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Nondisruptive Creation: Rethinking Innovation and
Growth
February 21, 2019 W. Chan Kim and Renée Mauborgne It’s time to dispel the myth that innovation must be disruptive. Nondisruptive creation is an alternative path to growth. In recent years disruption has become the battle cry of business. Disruption occurs when an innovation creates a new market and business model that cause established players to fall. We love the ease of taking, sharing, and storing digital photographs — a disruption that led to the demise of both Kodak and the once ubiquitous film market. Millions of us benefit from Uber’s driver-on-demand service, even as it displaces existing taxi companies. Not surprisingly, many have come to view disruption as a synonym for innovation. Scores of articles offer advice on how to succeed as a disruptive innovator and how to defend against a disruptive challenger. Corporate leaders are continually warned that disruption lurks around every corner and that the only way to survive, succeed, and grow is to disrupt their industries or even their own companies. But is disruption the only way to innovate and grow? Is it even the best way? Our research and analysis over the last three decades suggest that the answer is no. Disruption may be what people talk about, and it’s certainly important and all around us. But we found that a single- minded focus on disruption leads companies to overlook another building block of innovation and growth — one that we would argue is more important. 1 That other building block is what we call nondisruptive creation , which offers a new way of thinking about what’s possible. It highlights the immense potential for creating new markets where none existed before. This is creation without disruption or destruction. All the demand generated by this kind of innovation is new. Most companies remain stuck in the mindset that in order to create you must disrupt or destroy. The time has come to fully embrace the idea that you can create without destroying. Nondisruptive creation breaks the existing frame on innovation and growth and allows for a much broader view of how they are generated. It expands the conversation about where real opportunities reside. In this article we define nondisruptive creation; outline its distinctive advantages for established companies, startups, and society; and offer a framework to help leaders charged with driving innovation achieve the kind of growth that best suits their companies. We then
spotlight which strategies trigger nondisruptive creation and which lead to disruption. Finally, we examine how — and even where — managers can identify problems to solve and opportunities to seize through nondisruptive creation.
Understanding Nondisruptive Creation
Although the term is new, the existence of nondisruptive creation is not. It is a feature of business life — past, present, and future. Think back. Before X-rays, what was there? No market at all, just surgeons with knives who cut into our flesh to find (or not find) something. Before aspirin? Herbal remedies, mostly made at home from recipes passed on from grandmothers. And when it came to reliving a beautiful song heard at a concert? Before phonographs and musical recordings, all we had was memory. Nondisruptive creation is just as much a modern phenomenon. Microfinance, Viagra, life coaching, Post-it notes, health clubs, and environmental consulting are all prime examples, as are, more recently, online dating, crowdfunding, and smartphone accessories. In each case, the pie was expanded without destroying existing businesses or markets. Take microfinance, one of the many examples in our research. Today it’s a thriving industry. But 35 years ago it didn’t exist. That market came into being when Grameen Bank solved an unaddressed problem: the lack of access to capital for billions of people living on only a few dollars a day. By offering microloans without requiring collateral, microfinance enabled poor people to start businesses and climb up the income ladder. Did microfinance disrupt an existing market? No. Previously, conventional banks had simply ignored the poor. Grameen created a new model for making financial services available to once noncustomers of banking services. Or think of a service like life coaching. It’s now also a multibillion-dollar industry and among the fastest growing professions in the U.S. But again, 25 years ago it didn’t exist, until someone had a brand-new idea for helping people improve the quality of their personal and professional lives. Life coaching didn’t disrupt an existing market or industry. It only created a new one. Viagra is yet another multibillion-dollar business that didn’t arise at the expense of an existing industry or player. It unlocked an even broader opportunity, the market for lifestyle drugs that had not previously existed. We continue to see the nondisruptive creation of significant new markets. The only thing the online dating industry disrupted was loneliness. Crowdfunding stepped into a space that venture capitalists and banks had ignored, displacing only the frustration of aspiring individuals without the connections or track record to access capital to realize their dreams. The mobile phone accessories market didn’t displace anything, and it now racks up more than $70 billion in annual revenue. As these examples illustrate, when you put on the lens of nondisruptive creation, you quickly discover that it is all around us. Just look to the historical evolution of the North American Industry Classification Standard published by the U.S. Census Bureau. Since 1997, it has been revised several times to keep up with the pace of industry creation, re-creation, and
