Christensen's disruptive innovation model, published in 1997, provides an explanation for the inability of well-managed, industry-leading companies to stay atop of their industry when confronted with new, ground breaking technological innovations.

 

Clayton M. Christensen is an associate professor at Harvard Business School. His research and writing focuses on management of technological innovation, how new markets for new technologies can be found, and the identification and development of organisational capabilities.

 

Christensen was intrigued by the fact that time and time again market leaders were uprooted by new, ‘trivial’ technologies that turned out to be industry-changing. His study is based on a historical analysis of how industries evolve over time. He compiled data on developments in the electronics industry; chemical industry; mechanical industry (Mechanical Excavator Industry 1920-1970), software and hardware industry (disk drive industry 1961-1995), in manufacturing and in service industries.

 

Christensen identified two types of technology driven changes:

  1. Sustaining technologies: these technologies continue the industry’s rate of improvement in “product performance”
  2. Disruptive technologies which disrupt or redefine “performance trajectories”.

 

Most technological progress leads to “performance improvement” of existing products. These products become faster, cheaper, louder, smaller, etc. Customers can comprehend and embrace these innovations because they remain in line with current needs end expectations. Christensen regarded these kinds of developments as “sustaining in character”. Market leaders lead the industry to embrace these innovations and exploited the benefits of these technologies.

 

In time, companies overshoot the ability of customers to absorb performance improvements by attempting to bring better products to the market than their competitors. The performance of the product improves faster than the customer’s needs and expectations.

 

From time to time disruptive technologies emerge; innovative products that perform worse than established products. Established products get leapfrogged in their core functionality due to the faster performance improvements of these new products. Historically, such disruptive forces almost always toppled industry leaders.

 

Christensen listed two types of disruptive technologies:

  1. New-Market Disruptions: disruptions that create a new “value network”
  2. Low-End Disruptions: disruptions that attack the least-profitable and most over-served customers at the low end of the original value network.

 

A value network is the context within which a firm establishes its cost structure and operating processes. In this network the firm works with suppliers and partners in order to respond profitably to the common needs of a specific market segment. Consequently, the firm can only successfully commercialise their product in that specific market segment. If the firm, however, tries to target their product in a different market segment they may be incapable of successfully commercialising their product (e.g low cost airlines versus national carriers).

 

Christensen introduced a disruption diagram to visualise the difference between the two disruption types. His disruption diagram is made up of three axes:

  1. Y-axis: represents the dominant product performance metric
  2. X- axis: represents time
  3. Z-axis: represents consumer segments with different needs.

 

The dimensions time and performance define a particular product which customers purchase. A customer purchases and uses this product for a specific purpose. An example of a time-performance trajectory is the increase of the USB flash drive’s data storage capacity that went up from 8 MB in 2000 to 8 GB in 2007. The third or z-axis represents either new customers who previously lacked the money or skills to buy and use the product. In addition, it also represents customers whose needs can now be fulfilled because the product may be used for other purposes. As the performance of a mainstream product increases, it eventually surpasses the customer expectations and creates a vacuum into which simpler and more convenient customer offerings can flourish.

 

“Low-end Disruptions” use low-cost business models aimed at picking off the least attractive of the established firms’ customers. At first, “Low-end Disruption” products perform far worse along one or two dimensions of performance that are particularly important to customers, but may migrate upwards into the mainstream market. New value networks create a shift in consumption and competition. Furthermore, they also define a different set of performance measures compared to than what was valued in the original value network.

 

These new value networks are created when “New-market Disruptions” take place. For each of these new value networks a new vertical axis, which represents a product’s performance given a particular context, can be drawn in the diagram.

 

Different value networks can emerge and co-exist at various distances from the original value network. Products that come forth from a New-market disruption are more affordable to own and simpler to use compared to the original product. They enable a whole new group of people to own the product and to use them in a more convenient way. As the performance of these new products gets better, they will start to attract the least-demanding customers from of the original value network and pull them into the new value network. A further increase of the performance will ultimately pull the more demanding customers out of the original value network.

 

Market leaders perceive little threat until the disruption is in its final stages and starts to draw customers away. By this time it is too late for the market leader to make the shift to the new technology and dominate the new value network.