Another conclusion King and Baatartogtokh reach is that 38%
of incumbents did not flounder as a result of disruption. That
SPRING 2016
MIT
SLOAN MANAGEMENT REVIEW
27
SLOANREVIEW.MIT.EDU
Did the Critique
of Disruptive
Innovation Apply
the Right Test?
BY MARTIN J. BIENENSTOCK
H
aving specialized in reorganiz-
ing companies in financial dis-
tress for 38 years, I have had a
ringside seat to the causes and conse-
quences of business failure. I use that ex-
perience to counsel boards of directors
about formulating corporate governance
to promote growth and avoid failure. It is
vital to help boards detect and understand
their companies’ problems when those
problems can still be solved outside bank-
ruptcy — and when the companies can
still grow profits for shareholders.
In my experience, the cause of business
distress that is most detectable, but often
undetected or disregarded until material
damage is done, is a disruptive innovation
as defined by Harvard Business School pro-
fessor Clayton M. Christensen. In his the-
ory of disruptive innovation, Christensen
has explained how and why industry-leading
companies that pay attention to their best
customers and improve products for them
are susceptible to failure stemming from
competitors’ products or services that are
initially inferior and only attract a different
market or the lower end of the leading
company’s market. Of all the many differ-
ent types of advice I give boards, the means
of detecting disruptive innovations has
been one of the most critical staples.
In their article, “How Useful Is the The-
ory of Disruptive Innovation?” in the fall
2015 issue of
MIT Sloan Management
Review
, Andrew A. King and Baljir Baatar-
togtokh acknowledge
that Christensen’s dis-
ruptive innovation the-
ory “has gripped the
business consciousness
like few other ideas.”
But they incorrectly
conclude that the the-
ory simply “provides a
useful reminder of the importance of testing
assumptions, seeking outside information,
and other means of reducing myopic think-
ing.” That overlooks what Christensen dis-
covered and vastly underestimates the
importance of Christensen’s insights to ex-
ecutives and corporate directors.
When Christensen studied successful
companies whose fortunes declined, he
discovered one category of companies that
failed or suffered diminished success when
overtaken by companies that had initially
offered inferior products appealing to cus-
tomers who either could not afford the
successful companies’ products or were
the least profitable for the successful com-
panies. More often than not, the market
leaders were capable of offering the
cheaper product. But, for seemingly valid
business reasons, they declined to do so.
It is critical that boards of directors and
senior management understand when fol-
lowing accepted principles of good manage-
ment (such as paying attention to your best
customers and focusing investments where
you can increase profit margins) leads to
failure. Christensen demonstrated that