Consider the societal impact of crowdfunding and Kickstarter. Conventionally, few people were able to finance or market creative projects such as art, photography, or music through traditional means. The lack of funding killed potentially wonderful ideas and careers. Kickstarter changed that with a nondisruptive online platform that lets creatives get funding without bankers or equity investors. Since backers receive no financial incentives, a new category of investors was created — people who care about creative work and helping others realize their dreams. Based on an initial study on Kickstarter’s impact by the University of Pennsylvania, Kickstarter estimates that as of 2016 the projects generated on its platform had created over 300,000 part- and full-time jobs and 8,800 new companies and nonprofits, producing more than $5.3 billion in economic impact for creators and their communities. 3 Instead of unleashing damage, Kickstarter helps the artistic community flourish. The rise of the fourth industrial revolution, when smart machines will replace many existing human jobs, makes it all the more imperative that society moves beyond disruption’s trade- off between market creation and market destruction. A study by the University of Oxford predicts that within 20 years, half of U.S. jobs will be at risk of being eliminated by automation. 4 To absorb the human capital that will be released, new jobs will need to be created — and not at the expense of other jobs. Nondisruptive creation can play a key role in this evolution. Unlike disruption, it allows organizations to pursue growth without imposing social costs on our communities.
The Advantages of Nondisruptive Creation
Most companies today focus their efforts on what it would take to disrupt existing markets. This narrows their vision and blinds them to the wealth of nondisruptive, market-creating innovations they could unlock. For established companies and startups alike, a nondisruptive approach creates several distinctive advantages: Making execution emotionally and politically easier. All companies want to innovate. But established companies face high execution hurdles when disruption is the way, because it means destroying their own existing business. Fear of losing one’s job or current status can prompt managers to undermine disruptive projects, starve them of resources, or burden them with undue overhead. Many people forget that Kodak created the first digital camera. But since the digital camera would disrupt its film business, the company faced insurmountable emotional and political conflicts among its people, hindering the change. While Kodak is often held up as an example of what established companies should not do — resist disruption — this does not make it any easier for organizations to embrace disruption that would kill their existing business. Nondisruptive creation opens a less threatening path to innovation for established companies. It doesn’t directly challenge the existing order or the people who make their livelihoods based on it. By framing their innovation efforts in a broader context that embraces both disruptive and nondisruptive creation, established companies can better manage their organizational politics and the anxieties of their people.
Offering a good counterresponse to disruption. Nondisruptive creation can be an effective way to respond to market disruptors. When transatlantic ship travel was disrupted by air travel, for example, Cunard Line, which runs transatlantic passenger ocean liners, saw no way to match or beat the speed and convenience of air travel. After two failed attempts to enter the airline industry, Cunard pivoted and made a nondisruptive market-creating move by launching the business of luxury vacationing at sea for the public. By shifting the ocean trip from simple transport to a vacation experience, Cunard opened up the entire cruise tourism industry. While the company today is part of Carnival Corp., its nondisruptive creation of cruise tourism 40 years ago has unlocked a $120 billion industry that employs over 1 million people — a good outcome for business and for society. 5 A Growth Model of Innovation Strategies Each approach to innovation strikes a different balance between disruptive and nondisruptive creation to achieve growth. Avoiding Goliath. When companies — especially startups — set out to disrupt an existing market, they often face well-entrenched market leaders with far greater financial and marketing resources. While the popular press makes it seem that David always beats Goliath, the truth is that Goliath wins far more often. ¿Do you really want to go head-to-head with well-entrenched leaders? Maybe. And that’s certainly one way to go about it. But you don’t have to. Opportunities for nondisruptive creation loom just as large, and all companies — startups and established companies alike — would be unwise to overlook them. Reducing conflicts with social interest groups and government agencies. When the social costs incurred by disruption become too great, social interest groups and government
