Disruption: Nonlinear Change in a Linear World?

According to the Oxford dictionary, the word disruption – which became an all-time favorite of executives and academics alike - means “disturbance or problems which interrupt an event, activity, or process.” The term disruption has recently been decried for being an overused word (see Harvard historian Jill Lepore’s article in the New Yorker, June 2014), for involving numerous “myths” (The Atlantic, October 2014), an often misused word (Forbes, March 2015) and even for being a “Silicon Valley buzzword that has the aftertaste of a sucked battery, which doesn’t even mean anything any more” (The Guardian, January 2016). Still, "disruptive innovation" is undoubtedly one of the most influential ideas in modern business scholarship. The original 1995 Harvard Business Review article by Bower and Christensen, for instance, is cited by more than 2,500 other academic works (according to Google Scholar) and the term “disruptive innovation” appears in more than 426,000 search results and 35,700 news items according to Google. In the video below, Christensen defines the term very clearly in his own words.

Often the debate and criticism stems from misconceptions such as the idea that startups are necessarily the disrupting party and incumbents poised to be disrupted. Startups are a very important component of the innovation ecosystem, but so are established incumbents, some of which have remained relentless innovators for decades... Thus, it is important to dig underneath the surface and try to understand the true consequences of disruption in leaders' decision-making processes (irrespective of whether such leaders work for small upstarts or large established corporations).

More than Words: What Are the Consequences of Disruption?

Disruption, by definition, shakes the “way of doing things” and accelerates change and transformation. In other words, disruption introduces nonlinear change in a world that, up to that point, could be said to be progressing linearly. In fact, well-known disruptors such as Facebook, Airbnb and Uber are sometimes credited for introducing “exponential change” in the markets they enter. Just look at the following mesmerizing stats, directly taken from a Forbes article entitled How To Build An Exponential Organization:

• "In 12 years, Facebook grew to 1.86 billion monthly active users—more than a quarter of the world’s population.
• In eight years, Airbnb achieved a valuation of $30 billion, more than Hilton and Hyatt combined, which is particularly impressive considering Hilton and Hyatt have more than 100 years in operation combined, and perhaps 100,000 more employees than Airbnb.
• In less than six years, Uber has reached a valuation of $68 billion, surpassing Ford and General Motors."

Impressive and, indeed, nonlinear (i.e., exponential).

But what’s the Problem with Nonlinear Change?

The problem is that our brains are hardwired to think linearly and ill-prepared to deal with nonlinearities. This is especially true if we anchor on the rules of a linear world, when the nonlinear change is being driven, precisely, by a new reality that changes the “rules of the game”. For example, psychologists have shown that humans have a tendency to strikingly underestimate the effects of nonlinear, exponential processes (see Wagenaar and Sagaria 1975; Timmers and Wagenaar 1977). Moreover, the degree of underestimation depends significantly on one’s past experiences, with more stable environments leading to worse underestimation (Keren 1983). In fact, a more recent study by Mirjam Ebersbach and Friedrich Wilkening (2007) shows that the ability to correctly estimate linear growth is present since very young ages (7-year olds are able to make it), but only much later (as of 13-years of age) can kids start to be able to estimate even very simple exponential growth patterns...

Given this evidence, one would expect leaders in large established corporations to be more prone to underestimate the consequences of exponential change than startup founders. The reason is simple, leaders in large corporations have a lot more (linear) experience to anchor on and to convince them the world is linear than leaders in recently launched upstarts. Yet, there are also many large corporations which are able to proactively deal with nonlinear change and, thus, to be more resilient and better able to drive rather than suffer from disruption...

