“Disruptive Innovation”, is a term popularized by Clayton Christensen in his classic book, “The Innovator’s Dilemma.” The book describes his research into how product development and market competition mature and eventually create products that have been incrementally improved (through “sustaining” innovations) so much that, relatively speaking, they actually become too expensive and/or too complex. Essentially, diminishing returns have set in. Meanwhile, a new technology or product comes along which in many dimensions is demonstrably inferior. However, in some other dimension(s) the new technology has the growth potential to overtake the capabilities, cost effectiveness, or quality of existing products and make them obsolete (a “disruptive” innovation). Clay uses the evolution of different computer hard drive technologies as one example, and another illustration is the mp3 music file. The sound quality of an mp3 is clearly inferior to a compact disk (CD) recording, but other features such as portability and ease of sharing, along with the rapid growth of really cheap delivery systems (i.e. the Internet and iPods) quickly outcompeted CDs.
It should be emphasized that a new product or solution can be obviously inferior in some ways, but eventually dramatically superior in other ways that end up mattering more. Sometimes the new product improves so much it ends up beating the old criteria, too. In last Friday’s repost we saw how new smart-phone devices are beginning to do the job of highly-trained (and highly compensated) health professionals with expensive diagnostic instruments. At the current time, these devices do not provide the same high quality care. But they’re probably good enough to be used for initial screening, or to enable patient self-monitoring. And they’ll likely get much better as time goes by. It will be interesting to watch what effect they have on conventional healthcare.
It’s also important to note that established firms have a very hard time pursuing disruptive innovations because they threaten existing products or offer too small a return in the near term, relative to current lines of business. And this can be extended to people and their careers. For many established employees a wealth of expertise, accomplishments, and personal contacts have been built up over their career. Those are very valuable assets that produce a significant return. Giving all that up to start from scratch in a new endeavor with a currently much lower return is a very hard thing to do. That’s why new industries are often started by young, less established people. However, the really important lesson is that, long term, it may pay to disrupt yourself. Taking what is now a lesser paying or lower responsibility job in a new industry might just be right choice that produces a bigger payoff later.