Pardon the Disruption
- michaelsogrady
- Sep 15, 2014
- 2 min read
When firms succumb to new forms of competition, inflexible organisation is usually to blame
DESTROYING the old to make way for the new is the essence of market economies. Karl Marx thought it one of the nastier qualities of capitalism whereas Joseph Schumpeter, an Austrian economist, cast “creative destruction” in more positive light, as the only route to sustained growth. In the 1990s Clayton Christensen, a professor at Harvard Business School, gave the notion a modern sheen with his theory of “disruptive innovation”. The term is now everywhere. Uber is said to be disrupting the taxi business, Cronuts are disrupting breakfast and Twitter is disrupting communication.
A disruptive innovation, in Mr Christensen’s work, is a very specific thing: a new technology that is inferior in certain respects to existing ones, but has other desirable attributes. He cites eight-inch floppy disks, which could store more data than smaller ones, but were nonetheless supplanted because they were too big and expensive for desktop computers. By the same token, publishers of music and newspapers were wrong-footed by the advent of online distribution, which was initially of lower quality. So was digital photography, but it nonetheless ended up displacing film.
Most studies that examine the size of a firm and its capacity to innovate fail to detect a relationship between the two. Yet that in itself is odd. Established firms ought to enjoy big advantages over would-be disrupters: skilled employees, infrastructure at the ready and the opportunity to share costs among products. At worst, incumbents should be as capable as new entrants of succeeding in nascent markets. Yet research by Rebecca Henderson of Harvard Business School finds that the money old firms in fast-evolving industries devote to research brings much lower returns than the research budgets of their younger rivals.*
Angie D OGrady
Cooxist
Executive Leadership
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