Clayton Christensen, the author of the 1997 classic The Innovator’s Dilemma, is said to have coined the term “disruptive innovation.” He defined this as “a process whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses.”
The Dilemma is that, while the incumbents may be perfectly well aware of new and innovative technologies or business models, they can’t or won’t commit to them, because they have to focus on serving their existing customers. Meanwhile, the disrupter finds an “overlooked segment,” a market that the incumbents aren’t serving, or have given up on. For example…oh let’s say…electric cars in 2003.
James K. Glassman, writing in Kiplinger, sees the Innovator’s Dilemma playing out today, with Ford, GM and their pals as the stodgy incumbents, and Tesla as the epitome of a disrupter. “An upstart called Tesla fits the Christensen model,” Glassman writes. “The company was launched in 2003, released its first plug-in electric car five years later, and went public two years after that.” In 2015, when Christensen’s iconic article on disruptive innovation appeared in the Harvard Business Review, Tesla had two models and sold 50,000 cars. It’s now the world’s most valuable automaker, and hopes to sell 800,000 units this year.
The Dinosaurs of Detroit are not idly watching as the small furry mammals purloin their lunches (they’ve read Christensen’s book too). Ford, GM and VW have all embarked on ambitious electrification programs, and even die-hard disruption deniers like Fiat and Toyota are now hopping on the electric bandwagon. Many are predicting that, once the next wave of EVs from the legacy brands arrives, Tesla will start to lose market share. Others believe that Tesla’s technological head start (at least five years, by all accounts) will enable it to maintain a competitive advantage.
The Innovator’s Dilemma has played out many times, but it doesn’t always end the same way. Sometimes incumbents get disrupted right out of business and into textbook-example immortality (Kodak, Blockbuster); sometimes they weather the storm and carve out sustainable, if unglamorous niches in the new order (IBM, Microsoft); and sometimes they reinvent themselves and out-innovate the innovators (Apple, Marvel).
The disruptors don’t always live happily ever after. Some get disrupted in their turn by a newer wave of innovators (Yahoo, Netscape, MySpace); some sell out to The Man, like the developers of all those software utilities that are now part of Windows or iOS (or the EV charging companies that have been bought up by Big Oil?). For some, it turns out their innovation wasn’t so disruptive after all, and they wither (Better Place, and maybe now Lordstown?).
However the saga of Tesla works out in the long term, the Californian innovation factory has already assured itself a role as a classic disruptor in the business textbooks.