Posts tagged #innovation

The failed promise of disruption

Elizabeth Holmes @ Tech Crunch Disrupt Conference

Elizabeth Holmes @ Tech Crunch Disrupt Conference

Disruption has become the rallying cry for the 21st century. Embedded in that rally cry is the notion that what’s old is bad, and what’s new is good. I’ve personally been a longtime subscriber to the disruption mantra, a true believer if you will. My generation was once described as the Oregon Trail generation, old enough to remember not having a computer in the home while growing up (let alone the internet) yet young enough to sit front row as our economy and every other facet of life was transformed by the internet. Some call this generation the Xenial generation, sitting in between Gen X and Millennials. The distinction, for me, is that people my age either opted-in or opted-out of the digital transformation that was occurring as we came of age—and I opted-in, hard.

I fully bought into the techno-optimism emanating out of silicon valley. I believed in moving fast and breaking things, I believed in Facebook’s mission to make the world more open and connected, I believed in the sincerity of Google’s don’t be evil motto. I believed all these things because I had personally experienced the transformational power of their promise. I went from a poor black kid from a dead industrial city to someone working professionally and doing very well for themselves (by my humble standards) working at the forefront of the digital transformation promised by disruption. Disruption is good.

What exactly is disruption?

Disruption has become such a strong rally cry because it’s such a visceral word; it evokes a level of boldness and fearlessness—it makes you want to throw your fist in the air and take down the man. We celebrate when Uber disrupts the price-gouging and lack of availability facilitated by the artificial scarcity of the traditional taxi industry. We cheer as oppressed people organize and overthrow authoritarian regimes in the Arab Spring. This is the pinnacle of what disruption means... right? Well, sort of.

Disruption shouldn’t be confused with Disruption Theory, a small semantic difference with an important distinction. Disruption Theory was coined by Harvard Business School professor Clayton Christensen. The best way to understand Disruption Theory is to reference concrete examples. Let’s use Ford as an example: When a new technology is coming to market, the building blocks for success usually don’t exist. To make the Model T the mass market success that it ended up becoming, Henry Ford had to build the factory that made the chassis, the engine, the tires, everything. Not only did those elements need to be build, but so did the power plant that powered all these factories, and so did the town that housed all the workers. Each of these building blocks came together to ultimately churn out all these Model Ts. These building blocks are called the value chain, each component building on top each other and making the whole more valuable than any single piece. Ford became so successful because he combined all the necessary components under a single company, he vertically integrated all the building blocks of the value chain.

Disruptive innovation, a la Disruption Theory, occurs when a market leader becomes complacent. Over time, the building blocks that originally led to winning the market become standardized and commoditized. What used to be a differentiating advantage becomes a standard practice once the technology is widely adopted. You’ve personally experienced this every time you bought the store brand over name brand, the store brand is good enough. All the components in the value chain can be pieced together from a subset of vendors in the market to create the final product. The end result? New competitors enter the market and undercut the leader by selling a good enough substitute. Eventually good enough turns into better and cheaper.

Where did disruption go wrong?

The industrialization of our society and economy in the 20th century, especially post World War II, lead to the greatest increase in quality of life in all of human history. If you don’t believe me, an excellent telling of how true this statement is is cataloged in Factfulness: Ten Reasons We're Wrong About the World—and Why Things Are Better Than You Think. Hans Rosling, with the help of his children Ola Rosling and Anna Rosling Rönnlund, meticulously document all the ways the human condition has improved, especially post WWII. They present a very compelling case for the continuous improvement of our society; if it can be measured, they demonstrate that it has improved and much of that improvement can be explained by Disruption Theory. Disruption wins, check and mate.

Not so fast.

Ben Thompson wrote one of the best critique’s of Disruption Theory back in 2013, from his article What Clayton Christensen Got Wrong(emphasis mine):

Christensen’s theory is based on examples drawn from buying decisions made by businesses, not consumers. The reason this matters is that the theory of low-end disruption presumes:

  • Buyers are rational

  • Every attribute that matters can be documented and measured

  • Modular providers can become “good enough” on all the attributes that matter to the buyers

All three of the assumptions fail in the consumer market, and this, ultimately, is why Christensen’s theory fails as well.

Thompson goes on to describe why the iPhone doesn’t fit the theory. In short, consumers are people and people have emotions and desires that defy rationality. The user experience of a technology can’t be easily measured; it’s not something you count, it’s something you feel. The entire piece is worth a read for a deeper understanding of Disruption Theory and it’s shortcomings as an explanatory approach to tech analysis.

For our purposes, the most critical aspect of this analysis requires a deeper look at the desire to quantify every conceivable aspect of our lives. There is a famous quote often attributed to management consultant W.E. Deming—“If you can’t measure it, you can’t manage it.”

The actual quote?

It is wrong to suppose that if you can’t measure it, you can’t manage it – a costly myth.

Further, he states:

You can only measure 3 percent of what matters.”

The 3 percent figure is obviously arbitrary, but it effectively communicates that the most important things in life can’t be measured. If we go with that rough estimate of 3 percent, then what’s embedded in the other 97 percent? The short answer is complexity, complexity beyond our ability to understand.

Our brains lack the necessary processing power to make sense of how complex our world is, so we sort of give up and look to theories to explain all that complexity. We get in trouble when we stop treating these explanatory tools as theory and start treating them as articles of faith. It is a utopian article of faith to believe that making the world more open and connected would lead to a new global democratic order built on community and transparency; instead, what we actually got was a vast polarization of society, retreating into filter bubbles and leading to autocrats gaining power at home and abroad, the largest expansion of the surveillance state in history, a modern day feudal system enabled by the gig economy, and a failure of our institutions leading many to crowd source their survival.

It’s time to stop praying at the alter of disruption

Don’t get me wrong, Disruption Theory offers extraordinary utility when looking for opportunities to improve the human condition. But we need to take disruption off its pedestal. Disruption for the sake of disruption is value destroying, not value creating. We need to set our sights on the future with a humanistic lens, recognize that our efforts will have unforeseen negative consequences, and not take mental shortcuts by believing in utopian theories that happen to validate myopic thinking.

Posted on January 28, 2019 .