Global Business Columnist at Bloomberg Opinion, Adrian Wooldridge reflects on the decline of the idea of “disruption” in the business world. While it was once a popular buzzword, the overuse and overselling of the concept has led to its downfall. Wooldridge highlights industries that resisted disruption, such as elite higher education and the financial services industry, as well as the negative consequences faced by those who embraced it. He introduces the concept of “non-disruptive innovation” proposed by two INSEAD professors, which involves creating new markets outside the bounds of existing industries. Wooldridge argues that this approach can provide the benefits of innovation without the negative repercussions. He concludes by highlighting the value of disruptive innovation and its role in fostering a more productive economy, and mentions the potential for artificial intelligence to usher in a new era of creative destruction.
Disruption Will Always Be Capitalismâs Secret Sauce: Adrian Wooldridge
By Adrian Wooldridge
Ten years ago, âdisruptionâ was the business worldâs battle cry. Start-ups promised to disrupt every industry under the sun. Venture capitalists refused to fund anybody who didnât promise to break things. Nervous corporate leaders talked about âdisrupting themselvesâ before somebody else did it for them. The HBO sitcom Silicon Valley dispatched its tech-bro heroes to a conference called âTechCrunch Disrupt SF 2014â (which was indeed a real thing).
Today businesspeople have abandoned the word in favor of something blander â even people in the heart of the innovation furnace that is AI prefer to use words like âtransformationâ and âadvancedâ instead. This is partly because the term was so overused that people got sick of it â the Guardian described it as having âthe aftertaste of a sucked batteryâ â but more importantly because the idea was oversold.
Many industries remained surprisingly resilient to disruption: Elite higher education still depends on personal interaction â and rightly so â despite the frenzy about Massive Open Online Courses, or MOOCs. And many that embraced disruptive innovation came to regret it: The financial services industry avidly pursued disruption in the form of collateralized debt obligations only to see CDOs blow up their businesses. The coffee shops of San Francisco are full of people who once ran companies that were supposed to disrupt fat incumbents, but who are now eking out a living on Mechanical Turk. Clayton Christensen, the Harvard Business School professor who popularized the term in The Innovatorâs Dilemma, produced a list of 77 cases of disruptive innovation. Only 9% of them eventually succumbed to his model.
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The business world has cooled on the reality as well as the idea of disruption. Since 2008 the US has seen one of the most intense periods of consolidation in its history. A handful of firms now dominate their respective industries, often regardless of quality, as anyone who travels on the USâs customer-hostile airlines soon realizes. Many of these companies now prefer incremental to disruptive innovation: Since introducing the iPhone in 2007, Apple has relied on carefully choreographed upgrades. More generally, businesses across the advanced world have become devotees of happy talk about stakeholders and sustainability in order to appear less threatening. The problem with talking about disruption too loudly is that it can encourage incumbents to fight back and orchestrate support among unions and NGOs.
Now two INSEAD professors have come along to pronounce last rites over disruption. W. Chan Kim and Renee Mauborgne made their reputation as gurus by encouraging companies to think about creating new markets (âblue ocean strategyâ) rather than competing ever more fiercely in old ones (âred ocean strategyâ). They are trying to revolutionize the subject of innovation with a new book, Beyond Disruption: Innovate and Achieve Growth without Displacing Industries, Companies or Jobs.
The authors seem unaware that they are late to the disruption-is-dead party, writing as if weâre in 2014 rather than 2023. But they compensate by providing a recipe for producing all the benefits of disruptive innovation without the downsides. âNon-disruptive innovationâ involves the creation of new markets without the disruption or displacement of existing markets. It does this by creating brand new markets outside or beyond the bounds of existing industries. This approach is good for entrepreneurs because they donât have to battle with existing incumbents. Itâs good for society at large because it doesnât leave a swathe of failed companies, lost jobs and fractured markets in its wake. Boris Johnson might call it having your cake and eating it.
The archetypical example of non-disruptive innovation is what I have sitting on the end of my nose: a pair of spectacles. Before spectacles came along those of us with âvision issuesâ wandered around like Mr. Magoo. (There are about 2.2 billion of us in the world, according to the World Health Organization.) Eyeglasses created a $100 billion industry without putting anyone out of business.
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Kim and Mauborgne produce a number of more contemporary examples:
+ Jack Dorsey and Jim McKelvey created a new market outside the existing boundaries of the credit card industry with Square. Americans have got into the habit of paying for everything with âplasticâ (either credit or debit cards). But small businesses such as food trucks were unable to participate in this market because the machinery for processing transactions was costly to install and expensive to maintain. Square (now renamed Block, Inc. and worth more than $30 billion) addressed this potential market without eating anybodyâs lunch by developing a Square reader which can be plugged into your mobile phone.
