Disruptive Innovation

PIONEERS

Creative Destruction
Joseph Schumpeter
In capitalism,
innovative entry by
entrepreneurs was the
force that sustained
long-term economic
growth,
even as it destroyed
the value of established 8 February 1883 8 January 1950
companies that enjoyed
some degree of
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Creative Destruction
Successful innovation is
normally a source of
temporary market
power, eroding the
profits and position of
old firms,
yet ultimately
succumbing to the
pressure of new
inventions
commercialised by

The Use of Knowledge in

Society

Friedrich von Hayek

Two types of
knowledge: scientific
knowledge,

knowledge of the
particular
circumstances of
time and place
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The Use of Knowledge in

Society

Practically every
individual has some
advantage over all
others in that he
possesses unique
information of which
beneficial use might
be made

8 May 1899 23 March 1992

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The Use of Knowledge in

Society
because every
individual only
processes a small
piece of the
puzzle, no central
planner can ever
run the economy
efficiently.
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The Use of Knowledge in

Society

Market mechanisms
serve "to share and
synchronize local and
personal knowledge,
allowing society's
members to achieve
diverse, complicated
ends through a
principle of
spontaneous selforganization."

8 May 1899 23 March 1992

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Hayek and Taiwan (and

China)
The greatest danger to
liberty today comes
from the men who are
most needed and most
powerful in modern
government, namely,
the efficient expert
inefficient
administrators
exclusively concerned
with what they regard
as the public good.
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10

Paradigm Shift
Thomas Kuhn (July 18, 1922 June 17,
1996)
A scientific revolution occurs when
scientists encounter anomalies which
cannot be explained by the universally
accepted paradigm.

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Paradigm Shift
When enough
significant
anomalies have
accrued against a
current paradigm,
the scientific
discipline is thrown
into a state of
crisis, according to
Kuhn.
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Paradigm Shift
for early 20th century
physics, the transition
between the
Maxwellian
electromagnetic
worldview and the
Einsteinian Relativistic
worldview was neither
instantaneous nor
calm.
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Paradigm Shift
"a new scientific truth
does not triumph by
convincing its
opponents and making
them see the light, but
rather because its
opponents eventually
die, and a new
generation grows up
that is familiar with it.
Thomas Kuhn quoting Max Planck
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15

Wikipedia
One can't
understand my ideas
about Wikipedia
without
understanding
Hayek.
When information is
dispersed (as it
always is), decisions
are best left to those
with the most local
knowledge

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Jimbo Wales
Altruism is evil.

17

Age of Discontinuity
In an age of
discontinuity, as
Drucker called the
current era,
entrepreneurs could find
significant opportunities
to create or transform
organizations if they
were willing to get ahead
of societal changes.
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Age of Discontinuity
Drucker said that the best way to predict
the future is to invent it.
Discontinuities provided gaps in society that
could be filled with creativity.
Innovators should
be attuned to
unmet needs that
did not yet show
up in market
research.
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Mikhail Alexandrovich Bakunin

The passion for destruction is
also a creative passion.

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Karl Marx
Infrastructure
determines
superstructure

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Infra/super-structure

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Karl Marx
Quantitative shifts lead
to qualitative shifts

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Hagels Dialect
Synthesis
Thesis
Synthesis
Thesis

Thesis

Antithesis

Antithesis

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 Dialectics of IChing (Yijing)

Qian

Kun

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Chuang-tze (Zhuangzi)

The system of Dao

was about to be torn
in fragments all
under a the sky.

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Chairman Mao???

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Alexander Graham Bells Telephone in 1875

EXAMPLES

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Shanzhai in China

Click
Me!

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Camera Industry

Click
Me!

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A SIMPLE VIEW O
F DISRUPTIVE IN
NOVATION
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DISRUPTIVE
INNOVATION
MODELS

32

Basic DI Model

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Dynamic DI Model

Incumbent

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New Market DI Model

Performance

Performance

Sustaining strategy

Low-end disruption

Time

Time

No
n-

co
ns

um

er

New market disruption

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SHAPING IDEAS TO
BECOME DISRUPTIVE
(HOW TO BEAT OUR
MOST POWERFUL
COMPETITORS)

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Explore whether the idea can

become a new market disruption
Is there a large population of people
who historically have not had the
money, equipment, or skill to do
this thing for themselves, and
as a result have gone without it
altogether or have needed to pay
someone with more expertise to do
it for them?
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Explores the potential for a low-end

disruption
Are there customers at the low end of the
market who would be happy to purchase a
product with less (but good enough)
performance if they could get it at a lower
price?
Can we create a business model that
enables us to earn attractive profits at the
discount prices required to win the
business of these over-served customers
at the low end?
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Is the innovation disruptive to all of the

significant incumbent firms in the
industry?

If it (the innovation) appears to be

sustaining to one or more significant
players in the industry, then the odds
will be stacked in that firms favor,
and the entrant is unlikely to win.
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COMPETING
AGAINST NONCONSUMERS

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Competing Against Nonconsumption

The logic of competing against nonconsumption as the means for
creating new-growth markets seems
obvious.
Despite this, established companies
repeatedly do just the opposite.

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What Makes Competing Against Nonconsumption So Hard?

Not see disruption coming in. Even
if,
Threat rigidity - Threat elicits more
intense and energetic response than
opportunity, and then focus on
countering the threat to survive.

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How to Avoid Hard NonConsumption Competition

First, get top-level commitment by
framing a threat as an innovation
during the resource allocation
process.
ex. Newspapers embraced online
editions to give existing customers
additional choice

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How to Avoid Hard NonConsumption Competition

Later, shift responsibility for the
project to an autonomous
organization that can frame it as an
opportunity.
ex. Place the responsibility to
commercialize the disruption in an
independent unit for which the
innovation represents pure
opportunity newspapers online
group

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Immelts approach
Shift power to where the growth is.
Build new offerings from the ground up.
Customize objectives, targets, and
metrics.
Build the DI unit from the ground up,
like new companies.
Have the DI unit report to someone
high in the organization.
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WHY DI IS EVEN MORE

IMPORTANT TODAY?
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Two Articles from HBR

The world is in constant disruption
new technologies create new
platforms
John Hagel III, John Seely Brown, and Lang Davison, Shaping
Strategy in a World of Constant Disruption, Harvard Business
Review, October 2008.

The big emerging markets provide goo

d chance for disruptive technologies
Jeffrey R. Immelt, Vijay Govindarajan, and Chris Trimble, How
GE Is Disrupting Itself? Harvard Busness Review, October
2009.

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