Christensen’s (1997)1 observations lend themselves to being summarised within a flow diagram (see Figure – Disruptive Technology Flow Diagram) I created this as a helpful way to see business through Christensen’s eyes. This shows the cycle of actions which a business goes through as it moves through phases from the Reconstructionist phase of a start-up to the Structuralist phases of a mature company. This section describes this flow diagram:
(click the diagram below for a larger version)
Disruptive Technology / Innovation Flow Diagram
Starting at (1) New Start-up Business, the new business has identified a new idea or problem, this could have been by using the Blue Ocean Strategy, on trying to solve this problem they hit some limits of the technology that forces them to sacrifice some parameters that the mainstream customers desire.
Point (2) is the entry to the first of many cycles where the start-up tries and finds a market for their product (2), if the product does not sell and the start-up has still got funding then it tries to find another market, this is repeated until either they run out of money and fail or they start to sell the product.
This next phase of the organisation (3) is a challenging and transformational one where the company moves from the start-up phase to the mature company, this requires a different skill set and is where many start-ups fail. The start-up has to make some decisions here, does it focus just on transforming into a sustaining company (red) or does it come up with a new idea and stay in the disruptive environment (blue)? The author recommends doing both; new people will be required to put process in place and optimise the sustaining organisation and the original people who created the start-up can be slowly split off to work on the next big idea. In this way two business units have been created, one a sustaining business and another start-up, this cycle of Continuous Disruptive Innovation can be repeated many time creating multiple business units.
Looking at the business after it has transformed into a sustaining business (4) it can be seen that the first business cycle is to improve the performance of the product along the lines the mainstream customer’s value (5). If there is a higher value network and the product can meet this network’s requirements then attaching this network is desirable due to the profits that this will unlock (6). However if the company can also stay competitive in the current value network then this will also help profitability, as a new product range has been created without cannibalising its current product line-up.
If there are no higher Value Networks the business unit has limited growth potential (7), at this point the company has another decision to make, should it re-structure the business unit and reduce cost as a way to improve profit or should it try and use its resources to find new markets. Again the author recommends doing both, re-structure the existing business for optimal performance and reduce costs to the minimum. Then split off the most experienced and creative resources available and create another start-up like business. In this way the revenues from the existing product can fund the new ideas.
This model allows the creative minds within a company to develop new markets (Blue/ Innovation Units) while the more structured minds can concentrate on customer needs and obtaining the best performance from existing products (Red / Business Units). Also by spinning off units in both the Red and Blue phases, this allows multiple business and innovation units to be created. However, as the organisation becomes larger the management challenge here is to coordinate these separate innovation and business units to reduce duplication but keep the separation of the sustaining from the disruptive.
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- Christensen C.M. (1997) “The Innovator’s Dilemma”, Harvard Business School Press
