Disruptive Innovation Theory Revisited

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       Disruptive Innovation Theory Revisited:

       Toward Quantum Innovation

 

By Professor Clayton M. Christensen, Craig Hatkoff and Rabbi Irwin Kula 

 

This is the first of an ongoing series of original articles, essays and papers published by the Disruptor Foundation hereinafter known as The Off-White Papers. It is being published in conjunction with the fourth annual Tribeca Disruptive Innovation Awards that are being held on April 26th, 2013.

Dr. Joseph Lister was inspired by the work of Louis Pasteur.  Carbolic acid was the main ingredient in his new antisepstic techniques and the statistical results were nothing short of astounding.

Dr. Joseph Lister was inspired by the work of Louis Pasteur. Carbolic acid was the main ingredient in his new antisepstic techniques and the statistical results were nothing short of astounding.

Perhaps it was on the limb-strewn battlefields during the Franco-Prussian war in the 1870s that one disruptive innovation gained great favor with a whole generation of adherents.  Young doctors on the frontlines readily embraced Dr. Joseph Lister’s new and rather simple technique for combat triage using anti-septic surgery for life-saving amputations and skin piercing compound bone fractures. Previously almost any large incision resulted in death from infection caused by  unsanitary conditions.

Lister’s carbolic acid concoction was easy to use and quite effective at getting the job done even in the field of battle.  It prevented infection from what turned out to be airborne microbes. Unfortunately the U.S. medical establishment did not embrace Lister’s radical idea of germ theory even when presented with incontrovertible evidence.  They defended the long-standing medical wisdom that bad air or miasma  were the source of infection, and not invisible microbes.  Germ theory was outright rejected.  While there was ample documentation and statistics provided by Lister to the AMA and the establishment, it would take a public outcry after the assassination attempt and the unfortunate, and probably avoidable, death of U. S. President James Garfield to create a serious enough crisis to challenge the entrenched thinking of the old guard. A paradigm shift was at hand.

The medical establishment’s resistance to Lister’s technique is an instructive narrative in trying to better understand innovations that, on the face of things, should catch on and spread rapidly.  Yet in certain domains, where entrenched worldviews, attitudes and values are deeply woven into the societal architecture, innovation can come to a grinding halt.  This is particularly noticeable in those domains with multiple stakeholders whose identities and livelihoods are being challenged by the threat of innovation. In those situations where simply getting well-defined jobs done a product or service’s utility is the main driver.  But in those domains where stakeholders’ identities are being challenged the identity function can often overwhelm the more straightforward utility of the innovation. In turn, the predictive power of disruptive innovation theory is diminished.

In spite of all the extraordinary technological progress that has taken place since disruptive innovation theory was first posited in 1997 (Innovator’s Dilemma, Christensen) certain domains have proved to be quite resistant or slow to adopt change. We have observed that these slow-to-change domains such as education, healthcare, religion, conflict resolution, the environment, politics and the military to name a few represent some of the most critical areas waiting to be disrupted. It is these areas that innovation will be most necessary to meet the societal challenges of the 21st century.

“If we are to develop profound theory to solve the intractable problems in our societally-critical domains….we must learn to crawl into the life of what makes people tick.”

 Disruptive innovations are simpler,cheaper, more, accessible products or services, often created by “two guys in a garage. ”  Yet these inferior products and services seemingly decimate an industry leader who keeps on making very profitable, perfectly good products better and better, outstripping the needs and pocketbooks of already well-served consumers.  But new consumers are very willing to “hire” a cheaper product or service to carry out a specific task if and only if that product is good enough to get the job done.  Disruptive goods and services are at first marketed to the non-consumer or a non-existent market altogether with little, if any, profit—at first.  This is known as the innovators dilemma.  It seems the best-managed companies’ efforts to innovate are almost always ineffectual and most vulnerable to extinction: one only be reminded that there are no integrated steel mills, steam ships or buggy whip manufacturers left in America.

Our observations lead us to suggest that in areas where a product or service’s utility is the dominant consideration the original theory still holds up quite nicely.  However in domains where the consumer’s identity or the identity of other stakeholders is challenged, the theory encounters quite a few anomalies that should be re-examined to see if a more profound theory can be developed.  By identity, we are referring to the bundle of values, opinions, customs and webs of relationships that define who we are both individually and collectively that transcend pure utility.

