MIT Technology Review have released their 50 most disruptive companies 2013.
Of the 50 companies, a significant 31 companies are new to the list. The few that have held on include the likes of Apple, ARM Holdings, Google, IBM and Intel, etc . But what is more interesting is 52% are privately held companies and 48% are public owned companies, that is a pretty even spread.
The term “Disruptive” refers to an innovation that creates a ‘new market and value network, and eventually goes on to disrupt an existing market and value network (over a few years or decades), displacing an earlier technology’.
The term “Disruptive Technology” was coined by a Harvard Business School “HBS” professor Clayton Christensen. It was first introduced in an Article (copy) which he co-wrote with Joseph Bower (another HBS professor) in 1995. The term was then further explored in Clayton Christensen’s book “The Innovators Dilemma” in 1997. Christensen puts new technology in two categories: sustaining and disruptive. Sustaining technology “relies on incremental improvements to an already established technology”. Whereas disruptive technology “lacks refinement, often has performance problems because it is new, appeals to a limited audience, and may not yet have a proven practical application”.
Christensen’s idea is that large corporations are designed to work with sustaining technologies. They excel at knowing their market, staying close to their customers, and having a mechanism in place to develop existing technology. Conversely, they have trouble capitalizing on the potential efficiencies, cost-savings, or new marketing opportunities created by low-margin disruptive technologies. Using real-world examples to illustrate his point, Christensen demonstrates how it is not unusual for a big corporation to dismiss the value of a disruptive technology because it does not reinforce current company goals, only to be blindsided as the technology matures, gains a larger audience and marketshare and threatens the status quo.* This is where the marketing concept “focus on the customer” can be a counterproductive strategy in a tight profit margin and small growth rate market.
The concept of disruptive technology can be broadly applied to different scenarios and industries, but most clear distinction is with the following example: the Ford Model T. In this case, the Ford Model T is not the disruptive technology, it’s the mass manufacturing method. It led way to the first automobile to be mass produced and the first automobile the middle class of America could afford to buy. The Ford Model T created one of the biggest ramifications known to modern day, mass-produced automobiles.
Going back to my first point about the 50/50 spread of public vs. private companies featured in the article, I agree that privately held companies will out innovate publicly-held companies. This is primarily due to the management of publicly-held companies, they may not take the financial risks that big leaps in technology innovation requires (idea of Shareholders, etc). Unfortunately, this lack of courage on the part of management will generate the type of financial gains experienced by publicly-held companies, as the large volume of low margin products will generate sales in the type of market we have today. One could go further by assessing how Government funded companies (R&D) fair in a disruptive environment, since they tend to be less profit orientated.
Disclosure: most information in article is sourced from Google searches of “disruptive technology” and “disruptive innovation”. Citing has been done to the best of my knowledge.