+ Korean game publishers created a new entertainment industry â watching other gamers play each other in the same way that you might watch tennis. Hitherto gaming had gone on in the Martin Amis world of teenage bedrooms with the cool kids playing and their hangers-on gawping. The publishers put it into a stadium with superstar gamers playing each other and crowds of tens of thousands watching. This meant creating visually stunning games such as Riot Gamesâ League of Legends and Hidden Path Entertainmentâs Counter-Strike: Global Offensive that are as much fun to watch as they are to play. It also meant creating the paraphernalia of competitive sports â leagues and prizes and tournaments.
+ Arunachalam Muruganantham created a new market for sanitary pads for women in rural India, a population of some 200 million who have hitherto been forced to rely on rags. The subject was taboo: Muruganantham was forced to flee from his village when he was threatened with a type of exorcism that involved being hung upside-down in a tree. He nevertheless pushed forward with his idea of a small and simple pad-making machine thatâs sold directly to women in villages who then sell the sanitary pads that they produce directly to other local women. Kim calculates that tampon entrepreneurs have created about 5,300 for-profit micro-businesses that thrive not by displacing an existing business but by overcoming problems of distribution and cultural shame.
+ One of the most interesting examples of a non-disruptive innovation comes from an organization that had lots of resources and was looking for new things to do with them. The French Post Office, La Poste, has confronted the same problem as post offices everywhere, a fall in the number of physical letters being sent. It realized that it could use its existing resources â an army of well-liked postal workers in every corner of the country â to address a new problem: the epidemic of loneliness created by the scattering of families. The post office created a new business, Veiller Sur Mes Parents (VSMP) or Watch Over My Parents, that charges 40 euros a month for a postal worker to visit a family member once a week to check up if they are okay and have a chat. The postal workers then inform the families if their aging parents are well and if they need any home repairs or other chores.
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What are we to make of all this? The authors certainly establish that itâs foolish to view innovation through disruption-only goggles that predispose you to find opponents to destroy. Many different sorts of innovation donât involve smashing things up, from incremental innovation to hybrid innovation (mixing new methods with old) to non-disruptive innovation. The authors may also be right to speculate that the aging of the population will create lots of opportunities for non-disruptive innovation. But they donât provide any sense of the potential size of non-disruptive versus disruptive innovation. Nor do they consider the productivity-improving virtue of liberating resources from less productive activities to more productive ones. My own hunch is that their cake-and-eat it innovation will occupy interesting niches, while most companies will continue to inhabit a world of Schumpeterian creative destruction.
Which brings us to the more fundamental subject of the value of disruption as a concept. Itâs certainly true that âdisruptionâ suffered from over-use. (Full disclosure: I published a book of essays entitled The Great Disruption: How Business is Coping with Turbulent Times.) Over-use is the price we pay for having a thriving business-theory industry. It is also true that Clayton Christensen was rather like the man with a hammer who sees everything as a nail: He co-wrote a succession of books urging disruptive innovation in higher education (The Innovative University), public schools (Disrupting Class) and health care (The Innovatorâs Prescription).
But the idea of disruptive innovation has its origins in the work of one of the 20th centuryâs greatest economists â Joseph Schumpeter. In Capitalism, Socialism and Democracy (1942), Schumpeter argued that capitalism proceeds through a âperennial gale of creative destruction.â The hero of the process is the entrepreneur who comes along with new technologies or new ideas about organizing production precisely to disturb the status quo. Incumbents try to fight back, sometimes by innovating themselves, sometimes by trying to rig the market. The clash between challengers and incumbents produces a great deal of disruption. Successful incumbents survive only by shaking themselves up. Successful challengers become incumbents themselves who must continue to innovate or face destruction in their turn. But the result is a more productive economy and a more efficient allocation of resources. This is the capitalist paradox which advocates of stakeholder capitalism ignore and Kim and Mauborgne elide: that the process of replacing incumbents releases productive energy, while leaving incumbents in place and unchallenged leads to stagnation.
We are likely in the early stages of another big era of creative destruction. Waves of creative destruction tend to follow from the introduction of new technologies â as with the introduction of mass-produced steel in the late 19th century or computer chips in the late 20th century. We are now seeing the dissemination of new technology, artificial intelligence, which Googleâs CEO, Sundar Pichai, describes as âthe most important thing humanity has ever worked onâŠmore profound than electricity or fire.â AI is already disrupting a wide range of tasks from the production of insurance documents (for example at Zurich Insurance Group AG), to the design of childrenâs playthings (at Mattel Inc.), to the development of therapeutic antibodies (at Absci).
We should certainly guard against the possibility of AI running out of control, now the subject of much pessimistic prognostication, most notably from the master disruptor himself, Elon Musk. We should also provide support for people who are displaced: Another paradox of capitalism is that successful markets require active welfare states. But given a choice between opportunity-sapping stagnation and productivity-improving disruption, we would be fools not to choose disruption.
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*Adrian Wooldridge is an author and columnist. He is the Global Business Columnist at Bloomberg Opinion
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