Master’s Thesis 30 credits
Disruptive innovation theory in the
paper- and packaging industry
Applying Clayton Christensen in a new context
Master’s Programme in Industrial Management and Innovation
Disruptive innovation theory in the paper- and
Joakim Strömberg and Philip Thorman
The paper- and packaging industry has for a long time transitioned from a production-focused industry towards a customer-orientation – today the customers have become fundamental. Managers are searching for ways to create superior innovations in the industry which can compete against the oil-based solution, i.e. plastic. However, they face challenges as they attempt to launch products in the market. One exciting scholar who has researched much about the challenges of incumbent firms is Clayton Christensen and his theory of disruptive innovation. The theory has received much attention throughout the years and provides with a holistic literature framework to analyze the industry. The thesis aims to investigate Clayton Christensen’s disruptive innovation theory in order to problematize it in a new context, the paper- and packaging industry.
This will be done by discussing how individuals argue, understand and use the term ‘disruptive innovation’ and also discuss Christensen’s Innovator’s Dilemma in relation to how incumbents tend to manage their innovation projects in the industry.
The research used a qualitative research approach implementing one case study. Interviews with incumbent actors in the industry, one producer and two brand-owners, pertaining to an innovation project constituted for the empirical findings. The data analyzed through a theoretical lens of Christensen’s disruptive innovation theory. From an iterative process between theory and empirical findings the thesis has made the following contributions. First, we have problematized Christensen in a new context and identified an industry which is considered an anomaly in Christensen’s theory. The industry is unlikely to be subjected to the Innovator’s Dilemma due to its fundamentals as an industry, e.g. collaborations between actors and listening to customers.
Second, our practical contribution is the importance of differentiating between sustaining and disruptive innovation, especially concerning radical and disruptive innovation. If an individual does not have a theoretical understanding of disruptive, it is common to be confused concerning the differences between radical and disruptive innovation.
However, learning about the differences creates an opportunity to identify new ways of gaining value.
Keywords: Disruptive innovation theory, Innovation, paper- and packaging industry, Christensen
Subject reader: Peter Birch Examiner: David Sköld TVE-MILI19017
Faculty of Science and Technology
Ångströmlaboratoriet Lägerhyddsvägen 1 House 4, Level 0
Box 536 751 21 Uppsala
+46 (0)18 – 471 30 03
+46 (0)18 – 471 30 00
Having spent long hours in telephone, reading way too many articles, and contemplating until we have become dizzy is a good description of our journey. It has been lots of sighs and furious discussion progressing into great outcomes and ideas to move forward. As we started, we saw an opportunity to conduct this thesis with high curiosity and enthusiasm something which remained with us throughout the study.
Special thanks to our case company for this fantastic opportunity. You have provided with insightful and fun discussions in our interviews, we are very grateful for taking the time to talk to us. We also want to thank the two brand owners for participating in the study, your answers were very valuable for the study. Furthermore, we like to offer a huge thank you to our subject reader, Peter Birch, for being a supportive and meticulous criticizer throughout our study.
All the best, Joakim & Philip
Popular Science Summary
When being a scholar in innovation management, it is likely to come across Clayton Christensen and his theory of disruptive innovation. A theory which has received much attention in the past thirty years – by scholars and practitioners alike. It quickly became widely applied, but also widely misunderstood. Being a popular theory amongst scholars and practitioners, we found an opportunity to make our research on the theoretical foundation of his theory, applying it in a new context which he has not explored before.
Christensen (1997a) created a theory which concerns how incumbents tend to fail due to disruptive technologies. A theory which he later refined to describe how incumbents fail due to disruptive innovations (Christensen & Raynor, 2003). The theory spread and many researchers both praised and criticized it – being the most influential business idea and a powerful tool, but in the same time accused of being vague, misunderstood and lacking proper research method. However, the world is always changing and managers seek new ways of dealing with all the challenges. The theory presented with an interesting opportunity to suggest an alternative for practitioners concerning the value of different innovations while validating the framework by Christensen.
We conducted a case study, investigating incumbents in the paper- and packaging industry; one producer and two brand owners in retail. Studying how they reason about innovation management and the nature of the industry enabled us to discuss Christensen.
Discovering how this industry seems not to be affected by his Innovator’s Dilemma or emerging of disruptive innovations. Being a process-oriented industry, constituting of large machinery and volumes, close collaborations, strong customer-orientation, and drivers of a global shift to replace oil-based packaging, we found evidence suggesting that being disrupted, or disrupting anyone else, was unlikely.
Studying the industry enabled us to problematize Christensen’s theory, identifying an anomaly, and therefore suggest that his theory is ill-suited to explain the actions in the industry. However, we did discover that there is confusion regarding how people differentiate between radical and disruptive innovation. We suggest that making this differentiation would be valuable in the paper- and packaging industry and by including the alternatives; radical (and sustaining) against disruptive innovation project offers new way to think about the possibilities. We and Christensen (2006) promote further research in his theory – urging others to continue identifying anomalies and further develop the popular theory.
