Disruption Theory, a primer
Disruption theory refers to a framework for understanding how innovation can disrupt and displace established companies and industries. The theory was originally formulated by Clayton Christensen in his influential 1997 book "The Innovator's Dilemma."
At its core, disruption theory makes a distinction between sustaining innovations and disruptive innovations. Sustaining innovations are improvements to existing products that appeal to a company's existing customers. Companies tend to focus most of their energy on sustaining innovations as a way to stay ahead of the competition.
However, disruptive innovations are innovations that create new markets by providing a different set of values that ultimately disrupt older technologies. Disruptive innovations often underperform existing solutions in the mainstream market. But they have other features that a few fringe customers value. Over time, the disruptive innovation improves in performance while retaining its distinguishing features. This allows it to consume more of the mainstream market and displace established firms and technologies.
Some key principles of disruption theory include:
Disruptors often originate in low-end or emerging markets before migrating up to displace industry leaders who focus on sustaining innovations.
Disruption happens because leading companies choose to ignore disruptive threats rather than allocate resources away from customers and markets where profitability is highest.
Companies that can embrace disruptive innovations early can transition into new markets and maintain leadership. However, this may mean leaving customers and short-term profitability behind, which is extremely difficult for well-run companies to do.
After disruption occurs, industry leaders often struggle to adapt to new realities despite having skilled employees, first-rate technology, and easy access to capital. This is because the organizational capabilities that allow them to be industry leaders also make it difficult to fully adopt disruptive innovations.
Some prominent examples of disruptive innovations highlighted in disruption theory include personal computers displacing mainframes and minicomputers in the 1970s and 1980s, digital cameras overtaking film cameras in the 1990s and 2000s, online retailers challenging brick-and-mortar incumbents, the emergence of hydraulic fracturing vastly increasing US oil and gas production, and renewable energy threatening conventional utilities.
21st Century Examples:
Disruption theory has had a major impact on the technology, energy, media, and retail sectors in recent decades. It provides a useful framework for anticipating how innovations can displace incumbents and radically reshape industries over time. The theory highlights the need for industry leaders to carefully monitor the competitive landscape, rapidly respond to threats, and dedicate resources to disruptive innovations even if they impact short-term profit margins.
Disruption theory has proven to be very relevant in explaining major technology-driven shifts in industry dynamics in the first two decades of the 21st century. Airbnb, Uber, and Alibaba - as highlighted in detail here - are three prominent tech companies that used digital disruption to upend traditional ways of doing business.
Airbnb: Airbnb leveraged modern internet and smartphone technology to enable regular homeowners to rent out spare rooms or vacant properties on a short-term basis. This created a platform for affordable accommodations and an alternative to hotels/motels. Early on, Airbnb's offerings were seen as inferior substitutes focused on cost savings that appealed to younger, more budget-conscious travelers willing to sacrifice service quality and consistency. However, over time Airbnb broadened its customer appeal while still maintaining a price advantage versus incumbent lodging providers. Its lean asset-light model, combined with strong community feedback mechanisms, enabled rapid scaling. Airbnb utilized disruption theory concepts of starting from an overlooked customer segment and moving upmarket to eventually challenge established industry players head-on.
Uber: Uber applied mobile technology and flexible labor supply through the gig economy to fundamentally transform personal transportation services. It identified an opportunity around customer frustration with inconvenient and rigid taxi systems combined with the ubiquity of GPS-enabled smartphones. Uber's platform made ordering, tracking, and paying for rides seamless while allowing driver-partners flexibility in choosing work hours. Despite initial concerns around safety and regulation, Uber scaled rapidly and benefited from strong network effects - more drivers meant shorter customer wait times, and more customers attracted additional drivers. Uber exemplifies principles like leveraging new technology to create market footholds by resegmenting customer demand.
Alibaba: Alibaba recognized that small/medium businesses in China lacked an integrated nationwide distribution system. It created a business-focused e-commerce marketplace and related services that enable merchants to sell to consumers across a country with geographic fragmentation. As this platform grew, network effects took hold, strengthening value for all participants. By building infrastructure tailored to an underserved segment, Alibaba overcame incumbents focused solely on high-volume buyers and sellers. Once its model was proven, Alibaba was positioned to expand upmarket, similar to patterns predicted in disruption theory.
