Disruptive Strategy

DISRUPTIVE STRATEGY WITH CLAY CHRISTENSEN:

Aligning with Innovation and Disruption

KEY TAKEAWAYS

• There are three main types of innovation: sustaining innovation, low-end

disruptive innovation, and new-market disruptive innovation
• New technology is not intrinsically disruptive; it depends on how it is deployed
into the market relative to the business models for existing products or services
o Incumbents typically win sustaining battles
o Entrants typically win disruptive battles
• Start innovating today—even while your core business is strong; disruption is
typically an opportunity long before it is a threat
o Spot disruption in your industry early by studying customers who stopped
using your product or service
• An organization cannot disrupt itself
o Disruptive business models must be separated from the core business

CASE STUDY
WR Hambrecht founder, Bill Hambrecht, pioneered a disruptive model for initial public
offerings (IPOs) in the U.S., leveraging auctions to serve the “low-end” of the market.
When Google approached Bill about underwriting its 2004 IPO, one of the highest
profile IPOs in years, Bill and his team felt that they had finally made it. Should Bill
Hambrecht pursue the opportunity with Google, which would require a sustaining
business model, or should his firm continue focusing on smaller, low-end disruptive
IPOs?

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 PERFORMANCE CUSTOMERS BUSINESS
targeted targeted MODEL
performance of customers or impact on the
the product or market application required business
service model

SUSTAINING Performance The most attractive Improves or

INNOVATIONS improvement in (i.e., profitable) maintains profit
incumbents attributes most customers in the margins by
typically win valued by the mainstream exploiting the
industry’s most markets who are existing processes
demanding willing to pay for and cost structure
customers. These improved and by making
improvements may performance. better use of
be incremental or current competitive
breakthrough in advantages.
character.

LOW-END Performance that is Over-served Utilizes a new

good enough along customers in the operating or
DISRUPTIONS
the traditional low-end of the financial approach
entrants typically
metrics of mainstream market. or both to earn
win
performance at the attractive returns at
low-end of the the discount prices
mainstream market. required to win
business at the low-
end of the market.

NEW-MARKET Lower performance Targets non- Business model

in “traditional” consumption: must make money
DISRUPTIONS
entrants typically attributes, but customers who at lower price per
win improved historically lacked unit sold, and at
performance in new the money or skill unit production
attributes-typically to buy and use the volumes that
simplicity and product. initially will be
convenience. small. Gross
margin dollars per
unit sold will be
significantly lower.

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 g ress Overshoots What Customers Can Use
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PERFORMANCE

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Per formance
Absorb s
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ovati
e Inn
r uptiv
t Dis
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TIME

Current Non-Consumers

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