Table of Contents
1 Introduction ... 1
1.1 Background ... 1
1.2 Problematization ... 3
1.2.1 Problem statement ... 4
1.3 Research Aim ... 5
1.4 Research Questions ... 5
1.5 Delimitations ... 6
1.6 Disposition ... 7
2 Literature Review ... 8
2.1 The development of disruptive innovation theory ... 8
2.1.1 Disruptive and radical innovation ... 10
2.1.2 Overshooting and innovation technology ... 11
2.1.3 The Innovator's Dilemma ... 12
2.1.4 The Innovator's Solution ... 14
2.2 The (mis-)understanding of the word ‘disruptive’ ... 14
2.2.1 Different perspectives on disruptive innovation ... 16
2.3 The behavior of the incumbent firm... 17
2.3.1 An explanation based on the Resource Dependency Theory ... 18
2.3.2 A suggested solution for incumbents ... 19
2.3.3 Why incumbents still succeed ... 20
2.4 The role of the customer ... 21
2.4.1 The mainstream customer and the emerging customer ... 22
2.4.2 Other customer perspectives ... 24
2.5 Criticism against Christensen ... 25
2.6 Summary of literature review ... 26
3. Methodology ... 28
3.1 Research Approach ... 28
3.2 Research Design ... 28
3.3 Research Method ... 29
3.4 Quality of Qualitative Data ... 31
3.5 Data Collection ... 32
3.6 Ethical considerations ... 32
4 Empirical Findings ... 33
4.1 Industry Background ... 33
4.2 The shift in the packaging industry ... 34
4.2.1 Sustainability – a trend which drives the development ... 35
4.2.2 Single-use-plastics-directive – good or bad for paper solutions? ... 37
4.3 Understanding of disruptive innovation ... 38
4.3.1 The importance of innovation in the industry ... 38
4.3.2 The understandings of disruptive innovation in its definition ... 39
4.3.3 Can the project be considered a disruptive innovation project?... 40
4.4 Being an actor in the industry ... 43
4.4.1 Incumbents and entrants ... 43
4.4.2 The case company and the brand owners ... 45
4.5 The role of the customer ... 46
4.5.1 Customers and projects at the case company ... 47
4.5.2 Developing with or without customers ... 48
5 Discussion ... 50
5.1 RQ1: The concept of Disruptive Innovation ... 50
5.1.1 Make a strategic decision for the project, go sustaining or disruptive ... 51
5.1.2 The value with a common understanding of disruptive innovation ... 54
5.2 RQ2: Innovator's dilemma in the paper- and packaging industry? ... 56
5.2.1 Innovating due to a strategic shift ... 56
5.2.2 Collaborations between incumbents and entrants prevent them from being disruptive ... 58
5.2.3 The necessity of customer involvement in the innovation process ... 61
6 Conclusions ... 65
6.1 Concluding remarks about research aim and questions ... 65
6.2 Theoretical contribution ... 66
6.3 Practical and managerial contributions ... 67
6.4 Research Implications ... 69
6.5 Limitations and future research ... 70
7 Bibliography ... 71
Managing innovation in an industry like the paper- and packaging industry today implies that one needs to work with both improving the current processes as well finding new innovative solutions, which is a daunting managerial challenge (Christensen, 1997a;
O’Reilly & Tushman, 2004). However, it has not always been this way. Olander Roese (2014) explains how the Swedish forest industry has been subjected to a strategic shift for nearly three decades, turning their focus from cost-leadership and production- efficiency towards customer-orientation and innovation. From several factors, e.g. global- competition and standards (Olander Roese & Olsson, 2012), financial instability and increasing costs for production (Ottosson, 2008) the industry was driven towards a new strategic intent. Making the transition has been challenging for the actors. Berg (2005) and Hayhurst (2002) accused the industry of poor listening to both market and others in the value chain (as cited in Olander Roese, 2014). Many of the incumbents in Sweden also experienced structural challenges to transform since they had spent decades optimizing their old processes and burdening themselves with old traditions and expensive machinery (Ottosson, 2008). However, Olander Roese (2014) believes that increased market- and customer orientation will be fundamental for the continuous development of the industry. The concept of customer-orientation and innovation are nothing new in literature; however, there are few examples when it is applied to the paper- and packaging industry (Olander Roese, 2014). As a consequence, from the customer-oriented mindset the industry has become part of another shift in the packaging industry - the battle against fossil-based material, i.e. plastic. This shift has been amplified by regulations against plastic, e.g. ‘single-use-plastics-directive’ by the EU (EU, 2019). The demand for finding alternatives for plastic solutions are growing and the paper industry has taken a leadership role in offering its solutions. Although, it has been a significant challenge to compete against plastic producers as they are forced to create alternative materials which do not only meet customer demands but are adaptable to the existing actors in the market.
Kumaraswamy, et al. (2018) explain how this century could best be described as an era of continual disruptions where technological innovation and new business models affect entire industries and subsystems. From innovation management literature we have found that one of today’s most exciting scholars in innovation management is Clayton Christensen, and his theory of disruptive innovation. Offer a theory which concerns both incumbents and entrants, it makes for an interesting theory about the challenges described in the paper- and packaging industry. Disruptive innovation theory has received much attention and debates in academia in the recent two decades (Danneels, 2004; Yu & Hang, 2010). Kilkki, et al. (2018) found that before 1997, there were 51 mentions of ‘disruptive innovations’ in 10,000 innovation articles and in 2015 it had risen to nearly 3000 articles discussing and debating the concept. Since the concept was introduced it has been considered a great success and even an industry was built around
its theory where consultants, conferences and firms have been established in order to offer the service of helping other firms with disruptive innovations (Christensen et al., 2018; Gobble, 2016). Philip Kotler, a renowned marketing “guru” chose to use Christensen’s disruptive innovation theory in his research - validating its continued relevance for academia and practitioners (Kotler & Keller, 2012). Danneels (2004) elevated Christensen to the status of “guru” in his field, while Corbyn (2017) wrote how The Innovator’s Dilemma was “the most influential business idea of recent years”. Many authors agree that the occurrence which gave attention to the concept was in 1997 as Clayton Christensen released the book The Innovator’s Dilemma (Chesbrough, 2002;
Danneels, 2006; King & Baatartogtokh, 2015; Kumaraswamy et al., 2018; Yu & Hang, 2010). Since its release it has been studied in various industries (Christensen et al., 2015;
Christensen & Rosenbloom, 1995). Examples can be found in Christensen (1997a) and a summary of case studies are available in Christensen, et al. (2018).
Christensen (1997a) offers a theory which highlights a process where small, or new, actors with fewer resources challenge incumbent actors with disruptive technologies. It builds on the premise of offering an inferior product in terms of features, performance and price compared to what the incumbents tend to offer the mainstream market (Govindarajan & Kopalle, 2006; Adner, 2002). Kumaraswamy, et al. (2018) explain that due to its inferiority the product appeals to the low-end, or new, market which the incumbents have previously overserved or ignored. The incumbents in this scenario are focusing on improving their offerings for their most demanding and profitable customers, thus making the circumstances for launching the product easier in the low-end market.
