Disruptive innovation discredited? A personal assessment of the discussion.

The question posed by John Naughton in the Guardian is:

Clayton M Christensen’s theory of ‘disruption’ has been debunked. Can we all move on now, please?

He refers to a contribution of Jill Lepore in The New Yorker, titled The Disruption Machine. In both articles, the theory of disruption is attacked at three levels:

  • a historical level: starting with the initial meaning of the word innovation, a discussion whether “creative destruction”  equals “destructive innovation”, and some relationship between ‘the age of terror’ and the popularity of destructive innovation;
  • a critique of the case study method used by Christensen and others to support their theory; accordng to Naughton and Lepore the used definitions of success and innovation are crucial in the support of the theory by the cases. Another critique is the fact that if the chosen time horizon is longer, successful examples fail, whereas failling firms become succesfull in time.
  • not only in retrospective does the theory fail, accourding to the authors, the theory also fails to provide reliable predictions. Some investment fund of Christensen did not live up to expectations, several cases are described, in which the theory did not provide the right predictions.

Of course both Christensen (interview in Bloomberg Businessweek, June 20, 2014) as his co-author (The Innovator’s Solution) Raynor (Of waves and ripples: Disruption theory’s newest critic tries to make a splash, Deloitte University Press) did react to these critical remarks.Christensen is quoted by Drake Bennet to have said:

And then in a stunning reversal, she starts instead to try to discredit Clay Christensen, in a really mean way. And mean is fine, but in order to discredit me, Jill had to break all of the rules of scholarship that she accused me of breaking—in just egregious ways, truly egregious ways. In fact, every one—every one—of those points that she attempted to make [about The Innovator’s Dilemma] has been addressed in a subsequent book or article. Every one! And if she was truly a scholar as she pretends, she would have read [those]. I hope you can understand why I am mad that a woman of her stature could perform such a criminal act of dishonesty—at Harvard, of all places.

Raynor uses a 13-pages paper to react. If we leave the historical and semantic discussions aside, the major defense is on the case study method used. Both Raynor and Christensen point out that positions shift over time, so the different cases selected by Lepore and Naughton have to be understood in their specific market position at that point in time; providing new case studies. Also, the predictive value of the theory is a question of timing and good interpretation.

For example Christensen says:

Just so you understand, disruption doesn’t happen overnight. There are now six or eight traditional department stores in existence in North America. Let’s just call it less than 10. And Walmart is quite a large company. Target is quite a big company. So has disruption been at work in the retailing industry? It’s a question. Macy’s still exists. So—Jill, tell me, what’s the truth? If you could just be Jill’s answer for me.

Raynor also takes the Kmart example, stating:

To claim that Kmart was not a successful disruptor because it is no longer a disruptor is like claiming Carl Lewis was not a champion sprinter because he is not now a champion sprinter.

From: http://search.dilbert.com/comic/Disruptive%20Innovation

With respect to the falsifiability of the theory, Raynor points out that several cases indeed follow the theory:

Case studies are extraordinarily useful when developing theory and limning a theory’s limits. Case studies establish a theory’s descriptive validity (there is such a thing as a disruptive path to success) and its explanatory power (here is why it works). Case studies cannot test a theory’s predictive power when a theory makes probabilistic predictions. That requires a statistically valid test of a theory’s accuracy on a population. Complaining that Christensen has not proved the predictive power of disruption based on case studies is to miss this critical distinction between two completely different methods, each attuned to a very different need.

Therefore, I would like to rephrase the question with which we started this blog:

Is there a general theory of business economics?

Much of the discussion above centers on the validity of the case study method and the generalization of the theory of destructive innovation. If I may take two (handpicked, quoting Lepore) examples:

  1. Retailers, quality and price fighters.

In line with the examples given by Christensen and Raynor, several stages can be distinguished in the development of shops: Until 1948 small specialized shops dominated the market. More general oriented shops took over the market for retailers, but from the 1960’s on the large chains of supermarkets controlled the market. In the 1990’s two price fighters entered the supermarket segment. Lowering services and prices they captured a stable part of the market. The existing supermarkets tried to introduce so-called ‘own brands’ and C-brand products, but were hindered by the large overheads and fixed costs to really compete in the lower parts of the market.

Now, twenty years later, the former price fighters move upmarket offering A-branch products and specialized products. Other price fighters are competing at the low price part of the retail market.

Some conclusions, which are consistent with the theory of disruptive innovation:

–          Established firms have difficulty with combining different business models within one organization (cq shop);

–          Established price fighters move upwards in the market, imitating the old firms;

–          New disruptive firms will emerge and the old disruptive firms will have the same difficulties to compete as the firms they pushed upwards in the market.

 2. Airlines: KLM, Transavia and Ryanair.

Last week KLM had to warn the shareholders that the expected profits of KLM and Transavia have to be adjusted downwards. Transavia, is a Dutch based low-cost airline operating as an independent part of the Air France-KLM group, bought in 1991 as answer to the treat of the disruptive treat of pricefighters as Ryanair and Easyjet.