Nonlinear Change: Not Just for Startups…

In fact, one of the misconceptions with disruption is the idea that it always departs from upstarts willing to defy and alter the “rules of the game”. For example, Harvard historian Jill Lepore, in the New Yorker article cited above, sarcastically writes:

“A pack of attacking startups sounds something like a pack of ravenous hyenas, but, generally, the rhetoric of disruption—a language of panic, fear, asymmetry, and disorder—calls on the rhetoric of another kind of conflict, in which an upstart refuses to play by the established rules of engagement, and blows things up. Don’t think of Toyota taking on Detroit. Startups are ruthless and leaderless and unrestrained, and they seem so tiny and powerless, until you realize, but only after it’s too late, that they’re devastatingly dangerous: Bang! Ka-boom!”

Yet, history shows that rather than always being introduced by new players, disruption often starts from well established companies. There is a long list of companies that stood the test of time for several decades and are highly innovative. Take the Forbes’ list of The World's Most Innovative Companies as an example. It includes companies that are certainly not what we typically associate with the word “startup”: Marriott International (founded in 1927), LG (1947), Nielsen (1923), Hermès International (1837), Shimano (1921), Visa (1970), Anheuser-Busch InBev (1977), Lindt & Sprungli (1845), Inditex (1963), Reckitt Benckiser (1823), Pandora (1982), Coca-Cola (1892), General Mills (1866), Procter & Gamble (1837), Boston Scientific (1979), Mondeléz International (1903), PepsiCo (1965) and Colgate-Palmolive (1806) are all top-notch innovators, according to Forbes.

So What Makes Some Well-Established Companies Better Able to Adapt to Nonlinear Change than Others?

There are, of course, many factors. Yet, in short, it is a mindset issue. A large corporation has serious resources and valuable experience that it needs to exploit. The trick is to also bring in, regularly, a nonlinear mindset that challenges the status quo and refreshes the firm's thinking, or strategy. In other words, companies that "make the leap" are those with a capacity to balance exploitation of "linear" opportunities in their ongoing business areas, with exploration of "nonlinear" and emerging opportunities in adjacent or even fairly new spaces. For instance, a recent article with the curious title – Let chaos reign, then rein in chaos - by Burgelman and Grove (2007) reviews the case of Intel in an attempt to pinpoint the reasons why the company, founded in 1968 in Mountain View, California remains a leading innovator, wave after wave of disruptive new technologies in the semiconductor and chip making industry.

The article suggests that it is precisely Intel's capacity to balance exploitation and exploration that ensures its repeated successes. For example, the discussion on how, in the 1980's, Intel switched gears from a core focus on dynamic random access memory (DRAM) to microprocessors is enlightening. At first, when several Japanese companies, many backed by the Japanese government, started commoditizing the DRAM market, Intel faced a strong pressure. Customers wanted more for less. Yet, through a combination of the right timing (the IBM PC took off, creating an ecosystem for the microprocessor) and the right attention devoted by senior management to microprocessors which - at the time - represented a small niche business for Intel, helped the company write the next page in its successful history.

Importantly, in this transition period, senior management at Intel allowed advocates who believed microprocessors could be a great opportunity for the company's future to pursue their ideas and push the microprocessor agenda. It paid off. More in general, over the years, Intel seems to have a unique capacity to jump from periods where they bet on a “linear strategy” (exploiting existing opportunities in its familiar environment) to periods of “nonlinear strategy” (exploring new opportunities that are outside the scope of their previous strategy). Intel repeated the feat in every single decade since the 1970’s until today. 

In short, to remain competitive established companies may need to consider the following issues:

• Disruption is not only for startups. Instead of trying to fight disruption, established companies need to periodically seek "nonlinear" opportunities which may lie in adjacent or even different markets.
• Echoing the work by Burgelman and Grove (2007), this means to have a capacity to foster entrepreneurship (nonlinear) while maintaining discipline (linear) at key moments in the company’s evolution, which translates into two practical steps: (1) the need to allocate a sufficient level of uncommitted resources and looseness in control to boost their portfolio of “nonlinear” opportunities and initiatives, and (2) the ability to select at the right time which opportunities need to be “linearized”, i.e., converted from the chaotic world of “nonlinear change” to the discipline of the “linear world”.