In the newest entry to his Innovation on Purpose blog, Jeffrey Phillips discusses an article in Portfolio magazine by former Intel CEO Andy Grove. There, he talks about what he calls Cross Boundary Disruptions. These are disruptive innovations introduced by large companies in new markets. The example quoted is Apple’s introduction of the iPod and iTunes online music store, which has severely disrupted the music business (and increased Apple’s profits from $57 million to about $2 billion in the process.)
As Grove points out, this is a different kind of disruption to that described by Christensen (for example in his book The Innovators Dilemma). For Christensen, disruptive innovations have a comparatively low functionality at a lower price. These might be called low-end disruptive innovations (LEDIs), to contrast with the large-scale, extra- functionality type of innovation such as iTunes (which might be referred to as a high-end disruptive innovation (HEDIs).)
Christensen states that disruptive innovations are almost always introduced by startups, since these are not burdened by the baggage that the established companies have to carry. In the second book in the series (The Innovators Solution), Christensen provides a model for describing this baggage, which he calls the RPV model.
RPV refers to the resources, processes and values of a company which need to be analysed to determine the company’s ability to perform a disruptive innovation. Whilst a large, established company might well have the financial resources for this, it could lack the management resources to do so, since its managers may only have experience working within the established processes of a large corporation. The processes themselves will generally not be conducive to LEDIs, since they are designed to be optimal for established products in known markets. Similarly, the value network of an established company will make it difficult to consider a disruption in its own market, since it will meet resistance both from within as well as from customers and suppliers. Furthermore, the low sales and margins to be expected from a LEDI are inconsistent with the typical expectations of a large company.
The case is, however, much more favourable for HEDIs, since resources, values and processes are better aligned to deal with them. In particular, the values are more in line: the company is entering a new market, so it is not hampered by existing partners who stand to lose by the disruptive innovation, and the financial goals are similar in size to those that a large company needs.
Christensen’s theory provides a useful tool for analysing prospective disruptions and determining the steps to be taken to enable them. As many well-documented failures have shown, ignoring core issues such as are described in the RPV model can prove fatal to the success of an innovation.
On a final note, it is interesting to consider what high-end disruptive innovations might be successful, for example:
- Amazon (or some other well-established online marketplace) selling prescription and non-prescription medication,
- Shell (or another large oil company) buying up and farming large areas of agricultural land for growing biofuels,
- Auctioning of loans, insurance policies and other private financial products on eBay.