The challenger, also referred to as entrant, keeps on developing their product incrementally; however, and at a faster pace than what the mainstream market demand.
The reason is that the market demand tends to change slowly in comparison to the disruptive innovation, thus making it possible for the disruptive innovation to catch up (Christensen, 1997b). Christensen (1997a) further argues that as the product has been developed enough to reach the mainstream customer, i.e. the incumbent’s market, and
“when mainstream customers start adopting the entrants’ offerings in volume, disruption has occurred” (Christensen et al., 2015: 4).
Being a popular theory, it has been subjected to both praises and criticism. Much criticism has arisen due to vagueness and research methods (Danneels, 2004; King &
Baatartogtokh, 2015; Lepore, 2014, Markides, 2006; Sood & Tellis, 2011; Tellis, 2006).
Christensen, et al. (2018) writes how the original concept gained widespread traction for practitioners and academics alike, however the concept remained widely misunderstood (Christensen, 2006; Christensen et al., 2015; Gilbert, 2014). Yu and Hang (2010) explain that the concept has been developed and revised pertaining to three major themes; the evolution, the description and its clarification, which have served as foundations for its future research. Christensen (2006) and Christensen, et al. (2015) were the first attempts of dealing with the criticism and define more clearly what disruptive innovation meant.
Then again, in the 2018 article, Christensen, et al. (2018) stated that the primary
contribution was to update and integrate the conceptualization of disruptive innovation theory, but also clarify the underlying constructs for future research.
The problematization first addresses the theoretical framework for our problematization and Christensen’s perspectives for developing theory. It then transitions to the problem statement of the thesis.
"The contribution of social science does not lie in validated knowledge, but rather in the suggestion of relationships and connections that had previously not been suspected" (Weick, 1989: 524)
Davis (1971) with Sandberg and Alvesson (2011) believes that what makes theory interesting, or even famous (Davis, 1986) is its ability to challenge assumptions in a significant way. As quoted above, Weick (1989) also expresses his interest in the unknown and believes that knowledge generated in, at least social sciences, should be more than just validation. In our case, we seek to develop a theory by understanding an unexplored context, therefore implementing the research in the view of Weick (1989) will be useful for us. Locke and Golden-Biddle (1997) build on these aspects as they write how the strongest contribution to research comes from the legitimacy it was produced, and by focusing on novelty and uniqueness as significant components. By applying Clayton Christensen in a context where it has not been applied before, we seek to achieve both novelty and uniqueness. Although, we will need to balance novelty and continuity (McKinley et al., 1999) as the research will be built upon existing theory. Locke and Golden-Biddle (1997) offer three ways in which we could problematize Christensen’s theory, i.e. incompleteness, inadequacy, incommensurability, and for the upcoming problematization we adopt an incompleteness approach. Locke and Golden-Biddle (1997) explain that when researchers decided to problematize literature as incomplete it means that the existing literature is not completed and the current study will attempt to specify it further, aligning with our research and how we will further specify its usability in this type of industry.
The problem for the thesis relates to both the development and the criticism of Christensen’s theory. In the 2006 article, Christensen (2006) discusses how his model for theory-building is built upon two major stages; the descriptive and normative stage. The descriptive stage needs to be completed before developing a normative theory; in the process of building theory there are three steps; observation, categorization and association (see Christensen, 2006:40). In relation to this, Christensen (2006) discusses the importance of anomalies – outcomes which the theory cannot account for. Christensen (2006) believes that these are triggers for improving theory by testing it to various contexts and reducing ambiguity. When Christensen created his theory, it originated in the disk-drive industry as descriptive research. He believes that his transition to normative theory started in 1996 (Christensen, 2006). Acknowledging the superiority of the predictive power of normative theory this was his reason for transitioning
(Christensen, 2006: 42). Furthermore, he also argues that normative research can be used to resolves anomalies and further develop the theory, one way to do this is to ask “What was it about the situation in which those managers found themselves that caused the causal mechanism to yield an unexpected result?” (Christensen, 2006: 43).
It was in this transition where we believed that most of the criticism rose for Christensen theory. Following Hume’s Law; there is a significant difference between what is and what it ought to be, which we believed Christensen had been subjected to. The theory was satisfactory in its descriptive state and successfully worked to understand why certain events occurred in industries like the disk-drive industry. However, as he started to suggest that the theory also could answer how one ought to do in other industries, the criticism rose and he was forced to defend his theory against scholars (e.g. Lepore, 2014).
One of the more substantial criticisms which Christensen has been subjected to is that he uses “hand-picked” cases in his research which only complies with his theory (Danneels, 2004; Gobble, 2015; King & Baatartogtokh, 2015; Lepore, 2014; Markides, 2006; Tellis, 2006; Sood & Tellis, 2011). Christensen (2006) is aware of this criticism that he supposedly avoids anomalies, however argues that it is not valid. Christensen (2006) argues that the purpose of deductive theory building is finding anomalies, not avoiding them – as this is how his theory improves, e.g. the change from disruptive technology to disruptive innovations was based on an anomaly. He argues that we cannot judge the value of a theory based on its ability to ‘tell the truth’, but instead based on the understanding it provides us with. Furthermore, discussing the aspect of how revisions can discredit his theory, to this he argues that this would not be the case (Christensen, 2006: 51). He explains that to the people who see this as a weakness does not understand the theory-building process. Lastly, he urges subsequent researchers to uncover the anomalies of a prior scholar’s work, as they would be considered a triumph for both, since it opens an opportunity to improve on the theory. As for his work, he would be honored if other scholars could identify anomalies to the theory of disruption which has not been accounted for before (Christensen, 2006: 54).
