Clay Christensen is the person behind making “disruption” a common term in business. Lately he has been critical on how the term has been used for so many business changes. He has been critical on how everyone has been loosening its tie to the fundamental theory he proposed several years ago. In the December 2015 HBR issue, he elaborates and reminds everyone in this article. Yet when I read this article on stack fallacy in the WSJ with its headline using disruption, I wonder whether the title “Why-big companies keep getting disrupted?” is appropriate. Indeed, the article even has Christensen’s picture, leading the reader to believe that the WSJ author is paying an implied salutation to his theory. Not really. This article depicts disruption as something more commonly observed with companies who drift down the stack. Companies that are built on top of underlying abstractions are better off in extending their product and offering boundaries. For example, Salesforce.com is a more successful CRM player because it understands the user better than Oracle, because Salesforce is higher in the application stack built on top of Oracle. Oracle, in contrast is a database provider and the user base of the CRM is not the same as the user base of databases. The stack fallacy says it is easier for Salesforce.com to get into the successful database businesss than Oracle getting into a successful CRM business. Another advantage for flowing down the vertical integration is given that Salesforce.com uses Oracle databases – it is a customer itself – so it already knows the key customer needs. Not the same with Oracle – hence it is much harder for Oracle to be in the application business such as CRM. The facts prove this thesis. This is an astute observation and the article refers to this article on “stack fallacy”. It is quite an interesting read – so highly recommend it. By this token, Tesla is more likely to be successful in making batteries than Panasonic in making cars. (Aside: While going through the comments – I also came another read on what specialization does).
Going back to the central point – I thought disruption meant coming from the low end of the market and gradually seeping into the target customers of the incumbents – to a point when customers switch en-masse. This is not because incumbents are stupid or negligent but because they don’t believe that they are in the business in which the emerging companies are good at. They also beleive that the emerging companies are not good enough for the incumbent’s customer base. That happened with PCs and mainframes, digital cameras with film cameras, and then phone cameras with digital cameras. But then this is not the same as “stack fallacy” discussed in the WSJ article. Many would even argue that the theory of disruption itself has limited practical use. It is a beautiful theory to explain the past but what about its predictive ability. How do companies know that they will get disrupted? That exercise falls on the basics of strategic analysis and indeed, what economics have dealt for a long time in demand estimation – role of substitutes. If there is a viable substitute then, losing market share for the incumbent is inevitable. Hence, if the word “disruption” is only meant for a specific trajectory – the path taken rather than the state itself, then the theory of disruption ends up more of an academic distinction. If we focus more on the state of customer switching and the drivers of losing one’s business then the topics can be subsumed within the long-standing Porter’s 5 forces framework on competitive strategy. Why need another theory?
I lean more on the latter. Just a few principles should be enough to explain most things. MMarkets and customers are in flux. Their preferences and choices are dynamic and shift all the time, getting shaped by all sorts of things. Knowing them and serving them right is the key challenge all businesses have and those that do better win. The stack fallacy is an elegant way to explain but I would reserve how far I go to explain everything.