Beyond Disruption: Innovate and Achieve Growth without Displacing Industries, Companies, or Jobs
W. Chan Kim & Renée Mauborgne
240 pages, Harvard Business Review Press, 2023
For the past 20 years, “disruption” has been the battle cry of business: Disrupt this. Disrupt that. Disrupt or die. Calls for disruption have rung out across Silicon Valley, major corporate boardrooms, the media, and business conferences around the globe. Corporate leaders have continually been warned that the only way to survive, succeed, and grow is to disrupt their industries or even their own companies. Not surprisingly, many have come to see disruption as a near-synonym for innovation.
But is disruption the only way to innovate and grow? And is it necessarily the best way? As our research and these cases suggest, the answer is no. It may be what people talk about, it’s certainly important, and it’s all around us. But the overriding focus on disruption has led us to largely overlook another avenue of innovation and growth—one that we would argue is at least as important. That avenue involves the creation of new markets without disruption or displacement—what we’ve come to think of as nondisruptive creation.
If we could better understand this other form of market-creating innovation and how it works, we would be better equipped to achieve it. Thus began our latest research, which we unveil in our new book Beyond Disruption: Innovate and Achieve Growth without Displacing Industries, Companies, or Jobs. In it, we explain that nondisruptive creation can’t be defined as inventive or new technology or new-to-the-world innovation per se. Nor is it confined to any specific geographic market or socioeconomic level.
It is a distinct new concept. Here we explore the differing impacts of nondisruptive creation versus disruption on the economy and society.—W. Chan Kim and Renée Mauborgne
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Consider these examples: Netflix versus Blockbuster, Amazon versus booksellers and Main Street retailers, Uber versus taxis, and, going back in time, airplanes versus transatlantic ocean liners. Although these examples are disparate and cut across various industries and time, they have three key factors in common. First, they’re all cases of disruptive creation. Read articles, opinions, executive musings, or investor analysis about them, and the word you’ll encounter most often to describe these dynamics is disruption. Second, they all reflect a clear win-lose situation. And third, they all impose painful adjustment costs on society, even as consumers win. Let’s explore this.
On the positive side, consumers and purchasers win big time. That’s why people gravitate to the disruptive offering, be it Netflix, Amazon, Uber, or any other. For a product or a service to disrupt, it must deliver a leap in value (typically underscored by a new business model), or the industry wouldn’t be thrown into disarray, and purchasers, whether they be businesses or consumers, would see no reason to shift from the incumbent offering to the new one.
Take Amazon, which initially disrupted booksellers and, as we know, is today disrupting Main Street retail. Ask consumers or businesses why they choose Amazon, and you’ll get a flood of positive comments: “I love that I can always find the book or item that I want.” “The direct customer reviews and ratings are great and helpful.” “Checkout is fast and a cinch.” “I can order everything straight from my couch, and delivery is getting amazingly fast.”
In economic terms, we can say that the consumer surplus delivered by the disrupter is high, and society’s resources are allocated where they are deemed to be better used. The leap in consumer surplus is why so many of us shop at Amazon, take Uber, are addicted to snapping digital photos, and binge-watch Netflix. It’s also why disruptive creations tend to grow industries as the compelling value unlocked by their innovative business models draws all new people to their offerings who weren’t purchasers of incumbents’ products or services and inspires previous customers of the incumbent industry to use the disruptive product or service more frequently.
The Win-Lose Outcome of Disruptive Creation
However, here growth is achieved in a win-lose way. The disrupter wins, but its success comes at the direct expense of existing players and markets. Which brings us to the second commonality: disruptive creation imposes a clear trade-off between winners and losers, the extent of which depends on the degree of displacement. In some cases, it’s a one-wins, one-hundred-lose situation. That’s because the leap in consumer surplus provided by the disrupter can nearly wipe out the existing industry and its incumbent players, as airplanes pretty much did to ocean liners. Reduced demand for the old translates into reduced earnings for incumbent players and the existing market.