In all three cases, these disruptors transformed industries in ways that stymied established companies who failed to fully appreciate or address threats from below until market share erosion was inevitable due to these new digital-first business models. This closely mirrors the tendencies called out in Christensen's earlier groundbreaking work.
Defining a Market
Disruption theory defines a market as the job or tasks customers need to get done and is associated with certain attributes customers prioritize to get that job done. Established companies often focus innovation on the attributes prioritized by their most profitable mainstream customers.
Meanwhile, disruptive innovations introduce different attributes, typically around simplicity, affordability, accessibility, and convenience that appeal to new customer segments. While underperforming on attributes important to mainstream customers initially, the new attributes redefine what customers consider as the market.
For example, Kodak defined the photography market around film and print quality. However digital cameras redefined consumer expectations to emphasize instant sharing, convenience, and lower cost per image. This disruptive innovation, while starting inferior in quality, improved over time to consume the mainstream through a redefinition driven by new attributes.
Creating new markets: Truly disruptive innovation often creates entirely new markets by making something previously expensive or complicated accessible to many more end users. This ultimately expands the number of people who consider themselves part of a market.
While disruption redefines markets, it can also be so transformational as to facilitate the emergence of markets that simply didn't exist previously. This is why seemingly inferior innovations can succeed against incumbents - they answer market demand in completely different ways.
A (hypothetical) Disruption Theorist answers the questions of Innovation Ethics:
What counts as innovation?
From a disruption theory perspective, innovation requires two key things: (1) the introduction of something new/different and (2) the act or process of changing some dimension of the status quo. This could involve new products, new technologies, new business models, new applications, and combinations of existing components. An offering may not be completely unprecedented but still qualify as innovation if applied, brought to market, or made newly accessible in innovative ways.
Who should be innovating?
Innovation can and does come from both incumbents and new entrants. However, one of the key premises around disruption theory is that certain innovations by their nature are difficult for established market leaders to embrace. Entrenched interests, existing capabilities mixed with organizational inertia, short-term focus, and resource allocation tied to existing customers all make it hard for incumbents to be on the leading edge of disruptive change. On the other hand, new entrants tend to be more agile and willing to risk transformation in the hopes of capturing new markets. So disruption theorists would argue there is an important role for startup innovators in addition to internal efforts by forward-looking industry leaders.
How should we value innovations?
Disruption theory argues we cannot always evaluate innovations through traditional lenses that focus on evaluating performance criteria valued by current markets and benchmarks. We must also consider if an innovation brings distinctly new attributes, accessibility factors, and value propositions that could reframe value in unconventional ways. Even if something looks inferior or supplementary from conventional lenses, if positioned to redefine performance metrics or enable new use cases in the future, we must recognize the latent value. For instance, evaluating early digital cameras purely based on resolution, mobile phones purely on battery life, or personal computers purely on computational performance missed their potential market expansion through disruption. Innovations should be evaluated both on existing dimensions of value as well as their potential for redefining dimensions of value.
The core lesson is not to solely value incremental improvements but also to remain open to innovations that shatter longstanding constraints to address markets and problems differently.
More to come…
While disruption theory has provided valuable perspectives that shaped business strategy over the past few decades, it is reasonable to critique some of its core tenets. A balanced, evidence-based analysis allows us to separate useful insights from flawed assumptions as we continually update our understanding of innovation and markets. I look forward to a thoughtful dialogue on where disruption theory still gives pertinent guidance as well as areas where it may miss the mark or require updating given shifting technological and economic realities.
Our critical lens should appreciate Clayton Christensen's influential contributions while also recognizing that no single theory provides absolute universal truths or predictions. Just as the theorists and business strategists profiled in The Innovator’s Dilemma failed to anticipate future market dynamics, we must remain cognizant that frames like disruption theory have limitations. But that makes the task of updating, expanding, and modifying such theories all the more important rather than fully discarding them. Our shared goal is to equip present and future innovators, entrepreneurs, and business leaders with the best possible mental models for navigating technological change and capturing opportunities to create value. I welcome constructive, well-reasoned criticism in the spirit of driving theoretical and practical improvement.