1.2.1 Problem statement
In our thesis we are investigating Christensen’s theory in aspects such as the understanding and conceiving of disruptive innovation, the role of customers and actions of incumbents. Based on these aspects we problematize Christensen in a new context in search for an anomaly which he has not previously accounted for by investigating an incumbent in the paper- and packaging industry. Nowhere have we found a case of Christensen which clearly resembles the paper- and packaging industry (see examples in Christensen & Rosenbloom 1995; Christensen, 1997a; Christensen et al., 2018). It is possible to claim that the case in the steel industry was similar, however we argue that it is not due to the following reasons. As Christensen decided to explore the industry with an innovation that relabeled part of the industry to the ‘mini-steel-industry’ it did change the characteristics of the large process industry, e.g. large production plants, expensive machines and massive volumes. In Weeks (2015) research he explains how many of
Christensen’s observations in the industry were accurate, e.g. large mills failed, unable to open mini-mills. Lepore (2014) found that the unit of analysis was an issue in the case, it is unclear if it was due to the industry, a specific firm, or other factors that it disrupted.
Weeks (2015) further explains how scholars still ponder on why the U.S steel industry still survived, while so many others failed. Especially since they never adopted disruptive innovation. With this remaining ambiguity for the steel industry, we argue that our investigation in another process industry is still justified as a new industry.
Based on the framework for our problematization (Locke & Golden-Biddle, 1997), the objective is to treat Christensen’s work as incomplete in search for anomalies in our context which further specifies the theory. The idea is not to classify the theory as irrelevant or useless, but in accordance with Gobble (2015) define limitations of the concept. Christensen, et al. (2015:4) explains how “…managers may end up using the wrong tools for their context, reducing their chances of success “, however that brings the questions; what it is the wrong context? One way to test this theory is to apply Christensen’s theory to a new context, the paper- and packaging industry. By reviewing components of the disruptive innovation theory, the thesis contributes to the innovation management field by discussing and offer suggestions for its further development.
1.3 Research Aim
This research tests the validity of Christensen’s theory in the context of a specific process industry – paper- and packaging. The paper- and packaging industry is changing, both in terms of competition but also demands from customers. The theory can offer guidance for how to deal with discussions about innovation projects as well as relationships between incumbents and entrants. By applying his theory, we will be able to investigate its usability to discuss how well it complies with the setting, this is especially relevant since it has been criticized for only being tested in specific contexts. We will contribute to the research of this claim by investigating the theory in a process-industry, namely the paper- and packaging industry.
The aim of the thesis is to investigate Clayton Christensen’s disruptive innovation theory in order to problematize it in a new context, the paper- and packaging industry. This will be done by discussing how individuals understand and conceive the term disruptive innovation and also discuss Christensen’s Innovator’s Dilemma in relation to how incumbents tend to manage their innovation projects in the industry.
1.4 Research Questions
Based on the research aim of the thesis, we will elaborate on two research questions which will enable the research into Christensen’s theory. The first question concern how
‘disruptive innovation’ has been understood and discussed in the industry, but also how a common understanding of the concept could become more valuable. Bryman and Bell (2015) explain that the definition, as any definition, will only be as good as in the context by which it is used. Therefore, when discussing how individuals in the paper- and
packaging apply the word will be valuable not only for the theoretical research aim, but also for the involved respondents. We disclose how the individuals apply and also reflects upon the word. Being right or wrong does not always matter, however if the word creates confusion and misunderstanding is relevant for the research.
RQ1: How are individuals in the paper- and packaging industry understanding and conceiving disruptive innovation and why a common understanding is valuable?
Connecting this question to the purpose, it will not offer foundation for the thesis which concerns specifically validating Christensen’s theory. However, it does offer an example if individuals share a common understanding of the implications with this type of innovation. They might not argue or discuss this disruptive innovation per Christensen’s definition; although, they might conduct this type of innovation nonetheless. By implementing this research questions, we are able to problematize upon the conception of disruptive innovation and investigate whether Christensen’s definition has been established within the industry. However, Christensen, et al. (2004) believe that theory should be used to predict a certain outcome. Therefore, in order to get the desired outcome, you have to understand the theory you intend to use (Tidd, et al. 2005).
From Christensen’s definition of disruptive innovation, he also builds his theory, therefore, collecting insights from an incumbent actor, and two brand-owners, in the industry about how they manage their innovations projects constitute our second research question. Understanding the relationships in the market and how external forces influence their decisions enables us to discuss how we believe that Christensen’s idea, e.g.
the innovator's dilemma, can apply in the industry.
RQ2. How is Christensen’s concept The Innovator’s Dilemma applicable in the paper- and packaging industry and does it influence how actors manage projects?
In this research we have set some delimitations:
• We will base our empirical data on the collection from one producer in the paper- and packaging industry. From this actor we have interviewed eight individuals, some with similar job descriptions, but together a wide range of expertise.
• We have interviewed two separate brand owners from the value chain which act in retail. Limited to our time-frame and investigating as independent researchers some of the excluded respondents were not available in the set time-frame of the thesis.
• For the selection of candidates for the brand owners interview we opted to only select actors who had been previously discussed with the respondents at the case company.
Having interviewed more could have been fruitful, however limiting our search of external respondents after the answers in the interview enabled us to focus our attention towards the brand owners which was believed to be most important for the project.
• In order to give Christensen’s theory our full attention, some other authors were excluded in the literature review. The selection of other authors theories was due to
their relation to Christensen in form of critique or other perspectives about his theory.
The thesis will be conducted in accordance to figure 1.
Figure 1. The disposition for the upcoming part of the thesis.
For the upcoming part of the thesis, the first section is the Literature Review. The section consists of a more comprehensive description of the development of disruptive innovation and the notion of Innovator’s Dilemma and Solution. Followed by the (mis-) understanding of the word disrupt and different perspectives on where it can be used.
After that, we review main components in Christensen theory regarding, incumbents and entrants as well as customers. Lastly, criticism of Christensen’s research is presented.
The methodology describes the strategy, approach and implementation of the thesis. We also elaborate on the quality of the research and the data collected. Lastly, we discuss the ethical considerations and implications of the research.
Empirical Findings consist of the presentation of the industry and the answers of the respondent, the case-company, and two anonymous brand owners. It is structured to first present the reader to the background based on literature and articles. It then transcends to the primary data collected by the respondents as we describe the current shift in the packaging industry, the understanding of disruptive innovation, what it means to be an actor in the industry and the role of the customer.
