The British illusionist Derren Brown has built quite a reputation over here for putting together audacious tv specials that make you consider what the basis for your perception of reality is actually built on. For me, one of the best shows he has ever done, is “The System” in which he takes a single mother from London, and explains to her how he has a foolproof system for betting on horse racing; a system that he is so confident about that he will front the money for the first 6, yes SIX bets, to prove it works, so long as she gathers together all her life savings for the 7th bet.
The show should be required viewing for any student studying probability theory in mathematics (the bit when he shows how to flip 10 consecutive heads is highly instructive [no, no camera tricks were used]). It should also be required viewing for MBAs and people considering whether to invest their hard earned cash in one of those special (and high fee charging) investment portfolios run by [Insert Name Here] the latest market beating uber investment manager. And so to Professor Clayton Christensen and his much cited theory of disruptive innovation. Here it is in a nutshell:
A disruptive innovation is an innovation that helps create a new market and value network, and eventually disrupts an existing market and value network, displacing an earlier technology
The crucial value add of the economic theory from Christensen is that companies that fail and are disrupted by the newcomers, do so because while they can spot the new barbarians, they are unable to competitively invest in that innovation, because they are locked in to a sustaining arms race with the current market. If only they had some sort of management and investment strategy; perhaps an innovations group to bring disruption from within. A strategic investment approach that hoovers up the threatening start-ups; or maybe a Steve, an Elon or a Jeff; a visionary to lead them out of the valley.
I’ve read Clayton’s books. They are a very good read and there’s much to think about within the phosphors on the screen (yeah, I upgraded). Truth be told, as someone who has had a job title with ‘Innovation’ in it, there was also a certain amount of primal scream fulfillment as well. But while I’ve always felt that the basics of the argument ring true, the examples have, in truth, always been a struggle for me.
The car argument is a good one. The car, wasn’t a disruptive innovation, as it was a luxury item that didn’t compete with the market for horse powered transportation. The Ford Model T was a disruptive innovation because at an initial launch price of $850 it was affordable by the masses, who adopted it in droves. Four months wages, apparently for a Model T. Really? The average wage for a US worker in 1909 was $750 per year. So a Ford Model T car was, when one accounts for food and rent and so on, a clear multiple year investment, with running costs to put on top of that. I’m not disputing the fact that the Model T was a great success, but one wonders whether price was the great catalyst.
Now, I’ve checked and the luxury car market is doing just fine. Horses? Not so much. But why? Well the telephone is well on it’s way to mainstream adoption, and with it comes a greater appreciation of both the connectedness of people and information, and the physical distances between those things. All of a sudden the desire to travel long distance quickly (looking for work where the market actually is, contact with distant relatives out beyond a day on horseback and so on) can no longer be satisfied by the horse. So, the disruptive transport innovation that led to the success of the Ford Model T was in fact the telephone.
Does that sound good? Is there a logic to it? A coherent narrative? Sounds very truthy doesn’t it. There’s no evidence for it at all. I made it up. It’s a decent hypothesis backed up by some cherry picked ‘data’ to support the theory. It has no predictive value.
Over in The New Yorker, Jill Lepore has, to put it bluntly, taken apart the evidence used by Christensen to support his theory of disruptive innovation. Failed companies that weren’t so much dead, as feeling really quite alright actually, technologies that didn’t usurp the incumbent technical stack in anything like the way the disruption innovation narrative would have you believe. Stop reading this now – go over to The New Yorker and read for yourself. It’s a superbly written article and it deserves your attention. Please come back when you’re finished.
If Jill’s evidence survives enquiry, then the foundations for Disruptive Innovation as an economic theory look to be non-existent. This is quite a bombshell. But wait, hang on, disruption does happen! How can this be wrong?
We are successful as a species because we use narrative to pass information down to future generations. We don’t have to rediscover things in each generation. Stories, as tools to help us avoid the mistakes of our forebears, are the cultural artifact that makes our civilization resilient. No wonder in a business environment we look for successful case studies and general use cases to support the mitigation of risk. Disruptive Innovation ticks all the right boxes when skilfully written down (and it is a well constructed argument). A compelling narrative, a list of great enterprises that got it wrong and a hint of a recipe to avoid those mistakes. No Kodak moment for us, we’ve read the book.
But then we have Derren Brown and his equally devastating reveal to that single mother betting her life savings on the horses….
Given enough people to start with, somebody will win on the horses six times in a row, because that’s how dumb luck works. All you need do is the math, to calculate the number of punters you need to start with. What does it tell you about your chances of winning on horse number 7?
But what about Ford, Jobs, Musk, Bezos? What about ’em? Sure they are geniuses. Sure their ideas were or are miles ahead of the competition – light years out in fact. Sure they saw clearly what the rest of us can only dimly comprehend, if at all. So what. Here’s the truth. You never hear about the genius who didn’t make it big, who blew all their capital on an equally great idea that never went mainstream and reconstructed the economic fabric of their worlds. Somebody gets lucky. Somebody always gets lucky. The overwhelming majority, well, they are grist to the mill.
The disruptive ideas are out there; wearable tech; internet of things; altered reality; a god in your pocket with an answer to any question you could possibly ask, biding their time, waiting for the culture to welcome them. In the game of Disruptive Innovation, you win or you die, there is no middle ground. There are no rules. No formulae. But winners – the winners get great stories told about them. They become part of the myths we weave to pass on the information down the generations, because the very fact that they did disrupt, means there must be a reason, some fundamental truth to how it happens, just waiting to be decoded. But who knows who will win? Not Clayton. Not any of us. All we know is, somebody will. And afterwards, somebody else will come along, with a magazine article and a book deal and a keynote tour with first class travel and 17 minutes at a TED gig. Somebody…