The other day I was talking to some University of Southern Maine folks about our budget challenges in future years and how we would deal with them, when a member of the group brought up Clayton Christenson’s work about disruptive innovation.
If you don’t know his work, you should Google him right away or check him out on Wikipedia. (Not too many years ago that last sentence would have been a deviant utterance.)
Here’s an example of what Christenson means by disruptive innovation. I call this his “Parable of the Steel,” and I’m paraphrasing his longer discussion.
Once upon a time, in the days when U.S. Steel and about four other companies made all the steel in the USA, along comes a little company that makes steel by an innovative process and starts to sell rebar, the lowest quality steel, used in stuff like cast concrete, very cheaply. Oh, says U.S. Steel, no problem. We don’t make very much money on rebar so we will let them have that market.
Then the little upstart steel company improves its new process and pretty soon it can make decent structural steel for framing buildings, and it starts selling that cheaper than what’s already on the market. So U.S. Steel says, oh, no problem, we don’t make that much money selling structural steel, so we’ll get out of that business. We’ll concentrate on shaped and molded steel for special applications; that’s where all the money is.
And then, one day — you knew this was coming — the little upstart steel company makes that specialty steel with its new process, and way cheaper, and U.S. Steel goes out of business.
That’s disruptive innovation: when a new company comes along in an established manufacturing or service business and makes something that is just good enough, it changes the whole structure of the business.
It does not have to be very good at first. It just has to be good enough so that people will start to prefer it over whatever was there before, and then it gets better. And then the old way cannot survive.
We all know about this. We have watched it happen our whole lives in one area after another, whether it’s transistor radios, automobiles, the Walkman, the personal computer, the Internet or the iPhone and all its relatives. Christenson named it, analyzed it and drew our attention to it.
So anyway, back to our conversation at USM. My interlocutor asked me, “How can USM keep all those other competitors from making our rebar?”
I love this question, because it made me think, is that the lesson that our teacher Christenson wanted U.S. Steel to learn from his parable? It’s one thing to be a spectator and quite another when your enterprise might be the next candidate for disruption.
I think what Christenson might have said is this: I was just looking for the answer to the question, how come established successful dominant companies don’t persist over the longer run? And I found the answer — disruptive innovation.
There is no way that you can stop them making your rebar. But now you know, you should pay attention. After that, you have to figure it out for yourself.
So what do I know from making steel? About as much as I just told you. But I do know something about higher education, and it’s clear to me that we are in the very midst of disruptive innovation ourselves.
Out there in the big world, other people are making our rebar. Competitors are delivering our service and our credentials, and they are doing it less expensively or more conveniently or more efficiently or with a seemingly better guarantee at the end.
And please note that in disruptive innovation, what the upstarts deliver at the beginning does not have to be as good, and their claims don’t all have to be true.
Does anybody out there remember the Japanese cars of the 1960s, when their poor quality was the subject of endless jokes? Who cared, we bought them anyway. We could afford them, they got better mileage, and they were attractive in their ratty novelty.
And then, one day, probably in the 1980s, I got my Dad to actually get into my Nissan and drive it around. This is the guy who used to think that if it wasn’t a Buick it wasn’t a car. After awhile he said, “Gee, this is nice. It’s quiet, the controls are in logical places, it’s pretty roomy …” His next car was an Acura.
Theodora J. Kalikow is president of the University of Southern Maine. She can be reached at [email protected]