Managing Change,

Creativity &
innovation
© Patrick Dawson, Constantine
Andriopoulos

Disruptive Innovation (part of

chapter 2
Lecture objectives

• Gain an insight into the theory, concept, and applications of

disruptive innovation.
• Discuss ways in which disruptive innovation could be
applied to the assignment and their potential impact
Disruptive innovation
Christensen, Anthony and Roth (2004,xv) Seeing What’s Next,
Harvard Business School Press

• The disruptive innovation theory points to situations in

which new organizations can use relatively simple,
convenient, low-cost innovations to create growth and
triumph over powerful incumbents
• Existing companies have a high probability of beating
entrant attackers when the contest is about sustaining
innovations
• Established companies almost always lose to attackers
armed with disruptive innovations.

• The explainer (2 minutes) Harvard Business School

• https://www.youtube.com/watch?v=mbPiAzzGap0
Bower and Christensen (1995: 44)

The research shows that most well-managed, established

companies are consistently ahead of their industries in
developing and commercializing new technologies – from
incremental improvements to radically new approaches – as
long as those technologies address the next-generation
performance needs of their customers. However, these
same companies are rarely in the forefront of
commercializing new technologies that don’t initially meet the
needs of mainstream customers and appeal only to small or
emerging markets.
Christensen: three technology
driven innovation roads

• Improve existing products for high-margin customers.

• Introduce cheap alternative products to customers at the
low end of the market, especially if they feel that they are
paying more than they need.
• Create a new market for non-consumers who are not
currently in the market at all (Christensen et al, 2004).
Disrupt or sustain?

Disruptions often ignored or disparaged:

• Products seen to be inferior, clumsy, of poorer quality with
limited functionality.
• Sony’s (1960s) transistor radios – portable but poor sound
(replaced vacuum tubes).
Innovators dilemma:
• Often financially unattractive so opt for strategies that
sustain innovations that support existing business model
and reaffirm dominant market position
Disruptive innovations
Discontinuous innovation refers to breaks in established patterns
that occur outside of the established rules of the game. Triggers:
– Technology.
– New markets.
– Regulatory change.
– Unforeseen world events.
– War and political change.
• For example refrigeration systems developed in the 1870s
destroyed ice-harvesting industry.

• The man himself (8 minutes)

• https://www.youtube.com/watch?v=qDrMAzCHFUU
Disruptive innovations - examples

Refrigeration
Ice industry systems developed
and in the 1870s
refrigeration destroyed ice-
harvesting industry
Theory of disruptive innovation
Bower & Christensen (1995)
The development of products that do
not seek to emulate, replicate or
outperform existing products that
dominate particular sectors, but focus
on creating new markets with products
that often perform less well but are
affordable, simpler, and more
convenient. These products attract
new types of consumers at the lower
end of the market and ultimately
disrupt the longer term trajectory and
dominance of market leaders (Dawson
& Andriopoulos, 2014: 74).
The Innovators Solution
 Signals of Change
Emerge from: • What are signals of
• PESTLE analysis change:
• (but we are NOT • (brief, good examples)
doing one!) • https://
• Boundary workers www.youtube.com/watch
?v=DHFWr0x_cbo
• New staff
• Media
• Networking
 The Signals of change
Christensen, et al (2004)

Nonconsumers
Signs that companies are
introducing new-market
disruptive innovations

COMPETITIVE STRATEGIC
BATTLES CHOICES
Competitive Battles
What is the likely result
of head-to-head battles
between industry
combatants?

Tale of the Tape

Industry players
strengths and
weaknesses

Sword and Shield

Identifying who is
doing what someone
else can’t or won’t do
 Competitive Battles
• Shield – hiding behind asymmetric motivation
• Sword – attacking with asymmetric skills
• The power of asymmetries – different ways to target non-consumers
and overshot customers – can create a new market
• Eg. an opportunity that looks interesting and large to a small
company might look uninteresting and large to a big firm
• Disruptive markets start among customers that appear to the current
players to be either undesirable or non-existent, new entrant is,
however, motivated to serve them
• A company’s skills comes from its processes
 Tale of the Tape
• A technique to evaluate a firm’s resources
(what it has), processes (what it can do),
and values (what it wants to do)
• What is profitable? By how much?
• Who are the leading customers?
• What opportunities were taken and what
were missed?
 Strategic Choices
Strategic Choices
Are firms making decisions that increase or decrease their
ultimate chances of success?