For example, Amazon didn’t merely displace Borders’ 1,200 stores and countless independent booksellers and take a huge chunk out of Barnes & Noble’s sales. It is doing the same to Main Street retailers and department stores nationwide. As Amazon has won big time with strong growth, most of these other players have been losing big time with an alarming rate of store and mall closings and bankruptcies across America (already a reality well before Covid hit). Today Amazon accounts for 50 percent of online retail sales in the United States.
While the disrupter’s win is hailed in the press, and purchasers and investors flock to it, this win-lose approach triggers the third commonality: painful adjustment costs for society, including various levels of hurt and hardship. The euphoria and glamour that surround disruptive creation tend to largely blind us to these, yet there they stand: a loss of existing jobs and often rounds of layoffs, lowered wages and hurt communities, and knowledge, skills, and plant and equipment often rendered significantly reduced in value, if not made obsolete. Even when the economic costs involved in such disruptions are small relative to the overall economy, the social costs incurred can be extremely large for the people, companies, and communities that are affected.
Which is to say that disruption unleashes not only positive effects, but also negative and very real human effects on the economy. Although the people who are let go may find work in another industry, that’s not guaranteed—especially when they’re in rural communities where local jobs were scarce to begin with. Of course, disruption triggers new growth and jobs, because people must be hired to fulfill the new aggregate consumption it unlocks. For example, Amazon’s disruption of booksellers and retail has led to estimates of as many as 900,000 jobs lost; but at the same time, Amazon’s workforce climbed from 200,000 to 800,000 when Covid hit. Amazon’s net positive impact on jobs has grown steadily over the years, which is a plus for the economy and to some extent softens the blow. That does not mean, however, that Amazon jobs are located where the old jobs were lost, or that they rest on the same skills and knowledge as those of the people let go. So those who were let go can still be left reeling. There’s also no guarantee that disrupters’ surging growth will necessarily lead to a net addition of jobs in the economy, because their business models are increasingly technology-centric, requiring fewer jobs.
In essence, disruptive creation produces a win-lose situation even though at the macro level the new consumption it unlocks in the long run creates aggregate growth—not simply the transfer of demand from the old to the new. Here the disrupter inadvertently produces human and social costs in the short and medium terms to generate private profits, imposing—all else being equal—a trade-off on society as it performs its unique role of re-creating industries from within for growth.
The Positive-Sum Outcome of Nondisruptive Creation
Here is where nondisruptive creation breaks from disruption. While disruption inextricably links market creation and market destruction, nondisruptive creation effectively ruptures that link. Nondisruptive creation can universally be defined as the creation of a brand-new market outside or beyond the boundaries of existing industries. It is precisely because the new industry is created outside the bounds of existing industries that there is no existing market or established players to be disrupted and fail. You can think of it as a positive-sum approach to innovation—as opposed to the win-lose nature of disruptive creation—which we find not only promising but a much-needed complement to disruption in the world of innovation. Let’s explore the similarities and the differences.
First, like disruption, nondisruptive creation delivers compelling value for buyers, whether they are consumers or businesses. It positively changes our lives. That’s why we purchase or use the product or service and the new market materializes. Unless it delivers compelling value, as disruptive creation does, the new market will not take off. That’s a prerequisite, just as it is for disruption.
Take the nondisruptive creation of Sesame Street. It offers parents a brand-new opportunity in the comfort of their own homes for their preschool children to learn colors, shapes, the alphabet, and important skills such as listening. It also affords parents a brief reprieve during which to take a peaceful shower or attend to other household matters. And by mixing fantasy with reality and adding songs and silliness, the colorful, lovable Muppets (a cross between “marionettes” and “puppets”) won over children, too, as they developed a foundation for early school while having so much fun they didn’t realize they were learning.
Whether it is Viagra for men (after years of struggle, the struggle is gone); the Square Reader for small businesses (At last, I too can offer credit card payments); life coaching; or the Star Walk app for any of us to gaze up at the night sky and know the stars and planets we are looking at (There’s Orion! I could never identify the constellations before!)—each one offers compelling value to buyers and users. Some with new technology, and some without like life coaching.
