What’s Missing in the Great Disruption Debate

HagelHere is a brief article by John Hagel featured by LinkedIn Pulse. To read the complete article and check out others, please click here.

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I admit that I’m mystified by Jill Lepore’s article in The New Yorker attacking Clayton Christensen and his theory of disruptive innovation. Not only does it have a meanness that isn’t warranted, but it leaves the reader with an unanswered question: if Clay’s theories are not helpful (and I still believe they are), how do we explain the cascading disruptions that are playing out in markets and industries around the world?

Some of the commentators may be right: perhaps this article is better read as the most recent manifestation of the cultural conflict between the humanities-driven East and the technology-driven West. The irony here is that the conflict is specifically between two professors at Harvard University – one based on the east coast of the Charles River and the other based on the west coast of the Charles River.

Clay Christensen has offered a rebuttal of sorts in an interview here. He does a good job of responding to some of the specific factual issues in his case studies highlighted by Jill Lepore and emphasizes that he continues to evolve his theory of disruptive innovation based on new research. But perhaps his best question is why she didn’t simply call him up or walk down the street to visit him before writing the attack to see if he might be able to clarify his position and his fact base.

I want to step back and use this controversy to underscore some key points that have been largely ignored in the recent discussion.

The systemic rise of disruption

First, while Jill Lepore might have issues with Clay’s specific theory and some of his case studies, she seems unwilling to acknowledge one basic fact of life: disruption is occurring with increasing frequency in the business world. Whether it is good or bad, it is happening and becoming increasingly widespread.

For the purpose of this posting, let me define disruption simply as the sudden demise of leaders or incumbents in particular markets or arenas. This demise is typically brought about by one or more players adopting a different approach to a market or arena that represents a significant challenge to the established position of existing participants. Disruptions turn the assets of incumbents into potentially life-threatening liabilities.

We all know the iconic cases of disruption casualties, including such large and well-known leaders as Kodak, Borders, Digital Equipment Corporation. But those are just the tip of the iceberg. There’s mounting evidence that disruption is spreading.

One of the issues with a case study approach is that it obscures the more fundamental and systemic trends and patterns that are playing out around us. When we pull back from individual stories and scan the world around us, it becomes clear that something very profound is happening – and it’s largely escaped notice.

One of the metrics in our Shift Index looks at what economists call topple rate – the rate at which leaders fall out of their leadership position. In this case, we focused on the rate at which public US companies in the top quartile of return on assets performance fall out of this leadership position. Between 1965 and 2012, the topple rate increased by 40%.

OK, but the skeptic might reply that this is only about financial performance. Another more significant measure of fall from leadership position is provided by my old colleague and mentor, Dick Foster, who looked at the average lifespan of companies on the S&P 500. In 1937, at the height of the Great Depression and certainly a time of great turmoil, a company on the S&P 500 had an average lifespan of 75 years. By 2011, that lifespan had dropped to 18 years – a decline in lifespan of almost 75%. At the same time that humans are significantly increasing their lifespan, large companies have been heading rapidly in the opposite direction.

So, the bottom line is that leaders are toppling with much greater frequency. Sure, some of that toppling may be the result of incompetence or mistakes made by senior management but, to explain away these trends, one would have to believe that management is becoming significantly more incompetent over time.

It’s also clear that some of the toppling is the result of the natural process of market competition. As Joseph Schumpeter famously observed, markets are a powerful engine for “creative destruction” – they invite competitors with a better idea or a better approach to come in and challenge incumbents. It happens all the time. But the key question on the table from this more systemic view of disruption is: why is it increasing so dramatically over a long period of decades?

This is where I found Jill Lepore’s essay most wanting. It’s easy to criticize an existing theory, but even assuming that this one doesn’t work (which I don’t), what’s the alternative? What’s going on? Jill Lepore certainly doesn’t venture an alternative theory and she clearly believes that the phenomenon of disruption is far too over-hyped. Without rushing to the defense of the disruption evangelists, I would suggest that she should have done more to at least acknowledge there is a disturbing trend here that needs to be explained. One gets the distinct impression that she believes that disruption is not all that significant.

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Here’s a link to the complete article, originally featured at John’s Edge Perspectives blog.

To learn more about John and his work, please click here.

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