Page 176 - HBR Leader's Handbook: Make an Impact, Inspire Your Organization, and Get to the Next Level

Innovating for the Future 165

Disruptive innovation
Harvard Business School professor Clay Christensen first coined the term
“disruptive innovation.” As he describes, disruptive innovation is a process
by which a smaller competitor quietly develops a new business model and,
in so doing, suddenly shifts the competitive dynamics of an entire industry
and its well-established companies. A classic example is Netflix’s transfor-
mation of the video rental industry, undercutting Blockbuster’s business
by using the US mail to deliver DVDs straight to customers, with no due
dates, late fees, or crippling real estate costs. Netflix then disrupted the
movie and broadcast television industry by offering on-demand content
for a subscription fee.
In contrast, Christensen defines “sustaining innovation” as continual
experimentation to improve and refine an existing business model. While
sustaining innovation can provide substantial incremental growth, mas-
tering disruptive innovation means that incumbent companies are more
prepared for unanticipated threats and better able to transform as tech-
nologies and new ideas around them develop. Mastering disruptive inno-
vation also can help startups launch themselves into established markets.
As a leader in an established company, you need to realize that unusual
and often unseen competitors can disrupt your business at any time. If
you are in a startup and can find the right business model, you can be one
of those disruptors. Particularly because of the enabling aspects of digi-
tal infrastructure, you often don’t need large amounts of capital to enter
established markets, but can instead find ways to pick off customers at
the margins. As more and more free information becomes “good enough,”
Thomson Reuters, for example, uses its innovation mechanisms to identify
specific market needs that it can meet with slices of professional data that
come available directly or through partnerships with startups.
If you run an established company or division, one way to prevent your
own business model from being disrupted is to develop disruptive ideas
yourself. In their HBR article “Meeting the Challenge of Disrup- tive
Change,” Christensen and Michael Overdorf explain that doing this