navigating roads was offered in the form of mobile apps. Today, navigation apps like Waze and Google Maps are fast replacing the use of GPS devices in cars. The main effect, therefore, of developing a breakthrough solution to an existing industry problem is the disruption and replacement of the old offerings by the new. In this way, existing markets are re-created from their core, generating new demand and growth. Identify and solve a brand-new problem or seize a brand-new opportunity. On the other end of the spectrum, we have nondisruptive creation. Here, organizations that identify and solve brand-new problems or seize brand-new opportunities create new markets beyond industry boundaries, rather than eating at the margins or the core of existing industries. Viagra identified and solved a problem that had not been previously addressed, spawning all new demand. Life coaching identified a brand-new opportunity for people. Sesame Street , too, created a brand-new opportunity and unlocked the new market of preschool edutainment without replacing preschools or libraries. Instead of looking for better answers to known problems, this approach leads you to ask: Are there brand-new problems we can solve? Are there brand-new opportunities we can unlock? As you shift the questions you ask of yourself and your company, you shift the opportunities you see to create new markets and growth. Consider a recent nondisruptive creation unlocked by two companies founded by graduates of our school, INSEAD. More and more students across the globe study abroad. But in most countries they visit, it’s hard for them to get a loan to pay for those studies without collateral or a local cosigner with a strong credit history. Many students put off their dreams of foreign studies for years or even shelve their aspirations altogether. Our alumni at U.K.-based Prodigy Finance and U.S.-based MPower Financing set out to solve this long unaddressed problem. After learning firsthand that many INSEAD students faced this challenge, they quickly discovered that the problem confronted most students aspiring to do advanced studies abroad, whatever their school. They set out to create a new model where students wouldn’t need a local cosigner, collateral, or a credit history in their country of study to get a loan. Prodigy and MPower decided to assess foreign students on their own merit — their academic performance and future earnings potential gleaned from the degree they are pursuing and university acceptance. By solving a problem that had never been addressed, Prodigy and MPower can offer previously “unlendable” foreign students the funds to fulfill their dreams. Prodigy has already given out loans in excess of $690 million to students from over 130 countries. And since its founding in 2014, MPower has provided financing to students from over 110 countries. Default rates are low (approximately 1% at both institutions), investors are interested (Prodigy recently raised $1 billion in debt financing), and the two companies are earning a tidy profit by creating a new market that will help produce the next generation of global talent. This nondisruptive creation is unleashing yet another new multibillion-dollar industry. Redefine an existing industry problem and solve the redefined problem. Innovation strategies that redefine an existing industry problem and solve the redefined problem lead to
both disruptive and nondisruptive creation. Problem redefinition allows an organization to question long-held assumptions and shift industry boundaries in creative ways. Take the case of Nintendo’s Wii. It redefined the problem the video console industry had long focused on from how to have the fastest, highest-resolution graphic video console to how to deliver an easy-to-use console that combined the movement of physical sports with family-friendly games everyone could play together at home. The Wii’s family-friendly games were easy to understand and play, and their operation was governed by motion, not button pushing. The Wii drew a slice of demand from the existing video game console industry, creating an element of disruption, but it also expanded the industry in a nondisruptive manner by attracting a mass of people — from young children to senior citizens — who had never played video games. Cirque du Soleil redefined the existing industry problem of how to maximize the fun and thrill of the circus to how to combine the best of the circus (clowns, tents, and amazing acrobats) with the best of theater and ballet (their artistry, music, dance, and storylines). It created a new market between these existing forms of entertainment and drew a slice of audience from each. But it also enlarged the overall pie by pulling new people into this newly created market. Adults without children and corporate executives who would never have dreamed of taking a client to the circus became customers of Cirque du Soleil. As shown in the chart, “A Growth Model of Innovation Strategies,” offering a breakthrough solution to an industry’s existing problem spurs disruptive creation. Solving a brand-new problem or seizing a brand-new opportunity drives nondisruptive creation. And redefining an existing industry problem and solving the redefined problem draws on elements of both disruptive and nondisruptive creation.
