SAST Wingees

Christensen’s not so Full House

Updated Sep 23, 2015: MIT SMR carried a brilliant article on the usefulness of disruptive innovation.

I just realized that I completed 10 years of blogging on June 27, 2014. What a decade it has been! For me personally, blogging & twittering have added orders of magnitude more knowledge, more perspectives and more people connections than I would have managed otherwise. I decided to celebrate the occasion with a few posts on Innovation. Here is the first one.

—-

Prologue

Recently, Jill Lepore raised some serious concerns about Christensen’s theory and his research methodology. Christensen responded to Lepore’s criticism through a Businessweek columnist. Lepore’s article created a firestorm of articles from several people. If you had the time, read this Business Insider article that has a who-said-what on this issue.So what is my verdict  – Is Christensen right about the theory of disruption?

Innovator’s Dilemma

Ever since Clayton Christensen’s ground breaking Innovator’s Dilemma came out in the late 90s I have been a dogmatic follower of the theory of disruption and treated it as the gospel truth. I have also been fortunate to test out many methods/ideas in the field of Innovation through my work in Goto Market scenarios, KM, Innovation, running the IT Department etc. My experience shows that, it is a brilliant theory that explains many puzzling management decisions, which seemed correct in their context, but proved utterly bone-headed in the long run. For example, why did Western Union, then dominant in telegraphy conclude that telephony was not going to be big and chose to hand the market and all it’s telephony patents to the then upstart Alexander Graham Bell. Christensen’s theory captured the problem in this beautiful diagram [Fig I.1 pn Page xvi] in his book: Courtesy: cogmap.com

Per this diagram, telephony enters in the lower left, as the Disruptor’s curve, covering only the short distance market, whereas, telegraphy is the upper Incumbent’s curve, comfortably meeting or beating its long distance customer’s needs. When telephony started, it couldn’t do long distance and given that Western Union was a monopoly telegraphy business where long distance telegraphy was the main source of profits, concluded, perhaps rightfully so, that telephony didn’t warrant it’s attention. What we now know in hindsight is that Western Union made the blunder of not forecasting that telephony would evolve quickly to address long range and put Western Union out of the telegraphy business. Christensen gives several excellent examples in his book as well. It is hard to explain, what happened to Kodak and other once dominant icons which have fallen by the wayside without using the theory of Disruption. But what is wrong with this theory?

Fallacies

The problem is that there are a few fallacies in the book that I have come to realize over time. It has hindsight bias because it argues disruption can be predicted by analyzing a few examples like the Steel Industry, Discount Retailers, Disk Drive industry etc.  Did Neucor succeed because they are trying to disrupt the steel industry or  did they merely come up with a better way to make use of scrap steel?

Christensen also made the cardinal sin of Hasty Generalization by including a list of 24 disruptions on Page XXV, which encompasses major innovations in recent times – photography, telephony, telecom networks, notebook computers, desktops, electronic stock exchanges, credit scoring, retailing, greeting cards, electric utility companies, management schools, textbooks, bomber & fighter aircraft, medical doctors & hospitals, surgery, MRI & CT Scans.

Unfortunately, he didn’t include any research as to why these innovations were due to the phenomenon of disruption. For example, one of the items in the list of 24 – Internet Protocols/Java protocols disrupted MS Windows & Applications written in C++. Is this disruption or were they simply a different non-proprietary way of doing things and many firms adopted them. In other words, isn’t this just how things evolve?

If Lepore’s complaint is that Disruption is over-used, it could be attributed to this page in the book where every major innovation in recent times has been characterized by Christensen as a disruptive innovation. No wonder, everyone started talking about Disruption almost exclusively as the only form of innovation.

In Christensen’s book, the repeating theme is “products exceeding the requirements of its customers” which he calls Performance Oversupply. I think this is a great insight. However, he makes it to be the cause of Disruption as well as Commoditization, which I think is incorrect.  To provide just one counter-example – Why couldn’t commoditization occur simply because the process of making something is widely understood and replicable? Take the case of the humble pencil – pencil didn’t become a commodity because pencil manufacturing exceeded customer expectations, but because pencil manufacturing became easy to enough to  master across the globe. In other words, there could be many reasons why something gets commoditized, Performance Oversupply being one of them. Making Performance Oversupply the singular cause is – Fallacy of the Single Cause.

For disruption to be predictable, we should have tried to look for cases where the theory didn’t work – the notion of falsifiability in Science. Christensen didn’t do that in this book.

Christensen’s predictions

Christensen had a chance to prove the predictability of the theory of disruption. Unfortunately, he chose Apple as the target of his predictions. Both his predictions  – first, that the iPod is doomed to fail and second, that the iPhone is bound to fail – didn’t come true. BTW, I had also reacted to Christensen’s original iPod prediction as well as his original iPhone prediction.

Full House Hypothesis

Did the Wright Brothers invent the airplane to disrupt the Railways? What about the humble pencil or the humble bicycle- why hasn’t anybody disrupted them? Is there a better explanation for why Innovations happen in some industries?

I found a potential answer in Andrew McAfee’s article on Technology’s Value , where he describes the famous biologist Stephen Jay Gould’s brilliant hypothesis, which McAfee calls “The Full House Hypothesis”

“Complex systems improve when the best performers play by the same rules over extended periods of time.  As systems improve, they equilibrate and variation decreases.”

Markets/industries being complex systems, we could conclude that they too will reach equilibrium over time. Until some innovator somewhere decides to change that equilibrium by coming up with a new innovation which drives more rapid innovation and variation, the market will remain in equilibrium.  iPhone/iPad are good examples of how Apple changed the equilibrium.

Because we don’t fully understand what motivates innovators to attack a problem, it is going to be very hard to predict it. To illustrate the point, let us take the  case of the humble pencil again. The ecosystem seems to have reached an equilibrium, but no one seems to be out there trying to out-innovate pencil manufacturers. Perhaps the profits from such an endevour will be meager or maybe it is just not an interesting space to pursue for any Innovator?

Epilog

In sum, Christensen’s theory while accurate in many cases doesn’t adequately explain the complex field of Innovation.  Hope my thoughts on this subject are useful?  I plan to write next on my research around Apple’s Innovation Methods – I think I found their secret 🙂

P.S.  Just to be clear, Christensen is not the only management theorist/author whose work has major fallacies. If you read Bob Sutton & Jeffrey Pfeffer’s brilliant book Hard Facts, Dangerous Half-Truths & Total Nonsense on Evidence based Management, they explain why majority of the management books don’t give the correct advice. They don’t spare even the highly acclaimed books like Good to Great by Jim Collins.  Previously, the renowned organization behavior theorist Chris Argyris did a takedown of Stephen Covey’s 7 Habits of Highly Effective People in his brilliant, but hard to read, book Flawed Advice and the Management Trap.

The typical management book formula works like this – analyze a few successful companies, make up a pattern out of their methods and promulgate a new theory – the rigorous methods of science where control group studies, double blind experiments, falsifiability, peer reviewed papers etc are not necessary. And that is the biggest problem in the world of management theory.