Clayton Christensen: "Where does Growth come from?" | "The Capitalist's Dilemma"

I first came to know about professor Clayton Christensen in 2015 from a list books that were recommended by renowned Silicon Valley CEOs including Steve Jobs and former New York Mayor Michael Bloomberg - two of these books were authored or co-authored by professor Clayton Christensen: "How Will You Measure Your Life?" and "The Innovator's Dilemma".

Since then, I have followed the news, Youtube video records and academic papers of Professor Clayton Christensen closely. What I admire Professor Clayton Christensen the most is that he is a humble scholar who upholds the value of humanity in his academic work and is always willing to adapt his theory based on the latest findings and discussions. E.g., He is now perceiving Uber as Disruptive Innovation business model in which he has made the opposite conclusion in his paper that was published in 2015.

The conclusion made by Professor Clayton Christensen in the mentioned paper:-

Let’s consider Uber, the much-feted transportation company whose mobile application connects consumers who need rides with drivers who are willing to provide them. Founded in 2009, the company has enjoyed fantastic growth (it operates in hundreds of cities in 60 countries and is still expanding). It has reported tremendous financial success (the most recent funding round implies an enterprise value in the vicinity of $50 billion). And it has spawned a slew of imitators (other start-ups are trying to emulate its “market-making” business model). Uber is clearly transforming the taxi business in the United States. But is it disrupting the taxi business? According to the theory, the answer is no. Uber’s financial and strategic achievements do not qualify the company as genuinely disruptive—although the company is almost always described that way. Here are two reasons why the label doesn’t fit. 1) Disruptive innovations originate in low-end or new-market footholds. 2) Disruptive innovations don’t catch on with mainstream customers until quality catches up to their standards Source: https://hbr.org/2015/12/what-is-disruptive-innovation

 Quote by Professor Clayton Christensen during his interview with Forbes:-

Adams: You’ve said Uber is not a disruptive company. Have you changed your mind? Christensen: I’ve changed some ideas as I’ve learned more. Uber came in not at the low end of the market, where disruption usually comes from, but with a price that was competitive or even higher than taxis. But it had a business model that was almost impossible for taxis to respond to. Taxis have fixed costs and it’s an asset intensive business. They own the taxis and the medallions. They have to have taxis on the road 24/7 in order to get the return they need to be profitable. Uber comes in with a very different business model. They actually don’t have assets because they don’t own the cars and they don’t need medallions. Taxis can’t adopt the Uber model. Uber helped me realize that it isn’t that being at the bottom of the market is the causal mechanism, but that it’s correlated with a business model that is unattractive to its competitor. So yes, it is disruptive. That doesn’t necessarily guarantee Uber’s success but it helps us see why taxis can’t go up against them. Source: https://www.forbes.com/sites/forbestreptalks/2016/10/03/clayton-christensen-on-what-he-got-wrong-about-disruptive-innovation/2/#6dd9ddb15cdf

Glossary

• Disruptive Innovation/Market-creating Innovation/Empowering Innovation: The type of new product/service where the new entrants normally start from the low end of market (and being ignored by the incumbents due to its insignificant market share and profit margin) and slowly move up the value chain and finally replace the incumbents.
• Sustaining Innovation/Performance-improving Innovation: The innovation with the aim to improve the quality and feature of the current product offering. The typical example is the renewal/replacement of the existing product model with the upgraded version.
• Efficiency Innovation: The innovation that tries to do more with less in "manufacturing" the product offering.

Reference:

(1) https://hbr.org/2014/06/the-capitalists-dilemma
(2) https://www.forbes.com/sites/stevedenning/2015/12/02/fresh-insights-from-clayton-christensen-on-disruptive-innovation/#374cd21e4702
(3) https://hbr.org/2015/12/what-is-disruptive-innovation
(4) http://www.aei.org/publication/innovation-economic-growth-and-corporate-short-termism-a-qa-with-business-guru-clayton-christensen/
(5) https://hbr.org/2012/12/surviving-disruption
(6) https://harvardmagazine.com/2014/07/disruptive-genius