Inherent in every product or service is both a utility function and an identity function.  Understanding each of these functions and the interaction between the two might shed light on some of the anomalies observed in the original theory.  It appears that in utility-centric products and services such as mini-mills, semi-conductors, disk drives, MP3 files, Wikipedia, Amazon and the like, the original theory does keep its predictive potency.  Consumers and non-consumers with no vested interest in anything other than “getting the job done” will change behaviors quickly and readily with little anxiety.  They are simply focused on the product or service’s utility—and the incumbent will be disrupted.  All you need to think about is how quickly we “consumers” (or the new “non-consumers” as the case may be) migrated from vinyl to cartridge to cassette to CDs to MP3s on our iPods; from Encyclopedia Britannica to Wikipedia; from Borders to Amazon.

In utility-centric innovations water runs downhill; there seems to be very little consumer resistance to successful adoption and diffusion. Resistance to change, however, does often come from within from industry incumbents whose jobs are dependent on maintaining the existing business model and power dynamics.  As Upton Sinclair said “never expect someone to understand change when their livelihood depends on not understanding it.”  As the theory predicts, the resistances are structural even at the best-managed companies and hence the term innovator’s dilemma: what managers in their right minds wouldn’t pursue better margins from high-end consumers in predictable, well-established markets?  The answer is the disruptive innovator, an outsider, who creates a product or service for the non-existing consumer in a non-existing market for almost no profit. Hmmm.

In order to understand the difference between utility and identity-laden products just compare the $6,000 Kia with the $120,000 Ferrari.  The Kia clearly gets you from A to B much less expensively than a Ferrari.   But few Ferrari drivers are likely to be caught dead in a Kia and plenty of Kia owners would love to be driving Ferraris.  The real question is what jobs do the Kia and the Ferrari get done?  The Kia is more about the pure utility of getting from here to there where a Ferrari, it could surely be argued, is more about my economic and social status. It is about “who I am.”  While it will vary from person to person, a Kia might be 90% utility and 10% identity but  a Ferrari might be 20% utility and 80% identity. To each his own.

We would argue that there is a continuum for all products and services for each person and group .  We refer to this continuum as the utility-identity (or utilidentity) curve analogous to an indifference curve in preference theory. One might think one hammer is the same as the next; it is almost 100% utility.  Any hammer will do for most jobs around the house unless it is that well-worn hammer you inherited from your grandfather who happens to have been a master craftsman.  That is where the identity function kicks in and rear its head.   So just imagine if someone developed an inexpensive electric hammer that required little skill to drive in nails perfectly and what the predicted reaction to this innovation might be from carpenter union members, woodworking hobbyists or any inheritor of a sacred family relic such as grandpa’s hammer. One could expect far more resistance than from consumers with no such identity attachments.

Innovations that challenge identity will have a much different set of dynamics than those innovations of pure utility.  So we shouldn’t be surprised that innovations  that make  healthcare cheaper, simpler and more accessible, produce resistances previously not addressed. Healthcare, as opposed to automobiles, even Ferraris, has many “identity stakeholders.”  These include the AMA, AARP, patients, doctors, nurses, FDA, and the politicians who confront their own self-definitions in responding to the threshold issue whether to accept or resist the innovation in question.

Accepting a utility innovation is much simpler than working through the more complex psychological and emotional issues deeply embedded in the web of relationships in an identity-centric innovation such as healthcare.  Further complicating the innovation drama is that every identity-centric innovation also includes utility stakeholders.  In healthcare this group would include insurance companies, pharmaceutical companies and medical equipment manufacturers who are largely indifferent to these critical identity issues and focus almost entirely and “callously” on the math: regardless of intentions or morality any decisions made on the basis of the bottom line will be seen as a sign of cold indifference to those whose identities are at stake.

President James Garlfield under the medical stewardship of Dr. Willard Bliss lingered for 80 days while the doctors incessantly probed and poked with unwashed hands and instruments causing massive infection which was the probably cause of death from what was likely a survivalable wound-- even if left untreated.

President James Garfield while under the medical stewardship of Dr. Willard Bliss , a ballistics trauma expert, lingered for 80 days. Bliss and his minions incessantly probed and poked Garfield with unwashed hands and instruments causing massive infection. The probably cause of death from what was likely preventable infection from an otherwise survivalable wound– even if left untreated.

Joseph Lister’s antiseptic surgery was documented and accepted in Europe for nearly 30 years before it was accepted in the U.S.  It took the assassination of President Garfield to force the AMA’s acceptance of germs as the source of infection and usefulness of anti-septic surgery.  The stethoscope, a seemingly obvious innovation, took over a decade before its use was widely accepted by the medical community.

