Maxwell Wessel and Clayton M. Christensen on “Surviving Disruption”

Here is an excerpt from an article written by Maxwell Wessel and Clayton M. Christensen for Harvard Business Review. To read the complete article, check out the wealth of free resources, and sign up for a subscription to HBR email alerts, please click here.

Photography: Nash Baker

Artwork: Henrique Oliveira
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Disruptive innovations are like missiles launched at your business. For 20 years we’ve described missile after missile that took aim and annihilated its target: Napster, Amazon, and the Apple Store devastated Tower Records and Musicland; tiny, underpowered personal computers grew to replace minicomputers and mainframes; digital photography made film practically obsolete.And all along we’ve prescribed a single response to ensure that when the dust settles, you’ll still have a viable business: Develop a disruption of your own before it’s too late to reap the rewards of participation in new, high-growth markets—as Procter & Gamble did with Swiffer, Dow Corning with Xiameter, and Apple with the iPod, iTunes, the iPad, and (most spectacularly) the iPhone. That prescription is, if anything, even more imperative in an increasingly volatile world.But it is also incomplete.

Disruption is less a single event than a process that plays out over time, sometimes quickly and completely, but other times slowly and incompletely. More than a century after the invention of air transport, cargo ships still crisscross the globe. More than 40 years after Southwest Airlines went public, tens of thousands of passengers fly daily with legacy carriers. A generation after the introduction of the VCR, box-office receipts are still an enormous component of film revenues. Managers must not only disrupt themselves but also consider the fate of their legacy operations, for which decades or more of profitability may lie ahead.

We propose a systematic way to chart the path and pace of disruption so that you can fashion a more complete strategic response. To determine whether a missile will hit you dead-on, graze you, or pass you altogether, you need to:

• Identify the strengths of your disrupter’s business model;
• Identify your own relative advantages;
• Evaluate the conditions that would help or hinder the disrupter from co-opting your current advantages in the future.

To guide you in determining a disrupter’s strengths, we introduce the concept of the extendable core—the aspect of its business model that allows the disrupter to maintain its performance advantage as it creeps upmarket in search of more and more customers. We then explore how a deep understanding of what jobs people want your company to do for them—and what jobs the disrupter could do better with its extendable core—will give you a clearer picture of your relative advantage. We go on to delineate the barriers a disrupter would need to overcome to undermine you in the future. This approach will enable you to see which parts of your current business are most vulnerable to disruption and—just as important—which parts you can defend.

Where Advantage Lies

What makes an innovation disruptive? As our colleague Michael Raynor suggested in his book The Innovator’s Manifesto (2011), all disruptive innovations stem from technological or business model advantages that can scale as disruptive businesses move upmarket in search of more-demanding customers. These advantages are what enable the extendable core; they differentiate disruption from mere price competition.To understand this important distinction, consider Raynor’s example of simple price competition in the hotel industry: A Holiday Inn provides a bed for the night for less (and in less luxury) than does the Four Seasons down the street. For the economy hotel chain to appeal to Four Seasons customers, it would have to invest in internal improvements, prime real estate, and an expensive service staff. Doing so would force it to adopt the same cost structure as the Four Seasons, so it would have to charge its customers similarly.

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To read the complete article, please click here.

Maxwell Wessel is a fellow at the Forum for Growth and Innovation and a senior researcher at Harvard Business School. Clayton M. Christensen is the Kim B. Clark Professor of Business Administration at HBS.

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