The disrupters – Cover story
And even the system used in the form of financial markets, sel- dom help, because despite what is still taught in the top busi- ness schools and perpetuated in leading think tanks, markets are inefficient and are often slow to recognise genuine disrup- tive innovation or are reluctant to accept the impact of disrup- tion until it has become blindly obvious what has happened. This nevertheless creates a fascinatingly fertile hunting ground of companies and industries with unanticipated growth poten- tial and investor zeal. A perfect scenario it could be said for active managers, who have the flexibility, speed and resource to pinpoint under-appreciated companies and invest at the right time and price. Given its significant impact, investors cannot ignore disruption, even if it is highly difficult to pinpoint where it is hiding.
The theory of disruption
The term disruptor is used so frequently today it is hardly con- sidered appropriate to ask: what exactly is a disruptor? What defines it? One thing is for sure, the idea of disruption is not new. Disruption has been the hallmark of capitalism ever since the Luddites campaigned against the introduction of machin- ery in the early part of the nineteenth century. But it is in the Innovator’s Dilemma, published as recently as 1997 by the late Harvard professor Clayton Christensen, that we have the modern theory of the disruptor. Christensen noted disruptive innovation is an innovation that creates a new market and displaces established market-leading firms,
products and alliances. A reasonably simple
explanation. Regarding these innovative and disruptive new technologies, Christensen noted: “The technological changes that damage established companies are usually not radically new or difficult from a technological point of view. They do, however, have two important characteristics: First, they typically present a differ- ent package of performance attributes – ones that, at least at the outset, are not valued by existing customers. “Second, the performance attributes that existing customers value improve at such a rapid rate that the new technology can later invade those established markets.”
Christensen distinguished between so called ‘low-end disrup- tion’, which targets customers who do not need the full perfor- mance valued by customers at the high end of the market, and ‘new-market disruption’, which targets customers who have needs that were previously unserved by existing incumbents. To illustrate disruption, Christensen used some strange exam- ples from the worlds of hard-disk drives and mechanical excavation. But disrupters, in short, can be identified as companies that have the potential to change or entirely displace existing com- panies and industries. Such companies can have innovative
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