But, in contrast to disruptive creation, growth here is achieved without displacing existing industries or incumbent players. Here there is no evident loser. And precisely because of that, there are also minimal to no painful adjustment costs imposed on society. Which is to say that nondisruptive creation has a positive impact on growth and jobs from the start.
Kickstarter, for example, saw that there were literally thousands upon thousands of young (and old) creatives who had wildly imaginative projects they dreamed to create but who lacked the capital to realize them. Most creatives, however, don’t aim to generate an ROI. They create first and foremost to simply realize an artistic vision in their minds. So it should come as no surprise that Kickstarter’s online crowdfunding platform did not displace or take away even a tiny share of existing equity investors’ or venture capitalists’ profit, growth, or investment opportunities and didn’t eat into the existing finance industry. And because backers receive no monetary incentives on Kickstarter—only cool merch or other recognition such as a shout-out on the creative’s website—a new set of investors emerged: people who care about creative work and helping others realize their dreams.
Hailed after its launch as one of TIME magazine’s “50 best inventions” of the year, Kickstarter won, but it created few if any losers. Within three years of its launch, it became profitable, and in its first decade it raised a staggering $4.3 billion for projects supported on its platform, successfully funding more than 160,000 ideas that by all accounts would have gone unrealized otherwise. According to a study at the University of Pennsylvania, Kickstarter estimates that more than 300,000 part-time and full-time jobs were created by its projects, along with 8,800 new companies and nonprofits, generating more than $5.3 billion in direct economic impact for those creators and their communities. No one lost a job because of Kickstarter, and no company went out of business because of it. It helped the artistic community flourish without unleashing hurt or painful adjustment costs on society. It’s pretty much a win all around.
From Fear to Hope: Policy Implications for the Future
Have you ever noticed how much in business is about aggression and fear? We all dislike such behavior and emotion because they fill us with anxiety and make us feel that we are under threat and may be marginalized or destroyed if we don’t strike first. It’s a scarcity-based view of the world. While the world needs less of that behavior and that emotion, we have been conditioned to pursue them to achieve success and even to better the world.
What if we could instead shift our frame of thinking from fear to hope, from a scarcity-based mindset to one of abundance? Thinking that we can create and grow without disrupting or destroying others stands on the ground of hope that creation can be positive-sum rather than a destructive, fear-based win-lose game. It’s an abundance-based view of the world that nondisruptive creation’s distinctive role in creating brand-new markets outside existing industries allows us to start moving toward.
Nevertheless, we all know that in reality fear and hope are equally compelling motivators for making people act and getting things done. Fear invoked by a competitive challenge or a threat like “disrupt or die” is a strong motivator for an organization to act. However, the hope of making a positive-sum contribution to both business and society is an equally strong mobilizer. So it’s fair to say that nondisruptive creation is based on a view of the world that is complementary to that of disruptive creation.
In terms of policy implications and the future, disruptive creation will remain important to the renewal of industries, especially those that have become dysfunctional owing to inefficient, high-cost, and low-quality production and outputs stemming from obsolete infrastructure or fixed assets. But when it comes to growth and innovation, besides disruptive creation, policy makers would be wise to raise awareness of the importance of nondisruptive creation. An effective economy is not only one that grows and modernizes, but one where no one gets left behind, and we can all participate in it and enjoy its fruits. One way to help society move in this direction is to use our human ingenuity to create new markets and new jobs in a nondisruptive way. Politicians and policy makers in particular should take this message to heart in formulating regional and national innovation strategies so that they can help minimize the social conflicts and costs of innovation and growth.
Growth without job creation is costly and perilous for any society. Even when growth offers many more job opportunities in the long run, governments need to deal with its social adjustment costs and pain if it comes with disorderly displacement. Along with disruptive creation that evidently has its own distinctive strengths, governments would be wise to create policies in support of the complementary growth path of nondisruptive creation to sustain the healthy progress of both business and society.