The Interpreter: Jelena Spanjol on “disruptive innovation”

Some technical terms have made it into everyday discourse. In this series, LMU researchers explain what these expressions mean and give a brief account of how they entered the vernacular.

Jelena Spanjol: "The world is marked by turbulence, and the future of the global economy is shrouded in uncertainty. Against this background, the term “disruption” has gained a lot of currency and is often used broadly to describe major transformations and upheavals in markets and technologies. However, it is frequently used in situations where it does not apply, or only partially so. In innovation research, the label “disruptive” is applied, sometimes imprecisely, to radical market changes caused by technological innovations as compared to simply speaking of radical innovation, based on the degree of market and technological novelty.

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The theory comes from the Harvard business academic Clayton Christensen, who coined the term to describe a process by which a new technology conquers the market. Initially, the innovation might seem inferior (according to conventional markers) than its established counterpart, but it is generally more affordable. Over time, the new technology improves and becomes more customer friendly to a broader swath of the market. As a result, it increasingly conquers terrain in the market, which puts established providers on the defensive and forces them into a niche, if not driving them out of the market altogether.

Thus, Christensen describes a longer-term process in which many factors such as resources, organizational strategies, and market conditions play a role. His classic example of a disruptive innovation is the triumph of the PC, which opened up a whole new segment and subsequently a mass market: for the individual user. Previously, there were only large, expensive computers in companies or public institutions.

Many people claimed at the time that there was no market for personal computers; no one would want a box like that at home. Time would prove how wrong they were. However, a disruptive technological innovation can only be recognized conclusively as such in retrospect, and so the theory continues to be debated. What research does conclusively show is that pioneers are rarely the ultimate market winners when it comes to radically new technologies and products.

A defining feature of Christensen’s process is entry at the lower end of the market. This excludes some of the candidates that are discussed as disruptive innovators today: The platform Uber has transformed the taxi market in some countries, and may be more convenient through the app-driven design, but it is not always a better value for the customer. As such, it is more of a business model innovation.

And the smartphone? It was certainly an innovative product, but to categorize it as disruptive technology will depend on the reference point: It was more expensive than many of the existing cellphone models (such as flip phones) when first introduced. But when we consider that we have a miniature computer in our pockets, that allows us to do so much more than just make calls, then we are crossing product categories. Generally, I think that new technologies which prove to be disruptive often happen in the background. They transform production processes, for example, with new materials or optimized supply chains or more sustainable life cycles.

In its proper theoretical sense, the definition of disruption is therefore rather specific and describes technological and long-term market processes. The inflationary use of the term reflects the market influence, leadership and differentiation companies like to project to others. In this way, the term “disruption” becomes a label that describes technological and market changes in general. And through such loose usage, it can easily become a (not very useful) synonym for any and all dynamics that drive progress.”

Prof. Jelena Spanjol is Director of the Institute for Innovation Management at LMU Munich School of Management.

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