Should You Fear Disruptive Technology? A survey and interview with the author of The Innovator's Dilemma look at how businesses are--and should be--coping with the most important kind of change.
By Thomas A. Stewart; Clayton Christensen; Gary Getz

(FORTUNE Magazine) – The notion of "disruptive technology" is one of the timeliest ideas of the Internet age. Coined by Harvard Business School professor Clayton Christensen, it's at the heart of his influential book, The Innovator's Dilemma. The core of his argument is that success handcuffs corporations. Companies with the best technology tend to work on improving it--they don't focus on creating something entirely new. Paradoxically, the very act of serving their customers well makes them vulnerable. While they help their customers and happily milk the maximum profits out of the top end of the market, a new product emerges that is promising but doesn't yet work perfectly. The established companies scoff: Why manufacture a fax machine when the teletype is selling quite nicely? Why give up profitable mainframes for these dinky new personal computers? Why bother with a wireless phone?

In this era of drastic change, the questions are more relevant than ever. Along with Boston consulting firm Integral Inc., we decided to survey business people on this subject. Then FORTUNE's Thomas A. Stewart discussed the results (see next page) with Christensen and his colleague Gary Getz of Integral. Ultimately, says Christensen, disruption should be viewed as an opportunity. "If you go back in history, some of our economy's most powerful, successful companies today were once disruptors"--Intel, Wal-Mart, Toyota, Sony, the telephone companies, and Cisco.

I remember ten years ago we saw the innovator's dilemma as something that the Japanese did to us. Toyota was coming with cheap cars and then moving up the market; or it was fax machines and copiers--stuff that was too penny-ante for Xerox to deal with. At that time we saw it as a manufacturing problem and a national competitiveness problem.

Christensen: Yes, I think now we're discovering that, my gosh, Japanese companies have hit the same ceiling that the American companies have. They hit the high end, and they can't go down.

Getz: In the survey, the three groups of people who saw the fewest symptoms of disruption were chief technology officers, chief information officers, and CEOs and presidents.

Who was seeing the most symptoms?

Getz: Most were manager-level folks. Only a minority of the CEOs and presidents agreed that there is a disconnect between the innovations suggested by the frontline troops and the innovations that upper management invests in. But a large majority of manager-level folks disagreed. CTOs reported the least perception of vulnerability but reported more than any other group that they were losing low-value customers and forfeiting small-market opportunities. That suggests the very people that many companies are looking to to protect their technology futures may have a blind spot.

What are some of the ways out of this dilemma--or are we just doomed?

Christensen: The first thing is that most of the mechanisms managers use in their established business are process- focused, because the problems that you confront recur over and over again, and you create processes to deal with recurrent problems. No process can deal with this kind of a disruption, because it happens only sporadically. Therefore you have to have another channel, you have to have people whose job it is to scout for this stuff. The second thing is that you need to have a common language and a common way of framing the problem that allows the whole organization to understand why this is important to address.

I guess people, money, and attention are probably the key resources here. How do I get them?

Getz: The key thing is that you have to be able to commit resources to things that are not provable or knowable.

Christensen: The only precondition is a CEO who has the self-confidence to make an intuitive bet that this is a business that is going to be real. The time to invest in the disruptive position is before the core business is sick. Once the core business is sick, there are no resources available.

If I were an ambitious business-unit head and I saw one of these disruptive technologies coming, I'd say, "Give it to me!" Would that be a dangerous thing for the CEO to do?

Christensen: Yes, unless the existing business unit was sick. If the existing unit is healthy, then you really want to keep the disruptive opportunity separate. The business model that is required to be competitive in the disruption is almost always so different from the one required to keep making money in the established business that you'd end up not doing either well.

Ultimately, we're talking about a decision to kill the existing business or have it killed.

Christensen: That's right. If you look at the companies that the average business person would say have successfully transformed themselves--companies like HP and GE--they've done it by creating new business units that have grown to be substantial, and they have sold off or phased out old units.

Talk about the issue of defining a potentially disruptive technology as a technical problem rather than a market problem. What's wrong with defining it that way?

Getz: The thing that a lot of companies think is, "Can I take this technology and bend it to serve my current customers?" So the client would say, "Can I make an electric car that is just as good as a car-car?" As opposed to saying "Is there a market that would value this technology as it exists today as an entry point?" The successful companies get into the market and get the segments that would value the thing as it is today. They're playing the ball as it lays. And then they're improving it because they are going through more, faster cycles of learning than the incumbents who typically say, "I can't introduce it until it's perfect." Companies tend to think technology, and they don't think business model. Look at all the early stuff with the Internet where it was "Well, I'll just have a Website, and that will be my Internet strategy" as opposed to "We need a whole new business model around this." It's a completely different business system. When we work with folks and tell them, "Disrupt yourself before someone else does," we are urging them to think about the whole underlying business model, even the part that you don't currently participate in.