How to Spot Potential for Nondisruptive Creation
What makes some leaders effective at identifying brand-new problems to solve or brand-new opportunities to seize? Our research indicates that they think about innovation in a distinctive way. Fundamentally, they follow three steps. First, they tend to think deeply about burning but overlooked issues in the world, in their industry, or in their vocation that they truly care about and that people or organizations are struggling with. Caring deeply is a fairly reliable indicator that an issue is of central importance, and if people or organizations are struggling with it, that suggests a gateway to an unaddressed problem or a brand-new opportunity. Muhammad Yunus, the founder of Grameen Bank, passionately hoped to reduce poverty in his country, Bangladesh. He saw that the poorest households aspired to improve the quality of their lives but had hardly a penny to buy bamboo to make simple stools that they could sell. The founders of Kickstarter were passionate about helping creative artists overcome the funding barriers that could hold them back. Similarly, the founders of Prodigy and MPower saw that unnecessary funding friction was preventing students from completing important studies abroad.
chain, and destroys the ocean’s beauty. Issues like these present nondisruptive opportunities to create a more sustainable world for ourselves and our children. Demographic changes, like the world’s aging population and increased urbanization, also bring a host of new challenges and opportunities. How can we create intellectual and social engagement for those beyond their prime? What new kinds of care can help people live a healthy and vibrant longer life? ¿Are there platforms that could teach seniors how to leverage the wisdom accrued in life to better the world and create a newly empowered chapter of their lives? Seizing these new opportunities and solving these brand-new problems will likely be the source of vast nondisruptive creation. As innovations continue to bring whole new sets of habits, tastes, and knowledge, new needs, problems, and opportunities will continue to emerge. For too long now, businesses, governments, and other organizations have relied too heavily on disruption for the innovation they need to propel society. The time has come for them to gear policies and incentives to the delivery of nondisruptive creation, which benefits all of society’s stakeholders. As we look at the many dire challenges facing our planet and the people on it, it’s clear that new strategic solutions are needed. A model that places nondisruptive creation on an equal plane with disruption will allow us to unleash a wave of new growth and better align the goals of business and society. That more expansive view gives us a chance to improve the world. Let’s make the most of it. ABOUT THE AUTHORS W. Chan Kim and Renée Mauborgne (@blueoceanstrtgy) are professors of strategy at INSEAD and codirectors of the INSEAD Blue Ocean Strategy Institute. They are the authors of The New York Times and Wall Street Journal best-seller Blue Ocean Shift: Beyond Competing (Hachette Books, 2017) and the global best-seller Blue Ocean Strategy (Harvard Business Review Press, 2005; expanded edition, 2015). To learn more, see www.blueoceanstrategy.com. REFERENCES (7)
1. Since the publication of our research on blue ocean strategy, where we outline the pattern of market-creating strategy for growth, a question we often confronted was how the creation of blue oceans or new markets differs from disruption. In an attempt to address this question, we examined the blue ocean data and found that while blue oceans came with a measure of disruption, many were created in a nondisruptive way, generating all-new demand beyond industry boundaries. As our research and thinking deepened on this topic, we realized that nondisruptive creation has always existed in business life and that many markets, contrary to common assumptions about disruption, were based on nondisruptive creation. This is the genesis of our theory of nondisruptive creation presented here.
2. For discussions on the existence and economic importance of new goods, including those that did not replace existing ones, see T. Bresnahan and R. Gordon, eds., The Economics of New Goods (Chicago: University of Chicago Press, 1996). Also see A. Bhidé, The Venturesome Economy: How Innovation Sustains Prosperity in a More Connected World (Princeton, NJ: Princeton University Press, 2008), which discusses the existence and importance of innovations that were driven by the nondestructive form of entrepreneurship.
