton-christensen-on-disru
ptive-innovation/

8. www.forbes.com/sites/stevedenning/2015/12/02/fresh-insights-from-clayton-christensen-on-disru
ptive-innovation/

9. http://techcrunch.com/2012/04/02/keen-on-clay-christensen-how-to-escape-the-innovators-
dilemma-tctv/

10. In his Gartner talk in November 2010, http://gartner.mediasite.com/mediasite/play/9cfe6bba5c

7941e09bee95eb63f769421d?t⫽1320659595

11. www.forbes.com/sites/stevedenning/2011/08/26/another-myth-bites-the-dust-how-apple-
listens-to-its-customers/

12. http://blogs.hbr.org/cs/2011/10/steve_jobs_solved_the_innovato.html

13. www.forbes.com/sites/stevedenning/2014/11/18/clayton-christensen-how-management-
can-advance/

Corresponding author
Stephen Denning can be contacted at: steve@stevedenning.com

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