Ignorance is Bliss and often Gross  :  Famous portrait  by Thomas Eakins shows reknown surgeon  Dr. Samuel Gross and his team perfroming an amputation  in unsanitary  conditons. ‘Little, if any faith, is placed by any enlightened or experienced surgeon on this side of the Atlantic in the so-called carbolic acid treatment of Professor Lister,’ said Gross

Ignorance is Bliss and often Gross : Famous portrait by Thomas Eakins shows renown surgeon Dr. Samuel Gross and his team performing an amputation in unsanitary conditions. ‘Little, if any faith, is placed by any enlightened or experienced surgeon on this side of the Atlantic in the so-called carbolic acid treatment of Professor Lister,’ said Gross

The disruptive healthcare innovation of the nurse practitioner, which the theory predicts should be scaling much more rapidly, still faces significant resistance from doctors and patients (although this might be a generational consideration as we have seen with our young army medics) in spite of its obvious economic benefits and its ability to get the job done. But there is nothing more connected to a patient’s identity than his own health and mortality.  Similarly, palliative care and hospice encounter greater resistances than the existing theory predicts because end-of-life issues speak to our deepest values and beliefs, ethical considerations and worldviews.  The emotions (or lack thereof) that surround cutting the cord on your landline and moving to your smartphone are very different indeed than “pulling the plug” on loved ones.

It is not surprising, with such heavy issues of identity at stake, that all political conversations become polarized deteriorating quickly into the death panel versus quality of life debate.  Unlike the straightforward utility of a Kia for daily transportation, the basket of issues surrounding identity increases resistance and complicates the acceptance of hospice as a disruptive innovation. The “jobs to get done” by the disparate stakeholders in end of life management are often in conflict: minimize pain, maximimize quality of life, observing religious beliefs, professional ethics, obligations and responsibilities, sheer economic reality and/or mitigating potential guilt let alone expressing our love. One can see serious limitations in applying a predictive theory that works nicely for utility-laden products and services to such a highly charged, identity-centric domain with so many non-utilitarian considerations. In certain domains perhaps people do not simply behave as homo economicus or purely rational beings.

In The Innovator’s Solution (Christensen 2003) the role of modularity versus interdependence was explained and incorporated into the original theory. Think of modularity as “plug and play.”  In high-utility domains, more profitable, interdependent architecture and components will ultimately lead to severe cases of creeping feature-itis where the consumer is over-served and the product too expensive.  In this case the market is ripe for disruption that often comes in the form of less expensive, modular products and service that consumers readily accept.  ITunes successfully introduced modularity to the consumer who could now buy singles rather than an entire album to the dismay of most record industry executives and to the occasional artist protestation.  The interdependence created by having to buy 16 songs when you only really wanted four might have been highly profitable for the record companies but over-served the consumer at a cost substantially higher than purchasing the four singles.  No wonder, as the original theory neatly predicted, disruption in the music industry was fast and ugly.

In high-identity domains, however, products and services are almost always highly interdependent and successful modular architecture is elusive. Even when the consumer is over-served and the price too expensive, and modular solutions are “good enough” resistance is still encountered.  Is it really necessary for your high price physician to give you your physical in its entirety i.e. to take your temperature, blood pressure, heart rate and blood test?  These functions or modules would be much cheaper and good enough if handled by a nurse practitioner.  Yet your yearly medical examination remains more like an album. Unlike the a la carte modularity offered by iTunes, the “modularizing” of the annual physical that would be a partial solution to the high cost and accessibility of health care, has not scaled as the original theory predicts.

Therefore, we are suggesting identity should be viewed as a formidable variable in predicting the success and scalability in disruptive innovations.  To date, jobs-to-be-done theory has very successfully been applied to utility products and services that accomplish a single task or relative simple set of tasks. We hire utility-centric products to satisfy an obvious need.   But we hire identity products and services to carry out multiple jobs, some of which, we would hypothesize, we are not even conscious of.  There are many more causal mechanisms involved in the decision to buy high-identity products or services than those with high utility. There are more stakeholders outside of the traditional value chain that exert an invisible, gravitational force on our decision-making.  Identity-centric products tend to have interdependencies at the societal level with its deep roots and structures.

At the policy level we must begin to study how momentum of technological innovation and solutions can be impeded by societal inertia caused by the identity factor.  Technological architecture can no longer be viewed in isolation for designing or predicting the success of disruptive innovations; we will have to begin taking into account the deep structure and roots of societal architecture as well.  The utilidentity function might offer a new set of lenses in disruptive innovation theory.  If we are to develop profound theory to solve the intractable problems in our societally-critical domains, most of which would appear to be heavily identity centric,  we must learn to crawl into the life of what makes people tick.

April 12, 2013

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