Creating New Growth Through
Disruptive Innovation
Rory McDonald
Harvard Business School
Lessons from Business History
Across diverse industries, leading companies failed
to stay atop their markets
Common explanations
Managerial incompetence
Technological complexity
(Source: Christensen & Raynor, 2003)
7%
12%
18% S
tee
l Q
ua
lity
1980 1975 1985 1990
25–30%
1995
Disruptive Innovation (1)
Pace of technological progress outstrips markets’
demand for higher-performing technologies
Firms can over-serve the market by producing more
advanced, feature-rich products than customers
need—leaving a gap at lower tiers of the market
Disruptive Innovation (2)
Sustaining innovations: improve products and
services along dimensions of performance that
mainstream customers care about
Disruptive innovations: are initially inferior on the
historic performance dimensions, but offer a novel
mix of attributes that appeal to fringe customers
Disruptive Innovation (3)
Existing customers and established profit models
constrain firms’ investments in new innovations
Incumbents are typically not motivated to pursue
disruptive innovations that promise lower margins
and target smaller markets
Pe
rfo
rma
nc
e
Time
Disruptive
innovations
Incumbents nearly always win
Entrants nearly always win
Disruptive Innovation Model
(Source: Christensen, Raynor, McDonald 2015)
Types of Disruptions
Low-end disruptions come in at the bottom of the
market and take hold within an existing value network
before moving up-market and attacking incumbents
Incumbents retreat
Types of Disruptions
New market disruptions take hold in a completely
new value network and they compete against
non-consumption
Incumbents ignore
Example:
Godrej: Business group faced a shrinking share of
refrigerator market due to foreign appliance makers
Decision:
1. Aggressively compete in conventional market
2. Innovation aimed at unserved customer segment
Built a low-cost refrigerator for bottom-of-the-market
“Instead of competing with global powerhouses for the
15% of the market that purchased refrigerators, Godrej
decided to go for the 85% that did not.”
Example:
Looked at drivers of non-consumption—an important
but unsatisfied problem consumers couldn’t address
Rural Indian households couldn’t store food, so they had
to buy daily (time consuming, expensive)
Intermittent electricity (rules out normal refrigerator)
Godrej developed a “good enough” solution:
chotuKool portable fridge, which had a low price,
operated on battery power, and used post offices as a
sales channel / new distribution chain
Example:
Won five global innovation awards
At $69, chotuKool was 1/3 the price of Godrej's least
expensive refrigerator
Result of a unique innovation strategy guided by new
market disruption
Video Game Industry
(Source: Anthony, 2008)
Health Care
Accounting Services
Word Processing
Looking into the future
Looking into the future
Finance
Looking into the future
Software-based financial advisor
New market disruption serving those who can’t afford the
high minimums of traditional financial advisors
Appeals to fringe customers
Looking into the future
Hospitality
Looking into the future
Sharing service that allows people to rent out lodging
Started out offering short-term living quarters for people
who couldn’t afford a hotel (or couldn’t book one)
Now has 2M listings in 192 countries
Looking into the future
Higher Education
Looking into the future
“Elite business schools still look like a fair deal. Few expect
the luster of an MBA from Harvard, Wharton, or Stanford to
fade…Schools with names that send a less sexy signal,
though, may be in trouble.”
“Is time running out for business schools that aren’t quite elite?”
-The Economist (2011)
Other challenges of innovation
“Listen to your customers”
“Understand your customers”
Understand your customers
If we understand the customer, we can develop
better products
When can this get us into trouble?
An alternative approach: Jobs-to-be-done
In many industries, the products and services are
built around customer attributes and characteristics
For business customers, it is corporate demographics
(i.e. industry verticals, customer size etc.)
But what causes us to buy a product is that we have
jobs that arise in our lives that we need to get done
When customers have a job-to-be-done, they hire a
product to do it for them
An alternative approach: Jobs-to-be-done
(Source: Christensen, 2011)
Problem: Increase sales of milkshakes
Company had sophisticated demographic profiles of
the customers that bought each product
Quintessential milkshake customer
A job arises in people’s lives on occasion that
causes them to hire a milkshake from McDonald’s
What’s the job?
What time did he buy the milkshake?
What was he wearing?
Did he buy other food with it or just the milkshake?
Was he alone or with other people?
Did he eat it in the restaurant or get in the car and leave?
Findings
Half were sold before 8:30 in the morning
Customer was always alone
Only thing they bought
Always got in the car and drove off
“Think about the last time you were in the same
situation and needed to get the same job done, but
you didn’t come here to hire a milkshake. What did
you hire instead?”
(Source: Christensen, 2011)
Job
Need something to
do during a long,
boring commute
Milkshake
Viscous
Staves off hunger
Convenient
Implications
1. Competition
2. Product improvement
Implications
1. Competitors are not Burger King milkshakes
2. Must improve product on dimensions of
performance that are relevant to the job-to-be-done
Implications
3. One reason why promising technologies often fail
Don’t help customers do a job they need to get done
Implications
Before digital photography
People had the best intentions to arrange photos in
albums, but most were viewed once and put a shoebox
But most people would ask for double prints so they could
mail the best photos to a family member
Implications
When digital cameras were adopted
Consumers changed their behavior but not the
fundamental job they wanted from the photos
Still share with friends/family, but now through email
Despite all the systems for online photo albums
Dominant consumer behavior is to share via email/phone
Albums didn’t do very well – tried to perform a job that
most consumers weren’t trying to do
Example: Bolster sales of new condos
Detroit-area builder targeting downsizers
Reasonably priced condos with high-end touches
(“squeakless” floors, triple-waterproof basements, granite
counters, stainless steel appliances)
Experienced sales team available 6 days per week
Generous marketing with elegant, well-placed ads
Units got lots of traffic but few visits converted to
sales (so try adding a slew of features)
Implications
No impact but lots of speculation about reasons:
Bad weather
Underperforming salespeople
Uncertain economic climate
Holiday slowdowns
Condos’ location
Implications
New approach: For actual buyers, what job were
they hiring the condominiums to do?
What did not explain which downsizers were most
likely to buy:
Demographic or psychographic profile (no clear profile)
A definitive set of features (none tipped the decision)
All prospective buyers wanted a big living room, large 2nd
bedroom for guests, and a breakfast bar to make
entertaining easy and casual
Implications
One unexpected factor did matter: The dining
room table
“As soon as I figure out what to do with my dining room table,
then I’m free to move.”
Implications
Most were well-used and out-of-date (donate, take
to local dump)
But every birthday and holiday spent around table
Homework was spread out on it
Table more than a piece of furniture, it represented family
What was stopping buyers was not a feature the
company had failed to offer but rather crippling
anxiety that came with giving up something that
had profound meaning
Implications
Decision to buy a six-figure condo hinged on a
family member’s willingness to take custody of
clunky piece of used furniture
Implications
We’re not in “new-home construction”; we’re in the
business of “moving lives.”
1. Create extra space for dining room table
2. Ease anxiety of move
Provide moving services and two years’ worth of storage
Create a sorting room in condo development so new owners could
take their time making decisions about what to discard
Trying new things is hard
An anthropologist once visited a remote tribe. She observed
that each morning, before sunrise, members of the tribe
sacrificed a goat in order to make the sun rise. Since the tribe
was poor, the anthropologist believed that this was a wasteful
practice. As a result, the anthropologist proposed that they
should avoid sacrificing a goat for one day, to see if the sun
would nevertheless rise.
And there are many barriers to change
In response, the locals looked at her and said, gravely, “In
these matters one cannot afford to experiment.”