Discussion is structured to answer the research questions. Based on the empirical findings and the literature review we will engage in an in-depth discussion answering the research questions. The discussion is constructed with an inductive approach where the focus is to present and discuss how the respondent’s answers compare and distinguish from the existing literature with the main focus on Christensen.
Conclusions contain the discussion of the research purpose. It also provides the final remarks for the theoretical and practical and managerial contributions. Lastly, limitations and future research potential are elaborated upon.
2 Literature Review
2.1 The development of disruptive innovation theory
The concept of disruptive innovation theory was first introduced by Bower and Christensen (1995) in 1995 when they researched the disk-drive industry (Christensen et al., 2015; Gobble, 2016; King & Baatartogtokh, 2015; Nagy et al., 2016; Schmidt &
Druehl, 2008). Christensen’s theories are built upon the trajectory chart from that industry (see Christensen, 1997a: xvi, 16; Christensen & Raynor, 2003: 33,44;
Christensen, et al. 2004: xvi). Christensen, et al. (2018) describes that as the first interviews with the disk-drive managers were conducted, the managers discussed the concept resource-allocation process which is known for favoring sustaining innovation (Bower, 1970). This meant focusing on new product development which offers high margins by targeting large markets with identifiable customers and deprioritizing smaller markets with less defined customers. Another theory which also emerged was common resources-dependency theory which meant that businesses were dependent on their most critical resources (Pfeffer & Salancik, 1978), in this case customers. Moreover, by anchoring his theory in existing theory he developed his concept - Disruptive Technologies. In this research they claim that there was a consistent pattern in why leading companies failed as technology and market changed. This pattern was exceptionally consistent in the disk-industry as incumbents lost their positions to changes in technology (Bower & Christensen, 1995).
When Christensen (1997a) released The Innovator’s Dilemma in 1997, the focus was on technological problems for the incumbent. He explored how new technologies came to surpass the previously greater technology (Markides, 2006). The disruptive innovation process is known to follow a particular road from ‘low-end, or new, market to the mainstream market’ and will be considered disruptive regardless if the incumbent fails or not (Kumaraswamy et al., 2018; Yu and Hang, 2010). Danneels (2004:247) argues that disruption is usually associated with the replacement of incumbent against entrant, however Yu and Hang (2010) believes that this is not always the case as incumbent firms can usually move upwards to the high-end market where there are more profitable customers. Christensen, et al. (2015) further explains that the disruption process is very different depending on the industry, and will affect firms differently contrary to what many believe. One issue of the concept is connected to the term itself (Danneels, 2004;
Schmidt & Druehl, 2008; Sood & Tellis, 2011). Researchers suggest that businesses and markets can be “shaken” or “drastically change”, without being a ‘disruptive innovation’
in Christensen sense (Danneels, 2004; Schmidt & Druehl, 2008).
Disruptive innovation theory consists of two different kinds of innovation; sustaining and disruptive innovations. Schmidt and Drugehl (2015) claim that it is crucial to understand the difference between these in order to understand Christensen’s perspective. Sustaining is believed to make a good product better for the incumbents existing customers, these improvements can be both incremental and radical however always are believed to sell
more to their most profitable, mainstream customer (Christensen et al., 2015; Christensen
& Rosenbloom, 1995). Furthermore, these improvements usually correspond with a feature which the mainstream customers care most for, enabling sales with higher margins and profitability.
Disruptive innovation is however rarer. When introduced, disruptive innovation is inferior in the attribute which the incumbent is currently offering, however it offers a mixture of attributes which appeal to smaller customers groups, often those closest to the bottom of the market (Markman & Waldron, 2014; Tellis, 2006). Christensen, et al. (2018) argue that they may be; smaller, cheaper, more accessible, or perhaps more convenient than the incumbents offer (Tellis, 2006). Tellis (2006) then argues that it would be irrational for incumbents to invest their resources in this market. Christensen, et al.
(2018) explains that incumbents are unmotivated to develop innovations which promise lower margins, smaller markets and inferior products which would be unattractive for existing customers. It is believed that incumbents would outperform an entrant with an innovation in the mainstream market but underperform in a disruptive context (Christensen, 1997a; Christensen et al., 2018). Disruptive technologies would rarely be introduced to an established market, instead they are valued in remote or emerging markets. However, as the disruptive technology gets a foothold in the low-end market it will develop until it meets the standard of the mainstream market. This in return leads to a shift of mainstream customer to the new innovation and disruption has occurred (Christensen et al., 2018; Markides, 2006). Christensen (1997b) explains how the disruptive innovation tends to be developed in a higher pace than the sustaining innovation in order to serve the mainstream customer, and that is because the market demand usually changes slower than the development speed of a disruptive innovation.
King & Baatartogtokh (2015) however criticizes this remark on the foundation of experts which state that a sustaining innovation can also be too slow to keep up with what the mainstream customer demands, e.g. how improvement in wood materials fails to keep up with construction requirements.
However, there is an issue with the definitions, Christensen (1997a) explains that while innovation may be disruptive for one group it could also be sustaining for another (Adner, 2002; Christensen & Raynor, Danneels, 2004; Schmidt & Druehl, 2008). King and Baatartogtokh (2015) found many cases which did not include sustaining innovation as Christensen had suggested. One example was about local butchers. They did not work on a trajectory of innovation, instead they kept the tools and practices which had not been changed for ages. Still, local butchers were replaced due to other aspects.
