Strategy, Technology

Why Uber is NOT a Disruptive Innovation

It’s been twenty years since Clayton Christensen first coined the term “disruptive innovation” and it seems that these days every second new company is considered a disruptor of industry.  However, it appears the words are simply the latest catchphrase, as many so-called disruptors don’t fit with the original theory.

Christensen’s theory requires two key characteristics for innovation to be considered disruptive as shown in the model below.

The key customers must originate at the low-end of the current market or create a new market.

If meeting low-end customers they will attempt to provide a product that is just good enough.  Whereas existing businesses provide a product to the most profitable segment often with attributes that exceed the need of low-end customers.

If creating a new market, the disruptor must seek to turn non-consumers into consumers.  Think about what personal copiers did to Xerox business in the 1970s.

Mainstream customers don’t transition to the disruptive innovation until the quality catches up to their standards.

Current consumers, who despite cost savings aren’t willing to switch until the offering meets their requirements, generally consider disruptive innovations inferior.  Once the product quality improves to meet current offerings, they will quickly adopt the new product.  This shift of consumers is what drives price pressure and eventually disrupts the industry.

Now apply the above criteria to Uber and the taxi industry.

Did they target low-end taxi customers?  No – they targeted existing taxi customers.

Did the service catch on to mainstream customers?  Yes, they implemented sustaining innovations such as smartphone aps and trip feedback both of which contribute to convenience and a good customer experience.  However, these are also easily adopted by the current taxi industry.

What about other industries?  Whilst Uber isn’t technically a disruptive innovation within the taxi industry, apply the above criteria to the private car or limousine industry.

What does it matter?

No one can dispute that Uber has thrown the world’s taxi industry into disarray, however the process itself was not technically disruptive.   By understanding the true meaning of the theory managers can make better decisions in regard to competitors entering the market.

A disruptive competitor generally won’t show up on your radar.  This is because they aren’t starting out targeting your main customers, so it’s very easy to dismiss them as no threat to your business.  Disruptive innovation is a process, not a point in time and unless you can identify potential disruptors before their offering appeals to your key customers, you will have a difficult time staying ahead of the game.

For more on Disruptive Innovation take a look at this 2-minute video from HBR that explains the original theory.

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