7 Comments On: Nondisruptive Creat
FERNANDO VALLEJO | FEBRUARY 22, 2019 Is not the same as well known incremental/adjacent innovation? Why naming it in a different way? CHRISTOPHER SANN | FEBRUARY 23, 2019 Ultimately, the success or failure of even non disruptive innovations is still a function of the culture of innovation that a business, the aggregate curiousity of these businesses, or the innovation acceptance of a whole industry has toward even small advancements in operations or business structure. Industries like the transportation industry have evolved to have a high level of interest in innovations, while experience based industries like food production and growing have a tendency to have a low tolerance for change and often adhere to methodologies that can date back generations. To better understand where an individual business, group of similar experience based businesses, or an industry as a whole falls within this range between high and low acceptance of innovations can be better understood by examining how a targeted business audience could be classified using the innovations characteristics by audience segmention : ‘innovator, early adopter, early majority, late majority, and and laggard’ (‘Diffusion of Innovations’ Everett Rodgers is an excellent book on the subject of audience segmentation characteristics) Finally, cutting edge innovations like the first automobiles, 2,4D weed control in Agriculture, Apple computers, X-rays in medicine, etc. are always highly disruptive and often take decades to reach a sustaining level of interest by innovative audience segments – let alone later acceptance by other segments. But non disruptive innovations are more likely to be operational tweaks within an acceptance dynamic that follows the original disruptive event. And as a result the time to and speed of acceptance is shorter and deeper than its predecessors.
As I read the article, I think non disruptive innovation would probably create commercial solutions which last long. Organization would probably need a more systematic approach to developing non disruptive innovation. I hope SMR follows up on this article with more articles on how organizations can embark on a journey to create non disruptive innovation. Thank You EUGENE IVANOV | MARCH 2, 2019 The article suffers from two serious flaws. First, although it’s true that many folks are obsessed with disruption, the myth that innovation must be disruptive seems to exist only in the authors’ heads. Those who practice innovation know of and follow the 3-horizon model of it, which doesn’t include disruption. From this point of view, I completely agree with FERNANDO VALLEJO who on Feb 22 argued that the proposed nondisruptive creation is just another term for incremental/adjacent innovation postulated by the 3-horizon model. Second, although it’s the authors’ right to call disruption whatever they want, it’s intellectually dishonest not even to mention the original definition of disruption by Clayton Christensen. According to Christensen, disruptive innovation is not the creation of a new market as the authors claim; disruptive innovation is targeting customers in the EXISTING markets for whom products on the market are either too complicated or too expensive. Again, it’s not a sin to argue with Christensen, but using the term disruption without mentioning its origin is mind-boggling. LIAM ROSS | MARCH 5, 2019 All medical breakthroughs, x-rays, Viagra, and the rest, can be described as “nondisruptive” because they disrupt nothing except disease. Classifying private student loans to attendees of leading business schools as innovative seems a stretch. The government does not list life coaching, a dubious profession, as “among the fastest growing professions in the U.S.” Here is the list of the fastest growing US professions: https://www.bls.gov/ooh/fastest- growing.htm. Solar installer is the fastest growing job in the US with windmill technicians a close second. Home health aids are #3 with personal health aids #4. Bicycle repairers, information security analysts, genetic counselors, and forest fire prevention technicians are all on the list. Many of these occupations are what the authors describe as nondisruptive. All “propel society.” Yet not a single one is cited by the authors.
Besides that the examples are weak the core hypothesis strains under cursory examination. Their assumption is that disruption is a societal ill, a job killer. Let’s take a well-known example, coal fired power plants. Donald Trump speaks of an imaginary need to “save coal,” presumably for jobs, while ignoring that the two fastest growing job categories in the US, wind and solar, disrupt coal and do so with cleaner, safer alternatives. Shale gas mining is not on the top jobs list but intuitively must be also creating well paying jobs (surely more than “life coaches.”) Nobody, except the deluded or dishonest, can argue that coal is better for society than electricity generated by natural gas or renewables. Yet that is the logical conclusion of this article because natural gas and renewables disrupt coal. Disruption, the incremental improvement in goods or services with lower priced alternatives articulated by Clayton Christensen, has led to countless improvements in the world. People are living longer, healthier, better educated, and more connected and empowered lives than ever in history thanks to disruption. You are reading this article and these comments due to a series of disruptive technologies. There’s certainly nothing wrong with Cirque du Soleil (though, considering it put Ringling Brothers and Barnum & Bailey out of business, can hardly be classified as nondisruptive), but the circus is not, say, the world wide web. Or broadband internet. Or drought and disease resistant crops, smartphones, or long-range electric cars. Even in the field of entertainment, Cirque du Soleil cannot be compared to the much more disruptive Netflix for impact.