2.1.1 Disruptive and radical innovation
Yu and Hang (2011) believe that it is crucial for managers not to confuse disruptive innovation with radical innovation. There is no standard accepted definition of what radical innovations is, researchers have defined it in numerous ways, and it is hard to say precisely what characteristics a radical innovation has. Garcia and Calantone (2002) have examined the extant literature on radical innovations and their result is a comprehensive review of different definitions. They found that there are common features, e.g. new technology is pursed and markets, new innovation fulfills key customer needs substantially better than the existing solution (Chandy & Tellis, 1998). Bessant et al (2014) argue that radical innovation involves a high degree of uncertainty, activities include exploration where the established competence and knowledge cannot be used - external inputs are often necessary. Tidd and Bessant (2014: 25) argues that radical innovation concerns doing something differently. Pham-Gia (2010) claim that radical innovation changes the market fundamentally by launching breakthrough novelties. It requires new competencies which might destroy the existing competencies of the company. It is commonly believed that radical innovation involves high risk and uncertainties which generally make incumbents to choose to invest in low-risk incremental innovations. However, to survive over the long-term firms they would need to pursue radical innovations project to build new growth (Pham-Gia, 2010). Radical innovations are by nature a discontinuity to the experience of the organization, this type of development is outside the regular innovation management competencies which imply that organizations have to absorb new dynamic capabilities (Bessant et al., 2014). While radical innovation is often perceived as high risk, at the same time it should be elaborated as an opportunity that can create long-lasting positive effects. It became clear that firms have to respond to risks and opportunities in order to reap the benefits of radical innovations (Story et al, 2014). Pham-Gia (2010) explains radical innovation by several key points which contribute to a clear understanding of the concepts. (1, Emphasis), radical innovation should emphasize the development of new business, products or processes that change the market radically. (2, Degree of novelty), is high due to the explorations of new technologies. (3, Impact on business), creates rapid growth in the new market over the long term. (4, Uncertainties), uncertainty is perceived high. (5, Trajectory), the development follows a sporadic and discontinuous path. (6, Business case), the business model is evolving through discovery-based learning. (7, Process), in early stages when uncertainties are high, informal and flexible processes should be used.
In later stages when the degree of uncertainties is low, the process should become formal.
(8, Resources and competencies), internal and external competencies and resources should be acquired (Pham-Gia, 2010).
Disruptive innovations share some of the features that radical innovation has, but it depends on how we chose to define radical innovations. Yu and Hang (2008) found that there is high uncertainty and challenging to create disruptive innovations, especially if it was based on a new scientific discovery. This finding is in coherence with that radical innovations is believed to have high technology uncertainties. The main difference
between disruptive and radical innovation is how companies decide to launch it and to whom. Disruptive innovations by definition should target the low-end market or new market where other types of customers’ needs and demand have to be addressed (Christensen et al., 2015). Radical innovation is pursuing to deliver superior value to existing customer-base (Chandy & Tellis, 2000). Disruptive innovations encourage that new business model and value propositions should be developed (Christensen et al., 2015), but radical innovations can make use of the existing business model or some researchers believe that it can be developed in some aspects (Pham-Gia, 2010). However, researchers depict a disruptive innovations R&D strategy that can be developed with existing competencies and knowledge while radical innovation requires a new type of competencies (Bessant et al., 2014; Yu & Hang, 2010). Govindarajan, et al. (2002) found that firms that have mainstream customer orientation are more likely to introduce radical innovations but less likely to do so with disruptive once. Simply because those type of firms serves existing customers. On the other hand, firms that had emerging customer orientation was more prone to develop disruptive innovation, because they seek a new type of customer groups. The results imply that the type of orientation the firm's select lead to loss of a certain type of innovations.
Tidd, et al. (2005) argue that if innovation is defined differently between individuals the results will also be perceived differently. For example, if innovation is seen as “strong R&D-based”, the result might be unsatisfactory for stakeholders who prefer to focus on customer needs. However, if innovation is seen as “understanding and meeting customer needs” the output of such a process might lack technical progression. Frame analysis theory suggests that our frame and perceptions of a situation guide how we interpret and understands it, our beliefs, experience builds up our mental picture of the world which implies how we tend to act (Fay, 1996; Goffman, 1974). The effect of different views has a significant impact on the “value” you can exploit from it. That is why a clear and common understand is necessary so companies can guide the processes in the direction that is in line with their perspective (Goffman, 1974).
2.1.2 Overshooting and innovation technology
Furthermore, Christensen (1997a) discusses a phenomenon which he calls ‘overshooting the market’, this implies that innovators’ performance improvements tent to exceed the rate of improvement which the customer can absorb. This commonly occurs as an incumbent produce something too advanced, an over-featured product which the customers do not necessarily need. This in return leaves a gap at the low-end of the market which would be interesting for entrants (Christensen et al., 2018). Being able to detect overshot customers, saturated customers, is an important objective for an entrant (Schmidt, 2004). The entrant can offer “good enough” quality in an attribute which is important for the mainstream customer while focusing more on the development of another (Christensen et al., 2004; Gobble, 2016). The fact that there are products which are “too complex, expensive, complicated” also implies that there will be a customer group which is not attracted to the solution, typically in the low-end market, which is where the
disruptive innovation would be implemented (Gobble, 2016; Schmidt & Druehl, 2008).
What is vital for the customer will always be changing which makes it hard for incumbents to avoid this phenomenon (Christensen et al., 2004). One example of overshooting is if the functionality is overshot it would not be reasonable to keep competing on functionality and they should instead focus on sustainability for their next development (Christensen, 1997b). King and Baatartogtokh (2015) however argue that the assumption which Christensen does is to suggest that there is an apparent rank of product attributes for customers making them switch to another product when they are overly met, which they argue is not true. They have found that many cases where incumbents firms fail due to disruptive innovations; however, were never are even close to overshooting customers in the way which Christensen states (King & Baatartogtokh, 2015).
Furthermore, Yu and Hang (2008; 2011) have researched the occurrences of disruptive technologies, not to be confused with disruptive innovation, and explains that it can be extremely challenging. They found that literature often assumes that this type of technology just happens, however this is not always the case. They argue that Christensen's have taken this aspect of the theory too lightly and not adequately researched it. Another thing which Christensen discusses is the natural response that if an entrant would try to establish a product in a high-end or mainstream market the incumbent will pick up the fight and compete hard in order to not lose their best paying customers (King & Baatartogtokh, 2015; Schmidt & Drugehl, 2008). King and Baatartogtokh (2015) have found that other factors can affect why incumbents compete in a high-end market. They found in 77 cases that many displayed factors such as the appearance of substitutes, low barriers to entry, and increases of competitors can turn profitable industries into profitless deserts. Markides (2013) further explains that for disruptors to have a chance of winning against incumbents, they must invest in improving the performance while maintaining their significant cost advantage over the sustaining innovations. How successful they will depend greatly on the source of their cost advantage and how sustainable it will be. Working against incumbents is not easy, if they noticed an entrant which lower their costs, they would reduce as well. If the cost advantage is a factor like low labor costs or a re-engineered product which requires cheaper or fewer components, the incumbents can often find ways to tackle these threats. Nagy, et al.