At the same time rumors indicated that Airbus, after Ryanair’s proposal to have passengers on short flights standing up, was developing new chairs doubling the capacity of the airplanes.

 

 

With this example, we illustrate two mechanisms from the theory of disruptive innovation:

–          It is not easy to find a way for established firms to copy and counter the business strategy of the disrupting entrant.

–          That disrupting firms can evolve and keep disrupting the market, contraire to the theory of Christensen and Raynor.

The two examples can be criticized of being “handpicked” and being too shallow to describe the full complexity of the cases; both true!

Yet the point we want to make is exactly that: in different situations, different components of the theory are supported. Instead of quarreling over the historical interpretation of the word innovation, what is the truth or if IBM still makes a profit or not, other questions should be asked, for example:

1. Which kind of innovations are there and what are their relative importance in survival of firms?

2. Why do we see different trends and reactions in different case studies: what are critical success factors for entrants and established firms?

3. What is the effect on social welfare of a successful disruptive innovation? Should we try to increase the speed of these kind of innovation, or try to stop it?

 

Lastly, a critique on the way which Lepore tries to protect education and health care from Christensen disruptive innovation. Disruptive innovation cannot play a part in these sectors, according to Lepore, because:

Doctors have obligations to their patients, teachers to their students, pastors to their congregations, curators to the public, and journalists to their readers—obligations that lie outside the realm of earnings, and are fundamentally different from the obligations that a business executive has to employees, partners, and investors. Historically, institutions like museums, hospitals, schools, and universities have been supported by patronage, donations made by individuals or funding from church or state. The press has generally supported itself by charging subscribers and selling advertising. (Underwriting by corporations and foundations is a funding source of more recent vintage.) Charging for admission, membership, subscriptions and, for some, earning profits are similarities these institutions have with businesses. Still, that doesn’t make them industries, which turn things into commodities and sell them for gain.

She totally misses the point of the application of business economics to these sectors. Readers leave the traditional media, turning to the free information available on the internet, students turn to Moocs, discussion groups and peer pages to find the information they need to learn, patients lookup success-ratios of doctors, choosing the best. Governments have financial difficulties, making choses about what to finance, people and institutions which donate are becoming more critical. Right or wrong, the customization of society is increased by the possibilities of the internet and social media.

Doctors, teachers, journalists and perhaps even priests have to take the preferences of their public into account. Of course, people are still restricted by their budgets, by their social class, by their networks, like before; but loyalty has declined and partly replaced by economic trade-offs.

This makes strategic analyses of the offering of an institution versus the wishes of the purchaser even more important.

Education, let’s blow it to bits or put it back? 2

A short update on Education, let’s blow it to bits or put it back? 

In February I discussed a tendency I predicted, based on the theoretical unbundling of education in educational resources (open or not), Moocs as resources and educational services which could be offered. I wrote:

Mulder goes one step further, in dividing the educational process in different stages and services. He concentrates on the division between content, which should be offered as open educational resources, and services as tutoring and grading, which should form the base of organizational income.

The economic theory of this is already older. The idea that the internet will reduce firms to their core-competences and products and services will be produced by networks of specialist, each working at the lowest prices and offering the highest quality has been presented in the 1999-book Blown to Bits of Philip Evans and Thomas S. Wurster. (not 2008 book Blown to Bits: Your Life, Liberty, and Happiness After the Digital Explosion by Harry Lewis, Ken Ledeen and Hal Abelson).

Between firms and the customers will be place for intermediaries, firms giving information on the availability, the price/quality of the products and other information. Between firms, there is room for intermediaries, which only role is to bring components together, matching the demand in the market.

I ignored the last players in my blog, wrongly I must admit.

In a nice blog, Micheal Horn, did write about Unbundling and Re-bundling in Higher Education (Forbes, 7/10/2014).

He argues that online learning is a disruptive innovation and sees unbundling as a ‘likely’ tendency: “we are seeing the beginning of unbundling in courses, content, credentialing, campus life and personal growth, and more”.

However, he points out that because of the unbundling, there will also be a new trend for bundling: “there will exist a need for subcomponents that bundle things together like coaching, mentoring, communities, personal learning plans, and employer connections, as these areas are critical for student success”.

In the same line that Evans and Wurster used Dell as example for the firms responsible for putting the final product together, Horn takes Dell as the example of integrating different parts of education together.

This will result in the creation of intermediate firms offering support by selecting the best courses, the best communities or a consistency within the different parts of education someone has had.

However, in recent years we observe that the movement of firms towards their specialized core-competences is countered by the idea that firms have outsourced too much. Human resource management or account and control may initially not be seen as core competences, but when the distance between the core activities and the outsourced  HRM-department or accounting-department become too large, they lose their use as strategic instruments.

Unbundling of education can result in the loss of consistency between components of a chosen program; of frictional costs (for example a accumulation of registration fees), overlap of content and problems with the acceptance of degrees by employers.

As in the strategic paradoxes, bundling and unbundling will be a trade-off between efficiency and effectiveness; a paradox not easily solved!