Preparation
Disruptive black Value Networks
Regimen
belt Whether entrants
Whether entrants
Whether are choosing to
are creating initial
incumbents have locate in
conditions that
learned to cope freestanding or
facilitate their
with the forces of overlapping value
selection of right
power disruption networks
foothold market
 Preparation ……
• Entrant follows the wrong preparation regimen – which
can create initial conditions that lead entrant to wrong
foothold market
• Entrant creates overlapping value networks that provide
easy avenues for incumbent co-option – leading to
pressures to conform to incumbent’s values and erasing
asymmetries
• Incumbents earn disruptive black belts and develop
ability to master the forces that act upon them – like an
airplane pilot with the right skills and equipment can fly
despite gravity, firms can master disruption
 Analysing the Preparation
Regimen
Area Appropriate tool/theory
Strategy In uncertain situations, encourage
Making emergent forces that allow the
company to find appropriate
market/business model
Hiring Schools of experience in situations
which the company is likely to face
Funding Uncertain situations require
investors that are patient for growth
but impatient for profit
Signals
Limited fixed-cost infrastructure that
encourages experimentation
Demonstrated willingness to adapt to
market signals
Business plan that tests rather than
assumes
Managers in prior assignments have
wrestled with problems that are
similar to those the new venture will
confront
Values of investors (eg need
for quick growth)
Relationship between
company and investors
 Additional Reading
• https://
hbr.org/2015/12/what-is-disruptive-innovati
on
• Disruptive innovation: public sector services:
• http://
www.emeraldinsight.com/doi/pdfplus/10.11
08/10878571211221176
• Lessons to jumpstart disruptive innovation
• http://
www.emeraldinsight.com/doi/pdfplus/10.11
Video

Professor Clayton Christensen

Disruptive Innovation in the Steel Industry and others:
Lecture at Said Business School, Oxford 2012 (Runs for 60
minutes provides a good explanation only use if time or use
slides) video at :
https://
www.youtube.com/watch?v=rpkoCZ4vBSI&noredirect=1
Disruption in higher education: http://
www.youtube.com/watch?v=yUGn5ZdrDoU
Shorter video on disruptive innovation (13 minutes) available
at: http://www.youtube.com/watch?v=WxwR_TTuKdc or
http://blog.oldstlabs.com/clay-christensen-explains-disruptiv
e-innovation-video-7-mins/
Steel
Mini steel mills example

• Mini steel mills undermined position of larger integrated

steel mills ($10 billion to build) that dominated
production in America in the 1990s.
• Market penetration initially reinforcing steel bars (rebar)
for the construction industry.
• Integrated steel mills focus on higher end customers
producing sheet (greater margins).
• 1980s competed within angle iron, bars, and rods
market eventually moving into structural steel in the
1990s (c. 20 percent lower costs).
Decline of Integrated Steel Mills

The $5 billion plant in southwestern Alabama—the biggest

steel facility built in the U.S. in four decades—opened in
2010, importing steel slabs made at ThyssenKrupp's new
$6.8 billion plant in Brazil and processing them into high-
grade sheets for car and appliance makers. It is pulling
the plug on that $11.8 billion investment, citing high
production and transportation costs, a weakening market,
and intense competition. The Steel Americas division, of
which the two plants are the only production facilities,
incurred a $1 billion loss for the first nine months of the
fiscal year (2012).
Business-Model Innovation
Uses contemporary examples to illustrate concept:
https://www.youtube.com/watch?v=avWVPaJFgFk

It is important to note that business model innovators do not

discover new products or services; they simply redefine what
an existing product or service is and how it is provided to the
customer. For example, Amazon did not discover
bookselling; it redefined what the service is all about, what the
customer gets out of it, and how the service is provided to the
customer.
Markides, C. (2006: 20) Disruptive innovation: in need of
better theory, The Journal of Product Innovation
Management, 23. (1): 19-25
 Aspects of Business-model innovation

• From Boston Consulting Group:

• https://
www.bcg.com/capabilities/strategy/busines
s-model-innovation.aspx
• From Harvard Business Review:
• https://
hbr.org/2014/07/four-paths-to-business-mo
del-innovation
Differentiating disruptive innovation

• Is there a problem if we do not differentiate between distinct

innovation phenomena?
– Disruptive technological innovation (e.g. mini mills)
– Disruptive business-model innovation (‘discovery of a
fundamentally different business model in an existing
business’ e.g. SWATCH Markides, 2006: 20)
– Disruptive (radical) product innovation (e.g. car, television,
VCRs, mobile phones).
• Argues follow similar ‘disruptive’ process but produce different
kinds of markets and create different managerial implications:
do you agree? (see, Markides, 2006: 19-25).
 Black Swan Companies
Anderson & Poulfelt (2014:10)
• Implies extreme consequences for the business
environment
• Double-edged impact: +ve for black swan value creation
and –ve for other participants
• An outlier – outside realms of regular industry
expectations
• Makes an unexpected and unpredictable appearance
• Disruptive strategy is carried out in an accelerated
fashion
Conclusion and Assignment

• Disruptive innovations disrupt existing markets and value

networks displacing established technologies and creating
new markets.

• How could disruptive innovation be incorporated into

assignment 2? Discussion.
Recommended Reading

Disruptive Innovation:
Christensen, C.M., Anthony, S.D. and Roth, E.A. (2004) Seeing
What’s Next, Harvard Business School Press

Business model innovation:

http://
www.businessmodelcommunity.com/fs/root/8oex8-chesbrough.pd
f

Implications of uncertainty in management:

http://
www.emeraldinsight.com/doi/pdfplus/10.1108/17511341211206852