Another conclusion King and Baatartogtokh reach is that 38 of incumbents did

Another conclusion king and baatartogtokh reach is

This preview shows page 2 - 4 out of 8 pages.

Another conclusion King and Baatartogtokh reach is that 38% of incumbents did not flounder as a result of disruption. That
Image of page 2
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
Image of page 3
Image of page 4

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture