Is “Disruptive Innovation” A Devastating Machine Promoting A Perestroika Of Capitalism ?

Image by Dinis Guarda

Article written by Maria Fonseca and Paula Fonseca

The disruption advocates have become something of a machine. “Disruption is everywhere!” they tell us, driving fear into our hearts that everything we know and love is sure to transform beyond recognition. Disruption is driving change and bringing about new paradigms and ways of thinking, or so they say. But now people are starting to question this concept in its application to absolutely everything. For example, according to Jill Lepore (2014) reporting for The New Yorker the concept of disruptive innovation has been over baked by many. As she puts it:

“Disruptive innovation is a theory about why businesses fail. It’s not more than that. It doesn’t explain change. It’s not a law of nature… It makes a very poor prophet.”

In the view of Lepore and many others the concept of “disruptive innovation” has been used to explain how change occurs. This is as much asserted in business schools as everywhere else, she argues. And now these theories have been applied to other areas that have nothing to do with business or the goals of organisations. Actually, it is implied that in some cases disruptive innovation should not have been applied. For example, as Lepore explains, doctors need to meet their obligations to patients, teachers to students and journalists to readers. These are obligations, she purports, that have nothing to do with earnings. Doctors must provide a high standard of care, teachers a high standard of education, and journalists need to ensure to be factually correct. This is argued to be fundamentally different to the obligations that business managers have to staff.

Indeed, Lepore explains that disruptive innovation has been proposed as a theory of change both looking back at the past, and showing that disruption has caused change throughout time, as well as looking to the future, and showing that disruption will continue to drive change. Lepore argues that it has been suggested that many things that people own are the result of disruptive change. For example, smartphones and their apps have been shown to have created disruption for many industries such as in travel, transportation and music, among others. However, Lepore points out that not everything is suited to “disruptive innovation”, though disruption is called for by many advocates of it in all fields.

Clayton M. Christensen, a renowned scholar from Harvard, was one of the firsts to have written extensively on the subject of innovation and disruption.  Clayton wrote The Innovator´s Dilemma , which was first published in 1997. His book put forward the idea that companies place too much emphasis on customers’ current needs, when they should rather adopt new technology or business models to meet customers’ not yet stated or future needs. Christensen called this disruptive innovation. Christensen focused on the idea that disruptive innovation might lead an industry to the selling of a cheaper product with lower quality over focusing on their regular customers, and that this innovative new product would eventually “devour an entire industry”. According to Lepore, since Christensen’s book “The Innovator’s Dilemma” was published this has led to everyone jumping on a disruption bandwagon with the appearance of conferences about disruption, seminars on this topic and even consultants to help drive disruption.

The hype around disruption has led to an excessive focus on disruption, opines Lepore, who says that this implies that “the time has come to panic as you’ve never panicked before.” Indeed, she points out that some journalists have taken this to an all new level, arguing that disruptive innovation has now become “devastating innovation”. The concept behind this is that young, fresh start up companies are “ruthless and leaderless and unrestrained” and that such companies seem small and insignificant and the danger of them is not realised until it is way too late. In her own industry, Lepore compares the Times and BuzzFeed as examples of an established organisation threatened in this devastating manner by a new-ish start up applying “disruptive innovation” as a strategy.

Another way to read this phenomenon is through the eyes of Jeremy Rifkin’s latest book: The zero marginal cost society. In his book Rifkin traces a new type of economical system resulting from an abundance of goods and services that are increasingly cheap:

“This is the first new economical system to emerge since the advent of capitalism and socialism in the early nineteenth century. It is going to dramatically impact our lives. The precipitating agent, the trigger is something called : zero marginal cost.”

Marginal cost can be defined as the cost of producing additional units of a good or service, if fixed costs are not counted. While economists have always welcomed a reduction in marginal cost, they never anticipated the possibility of a technological revolution that might bring marginal costs to near zero, making goods and services priceless, nearly free, and abundant, and no longer subject to market forces. Could the phenomena of zero marginal cost, be the result of the entrepreneurial drive of looking for ways to make cheaper products, the result of the famous “disruptive innovation” that Christensen so well described premonitorily in 1997 ?

Fast forward to 2014, the “disruptive machine” has became so threatening to all that you can even take an online MOOC on surviving disruptive technologies. The course, offered by coursera, mentions how it aims to equip individuals and organizations with resources to survive ( based on a general model of survival) when confronted with disruptive technologies that threaten their current way of life.

Going back to Lepore’s article, the author argues that the concept of disruptive innovation has been jumped on and taken way too far, and this is problematic, given that it is grounded on evidence and assertions that she explains to be “dubious” in the first place. While Lepore’s arguments are sound and writing is engaging, it seems unlikely that her commentary will stop the incredible Disruption Machine that appears to have taken over the world. Given the extent to which people have embraced the ideals of disruption and its concepts as a driver of change, there is a lot further to go before people calm down about the idea of disruption and start searching for other alternative models.

It is important though to understand that what disruption brought to a certain extent was that it revolutionized a whole traditional way of doing business that focused on competition and profitability. The disruptive machine, turned into a devastating one, is now affecting both startups and corporations. If some are trying to cope by quickly learning “survival” techniques, others are embracing the reality that classical capitalism is undergoing a “perestroika” and it is redefining itself. “Capitalism is under attack” is the initial sentence of an article published last month (september 2014) by McKinsey and Company entitled : Redefining capitalism.

Some alternative models of doing business, are the ones described by Jeremy Rifkin, such as the ones that privilege collaboration, sharing and the collaborative commons. These, have already gained momentum. It will be interesting to see what will be left in the landscape of doing traditional business after the hurricane of disruption has calmed down.