The Crowd and Open Education: resilience and sustainability

Updated July 21 2014

 Update:

A relevant quotation I found in my notes:

Paul Stacey

Crowd learning

Crowd learning describes the process of learning from the expertise and opinions of others, shared through online social spaces, websites, and activities. Such learning is often informal and spontaneous, and may not be recognised by the participants as a learning activity. In this model virtually anybody can be a teacher or source of knowledge, learning occurs flexibly and sporadically, can be driven by chance or specific goals, and always has direct contextual relevance to the learner. It places responsibility on individual learners to find a path through sources of knowledge and to manage the objectives of their learning. Crowd learning encourages people to be active in setting personal objectives, seeking resources, and recording achievements. It can also develop the skills needed for lifelong learning, such as self-motivation and reflection on performance. The challenge is to provide learners with ways to manage their learning and offer valuable contributions to others.

 

Deloitte University Press published an infographic on crowdsourcing. Crowdsourcing is defined as “an approach to harnessing the power of individuals to work to solve problems in a decentralized way”.

They distinguish five different kinds of crowd sourcing, using the crowd’s creativity and knowledge (competition, collaboration and voting), its funds (funding) or its labour power (labor). According to the writers, Rob Hamill, Emily Malina and Elizabeth Pal, each form of crowd sourcing is applicable in certain situations and will be contra-productive in other situations.

The table below gives an overview of the different ways of crowd sourcing, the video has some funny examples, starting with 1714 as start of one of the first crowd sourcing projects.

 

Form Pro Contra
Crowd CompetitionCrowd competition refers to the hosting of contests in which participants work individually or in groups to come up with a solution to a given problem. The outputs may include many viable ideas or solutions.
  • creating actional solutions
  • developing prototypes
  • Generating outside ideas
  • predetermined desired outcomes
  • lack of resources to review submissions
  • building community
Crowd Collaboration
Crowd collaboration requests the input of decentralized individuals to develop, aggregate, and share knowledge and information across a pool of contributors, generally through a loosely controlled web-based platform. The typical outputs of a crowd collaboration effort are collective concepts with shared buy-in.
  • building and sharing knowledge
  • responding to emergencies
  • shared policies
  • User anonymity
  • Small and inactive crowds
  • Promoting individuality
Crowd Voting
Crowd voting is the process of turning to the crowd to reach a decision. This practice typically involves inviting participants to help make a decision based on pre-defined options.
  • Decision making
  • Rating and ranking
  • Quality assurance
  • Strategic decision making
  • Political sensitive issues
Crowd FundingCrowd funding is the process of funding projects through small contributions from a large group of participants. Crowdfunding activities are typically hosted through web-based platforms.
  • Fundraising
  • Disaster relief
  • Start-ups
  • High transparency

 

  • Ongoing operations
  • Loosely structured initiatives
  • High short term expectations on returns
Crowd Labor
Crowd labor refers to the engagement of a distributed labor pool to accelerate the completion of large-scale projects by splitting up a task into components that require little creativity or coordination but that cannot be automated.
  • Creating actionable solutions
  • Data entry and validation
  • Translation (eg language)
  • Digital archiving
  • Unstructured tasks
  • Subjective tasks
  • High-level thinking

As I argued before, the sustainability (or resilience to use a new buzz word) of business models for Open Education will depend on the inclination of people and institutions to cooperate either on the input/production side as on the user/learner/consumer side of the business model. As crowd sourcing is a form of this kind of collaboration, it could generate knowledge on the the potential success factors by reversing this table and apply the pro’s and contra’s to different systems of Open Education.

Crow Labor is one of the most used forms of Crowd Sourcing in the development of Open Educational Resources. Organisations as the Saylor.org, Merlot.org rely heavily on materials of others. However, this kind of free labour has also some aspects of Crowd Collaboration because it is not necessarily about projects which “require little creativity or coordination”.

Crowd Competition is seen in situations in which organisations as the EU, Hewlett foundation or the American government ask for proposals which will be subsidized. On an individual level, these calls will be passed on towards teachers and other educational developers to come up with the creative solutions to win the funds.

It can also be used as an instrument to start-up a new data-base or website on educational resources and programs. By setting a suitable reward, the system can generate a certain minimal critical mass, above which it will be interesting for other partners to participate.

Crowd Voting is often used to give an indication of the quality of the resources or programs. For a ranking to be functioning, there have to be enough votes and the voting public has to be something of an “in-crowd” of experts.

The remaining form of Crowd Sourcing is the financial form, Crowd Funding. According to the authors, this instrument is unsuitable for ongoing operations and loosely structured initiatives. Yet, I have the impression that several non-commercial projects depend on one large fixed subsidizer and a fringe of minor short-term donors.

Concluding, the examples of Open Educational Resources and Open Education show that the forms of Crowd Sourcing as described by Hamill, Malina and Pal is not complete; there are other situations which can only partially described by this taxonomy. Especially the voluntary participation in high-knowledge projects does not fit either the Crowd Collaboration nor the Crowd Labor definitions.

Still, the research in Crowd Sourcing should generate a further understanding of these kinds of collaboration: the free contribution and exchange of educational materials between individuals and organisations. A better understanding of these phenomena will enhance the changes of success of the Open Education movement.