Innovation & disruption in context
The Innovator’s Dilemma has recently turned from an economic and somewhat scientific thesis into what is essentially a cultural debate between philosophies and factions. It seems a missed opportunity that the discourse has gone the route of editorial finger pointing because the topic is material enough, now more than ever in an increasingly tech-centric economy. The consequences of innovation and disruption – terms that are central to the argument – are quite pragmatically real, and on countless levels so. The subject, like economics more broadly, warrants renewed and extensive attention in the context of a new information era, which is a profoundly different era from that in which The Innovator’s Dilemma was born.
This will be a major undertaking in a complex field. A small but important sub-task would be to start with the basic elements or an approximation of what these may comprise. The basic elements seem unfortunately to have gotten crowded out of a debate that – in reflection of the subject’s vernacular – has adopted a loose and wrongly interchangeable hodgepodge of terms that signify very different things: (a) innovation and (b) disruption. To clean up the mess, below are three principal distinctions that are worthy of consideration and some initial notes on the possible significances of each one.
Innovation, rooted in novelty, is to bring forth something new, which is to contribute, or to add. Disruption, rooted in rupture, is a breakage. Taken in isolation, the first is a positive movement driven by curiosity and advancement, while the second is a belligerence of sorts. Taken in isolation, innovation is an accretive act in at least one way of measurement, while disruption is detrimental to its target without a defined benefit to its perpetrator.
But to consider these abstractions in isolation is a flawed approach. That is an error we more and more commonly observe in the public discourse, and also, at times, in the prevailing entrepreneurial mood: to hold up the prospect of disruption as an isolated ideal, and to accept it as both a means and an end. Economically speaking this makes no sense. Not in isolation.
This leads to the second distinction between the terms – that of context, sequence, and causality – because isolation, as noted, won’t do. Innovation can bring about disruption (per Christensen) although not always. When taken in holistically, innovation and disruption together, the latter becomes a byproduct and one among several possible results – which result often depends on the source of the innovation. Not all sources are disruptively inclined, nor are all innovations.
We have come to take it for granted (in part due to the Innovator’s Dilemma), that innovation happens with the upstarts. If this was at one time true, it seems no longer necessarily the case. Whether the iPod, which begat the iPhone, which begat the iPad, and which all more or less set the stage for mobile computing as we now know it, were born in a large enterprise or what was essentially a startup (or restart) is up for debate, but it is also the point. The difference between startup and mature enterprise is now murky, as is the difference between innovation and reinvention, at times. By the same token, disruption is also harder to pin down, (did Napster disrupt the music segment or, in the end, was it the other way around? As long as innovation happens does it matter?)
What’s more, innovation itself no longer needs to be technical at its core. It has on the contrary proven itself in many instances to be based on process, which too can lead to greater efficiencies and different forms of productivity. And sometimes innovation involves the integration of disparate assets or categories: examples in mobile commerce, wearable devices, or the connected home. And in some such instances there isn’t a disruption in the classic sense but rather a new frontier that is opened (at the very least this idea can be argued), while many such cases are now driven by the strategic combination of incumbents.
This dovetails into the third and maybe most important distinction between the two related terms of our subject: the relativity of one versus the absolute of the other. Innovation is relative – new in relation to something – whereas disruption (a breakage) is absolute, even if it can be measured.
That innovation is relative to an old and established order, however, is no longer necessarily the case. This would be true (and was) when the market expectation was for the establishment to continue, but in an environment in which novelty is expected the level of innovation can also be measured in relation to that. One could argue, perhaps, that any innovation that meets expectation is not disruptive, while innovation that exceeds it, is.
This takes us into issues of velocity and acceleration (themes that are never far from relativity in its proper physics sense). A steady velocity, even if very fast (as is presently the case), creates and expectation that it will continue, which circularly feeds on itself and forces both the incumbent and startup to (try to) keep up. Once in a while, however, one or the other picks it up – often the startup – which acceleration catches the market by surprise. This is disruptive and constitutes a breakage, which is absolute if only for the moment.
Why this matters
As it relates to strategy, which drives execution, which impacts valuation, and might cause capital to flow, this outline and its variants is much more than academic. In an environment in which software is eating the world, in which information technology and its derivatives underpins all industry, and in which economics is continuously scrutinized for clues and recipes for improvement in a changing landscape, it is of pragmatic importance to carefully consider the basics. Some of these have changed, even if many have not. The mixture makes the analysis especially complicated, and the complexity makes the analysis especially necessary.
In his tome on economic growth (g) and return on capital (r), Thomas Piketty proposes a fix to his described inequality, r>g (the fundamental cause of other inequalities, according to the author), by, in a sense, attacking the r factor. In a sense, this is an approach of disruption and is characterized by aspects attributable to other forms of disruption described. Innovation, alternatively, would be to seek out ways to accelerate g. One might argue, a positive emphasis on innovation is more likely to lead to fundamental and lasting benefits all around, whereas an emphasis on disruption is more likely to be narrow and short-lived. This is another way to look at it.