(2016) also explains that one issue with the theory is that data, which only is generated when a disruption has already taken place. Making the data less important as there was nothing, they could to do prevent disruption from happening.
2.1.3 The Innovator's Dilemma
The concept of The Innovator’s Dilemma first was introduced in Christensen’s book The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail in 1997. The book was about how large well-functioning and profitable companies tended to lose the battle against technological changes (Christensen, 1997a). Following generic conclusions from researchers about the how the world has become more complex, uncertain and dynamic (Kim & Lee, 2017; Oliver & Parrett, 2018; Pérez-Luño et al., 2011; Martin, 1996; Zhan et
al., 2018), there was a keen interest back in the late 20th century for a way to cope with all these changes, one which Christensen offered (Christensen, 1997a).
Thus, bringing us towards the Innovator's Dilemma. It builds upon the idea that incumbent firms listen too carefully to their main customers and are unable to detect as disruptive innovations are coming from low-end or new markets. One interesting remark is how Christensen (1997a) does not criticize the firms in the way they act and instead argues that their decisions and actions were entirely rational for an incumbent. Listening to their largest customers, investing heavily in technology to serve them with the best products - even when it requires completely different technical competencies and manufacturing abilities from what the company had (Bower and Christensen, 1995). Ironically, it is precisely these things which make incumbents lose as they are taught to act by traditional business techniques (Bower & Christensen, 1995:47).
“Good management was the most powerful reason they failed to stay atop their industries.
Precisely because these firms listened to their customers, invested aggressively in new technologies that would provide their customers more and better products of the sort they wanted, and because they carefully studied market trends and systematically allocated investment capital to innovations that promised the best returns, they lost their positions of leadership” (Christensen, 1997a: xii)
Furthermore, what Christensen and Bower (1996) made clear is that incumbents do not lose due to the nature of the new technology, but their strong impetus to satisfy their most valuable customers. This results in the continuous investment of resources towards projects which the existing customers prefer. Christensen (1997a) argues that organizations will quickly terminate processes which customers do not value, making it increasingly difficult for an incumbent to focus on technologies where the customers and their market are uncertain. Additionally, Christensen and Raynor (2003) point out that as an entrant firm introduces a new product in a low-end or new market an incumbent firm rarely notices this, especially if the entrant manages to enter into a new market without taking any shares of sales away from the incumbent. They further explain that even if the incumbent would notice that the entrant takes market share in a low-end market they would still not compete. The reason is that the low-end market does not pay premium prices and is therefore not as attractive for the incumbent as their mainstream customer.
However, King and Baatartogtokh (2015) have found that even if an incumbent notice what is happening, they are not always able to ‘challenge the disruptors’, simply due to their inability. Kumaraswamy, et al. (2018) on the other hand argues that it would be possible for incumbents to compete with the entrant by offering an equivalent innovation, however in doing so they endanger cannibalization of their more profitable offering in the mainstream market. Confronted with this dilemma, Christensen (1997a) argues that the incumbent instead chose to ignore the challenger and to continue to develop their current products. Over time the performance of the entrant will improve, while still being cheaper and more accessible than the incumbent’s offerings and lastly disrupt the incumbent.
Govindarajan and Kopalle (2006:14) claim that there are four reasons why a disruptive innovation would create a dilemma for incumbents. (1), the mainstream market would
not value the new features in the innovation when introduced. (2), the innovation would perform poorly on the attributes which the mainstream market values. (3), the innovation would attract an emerging or insignificant niche market. (4), the innovation would generally offer a lower margin making the markets unattractive for incumbents.
2.1.4 The Innovator's Solution
Based on this dilemma, Christensen suggests ways of resolving the dilemma and therefore publishing The Innovator’s Solution in 2003 with Raynor (Christensen & Raynor, 2003). A suggestion was to create separate divisions which would handle disruptive innovations, more commonly named ambidextrous organizations (O'Reilly III & Tushman, 2013). This suggestion was also mentioned in Bower and Christensen (1995), but not as explicitly.
However, Christensen did make some significant revisions to his theories in his new book.
First, he chose to relabel his term disruptive technologies and instead call it disruptive innovation (Christensen, 2006; Christensen & Raynor, 2003). Markides (2006) and Yu and Hang (2010) explains that this revision widened the application of the theory, not only to include technological products but also business models- and service innovations.
“In other words, [disruption] was not a technology problem, it was a business model problem”
(Christensen, 2006: 43)
Christensen (2006) then explains that technology in itself is not disruptive, it is instead about how and to whom value is delivered. Schmidt and Druehl (2008) however had another opinion as they claimed that the classification had to do with the characteristics of the innovation and nothing with how the firms introduce it. This statement does not agree with Christensen’s perspective and neither to Chesbrough (2010) who states that creating technological innovation for success is not enough since technology in itself has no objective value. The value comes from how it is commercialized in a business model.
Christensen, et al. (2015) explains how it is quite rare that technology would be either sustaining or disruptive, and that it can only guide which steps to take strategically.
Finally, Christensen, et al. (2018) stated the technologies and business models intertwine.
A disruptive innovation has to be evaluated in relation to the business model of the firm, this realization offered the conclusions that “No innovation is inherently disruptive”
(Christensen et al., 2018: 1050).
2.2 The (mis-)understanding of the word ‘disruptive’
All words which we create while researching are inherently ‘made up’ and therefore do not have intrinsic value. However, how we choose to think and reason about words in events and phenomenon are valuable. One word can mean many different things, however one word in the field of innovation management which has been widely used in the last centuries are ‘disruptive’ innovation (Gobble, 2016). Researchers argue that the word disruption has almost come to a point where it has lost its meaning. It has been overused, overexploited and misused and has therefore become a cliché for practitioners and academics alike (Christensen et al., 2015; Gilbert, 2014; Gobble, 2016; Lepore, 2014).
