Disruption is not a question of technology, but of business model

We hear a lot about “disruptive technologies,” but what makes an innovation disruptive is usually not its technical dimension, and the distinction often made between radical and incremental innovation is not so relevant. What matters is the disruptive nature of the business model created for the new technology.

First, radical innovations, those that bring about significant technological change, are not always disruptive. Existing players adopt them quickly and easily, and use them to strengthen their dominant positions. This is the case of the mobile phone for traditional telecom players. A mobile infrastructure is different from a fixed infrastructure in that it has antennas, for example. However, the management of a mobile network and a fixed network is relatively similar: both involve very high fixed costs and a large number of customers who must be billed each month according to their consumption. It is not surprising, then, that fixed-line operators have easily expanded into mobile: for them, the technology has not been disruptive, but sustaining (in the sens that it sustains the existing business model). We can also observe that, for the same reason, certain mobile operators, such as Bouygues Telecom in France, have expanded their fixed network with similar ease.

Second, disruptive innovations are not always radical innovations, i.e. they do not necessarily involve technological change. This is the case with low-cost airlines, which used exactly the same resources (technology, planes, and pilots) as traditional airlines. However, the former disrupted the market to such an extent that even 60 years after the start of the disruption, the traditional airlines are still struggling to digest the change, as demonstrated by Air France with its low-cost subsidiary Transavia. Renault’s Dacia Logan, a low-cost car, uses very standard technology, but corresponds to a business model that is different from Renault’s classic business model. Renault initially struggled to manage two different business models and encountered internal and cultural resistance from its employees. Because of these difficulties in managing two business models under the same roof, Renault successfully created an entirely new entity for the Dacia Logan.

To better manage innovation, it is therefore very important to distinguish between sustaining and disruptive innovation, as suggested by innovation specialist Clayton Christensen. Sustaining innovation, whether technologically radical or not, is what is done in accordance with the company’s business model. Disruptive innovation, again whether radical or not, is that which disrupts the company’s business model. It is the one that really challenges organizations.

📖 This article is an excerpt from my book A Manager’s Guide to Disruptive Innovation.

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