Christensen, et al. (2015) agrees with the criticism (Lepore, 2014) that the word has
become a “buzzword” and has taken to many meanings. During an interview in BusinessWeek Christensen responded to Jill Lepore’s acclaimed article, which has ruthlessly criticized his research (see Lepore, 2014), he did agree that the word has been used to justify whatever anyone feels like justifying. Christensen, et al. (2015) further argues that too many use the word “disruption” without having read a serious book or article in the subject. He states that “Many researchers, writers, and consultants use
“disruptive innovation” to describe any situation in which an industry is shaken up and previously successful incumbents stumble. But that’s much too broad a usage” (Christensen et al., 2015: 4). Weeks (2015) argues that the issues with Christensen work are the lack of establishing clear boundaries of what disruption and sustaining is. Weeks (2015) then argues that the current concept works in almost every context; almost all new technologies will be inferior in performance in early development – does that make it disruptive? Gobble (2015) found that Kevin Roose, in New York Magazine, has even suggested that we should stop using the word – when everything is considered disruptive, nothing is.
Researchers have recognized the fundamental flaw of lack of general classification as one of the main criticisms of the theory (Danneels, 2004; King & Baatartogtokh, 2015; Lepore, 2014; Markides, 2006; Schmidt & Druehl, 2008). Michael Raynor, co-author to The Innovator’s Solution however argues that the word disruption, as well as innovation, does not have a technical meaning and when Christensen attached the word to his research, he had a specific meaning in mind (Gobble, 2015). Even as Christensen himself has attempted to clarify his meaning of the word ‘disruption’ (Christensen, 2006; Christensen et al., 2015; Christensen et al., 2018), Nagy, et al. (2016) believes that there are still problems with the attempts. One of the problems is the vagueness of the disruptive innovation definition as it majorly concentrates on the market impacts. When Danneels (2004) investigated the theory, he also finds that the same issue arises, even with its widespread use of the term there is still a lack of clear understanding as for what constitutes the term.
Furthermore, Nagy, et al. (2016) argues that in order to claim ownership of the term
‘disruptive innovation’ they would first need to offer a clear definition of what disruptive innovation is. Gobble (2016) builds upon this argument as she writes that without a consistent definition, academics and practitioners will be influenced by either an ontological conflict, i.e. the nature of disruptive innovation, or an epistemological, i.e. the knowledge surrounding disruptive innovations and the difficulty of agreeing about what is being studied. Gobble (2016) argues that many researchers, writers and consultants use ‘disruptive innovation’ to describe any situation where the market is shaken up or when an incumbent stumble. She then suggests that much of the problem with disruptive innovation comes for the broader meaning of ‘disrupt’ and ‘disruptive’ in the English language. She believes that disrupting or causing turmoil can also be an understanding of the term. Christensen (2006) also believes that disruptive has many connotations such as
“failure” or “radical” in addition to his phenomenon. Both Gobble (2016) and Schmidt and Druehl (2008) argues that it is possible to argue that an innovation can disrupt a market, without it being a disruptive innovation in accordance to Christensen (1997).
2.2.1 Different perspectives on disruptive innovation
From literature various definition of disruption has been provided, one definition by Christensen, et al. (2004: 293) is ‘‘an innovation that cannot be used by customers in mainstream markets. It defines a new performance trajectory by defining new dimensions of performance compared to existing innovations. Disruptive innovations either create new markets by bringing new features to non-consumers or offer more convenience or lower prices to customers at the low end of an existing market”. However, there are many attempts at defining the term, many which show similarities to each other. In table 1, we present some of these definitions.
Table 1. Different definitions and scholars with similar perspectives.
There are also scholars who research disruptive innovation but does not offer their definitions of it (e.g. Kassicieh et al., 2002; Laplante et al., 2013; Markides, 2006 and Yu and Hang, 2010). Moreover, some which do not comply with Christensen’s views at all when discussing disruption. Kilkki, et al. (2018) explain that in the literature about digital disruption there are almost no connections to Christensen. Damanpour (1996) discusses it as a process which significantly eradicates practices in existing organizations by making fundamental changes to its activities, Leifer, et al. (2001) defines it as a new service or process which have non-existing or existing characteristics which improve key performance or decrease costs. Assink (2006) believes that disruptive innovations mostly arise by combining various emerging smaller ideas, trying to challenge suppositions that have been there before, widening boundaries, spotting customer needs that have not been discovered, trying new challenges, doing the unthinkable and challenging our state of minds. It is a critical and interacting way of getting feedback and learning. Differently to the increasing process of innovation, e.g. concepts of stage-gate and linear, disruptive innovation look like a continuous development process that is circular and spiral. This disruptive innovation is dependent on a system that is built on dynamic and systematic
thinking with learning as its core aspect. They affect already businesses in place and bring in tremendous opportunities that eventually make the profits to grow (Assink, 2006).
In Kilkki, et al. (2018) research they take a conceptual style based on the idea of disruption to give a definition that can be used in all fields without limitation to the business sector.
As defined in the Cambridge dictionary, disruption means preventing something mostly a process, system or an event from its normal procedure. Therefore, an agent who interrupts the activities of their counterparts is termed as a disruptor. Agents who are disrupted such as by Yu and Hang (2008) and Christensen (2013) are referred to as disruptees. This means that one can be a disruptees, a disruptor or a neutral party based in the concept of disruption (Kilkki et al 2018). Brown (2003) however takes disruptive innovation to social perspective and states that it changes the way of life in terms of social activities, learning and work. It needs splitting conceptual frameworks, problem restructuring and digging deeper into its causes. In his paper, disruptive innovation is defined as through new process or concept that has been used successfully to make significant changes to the demands and requirements of a market or industry that already exists and creates new business markets or practices in whole by disrupting its past key players with significant impact to the society.
2.3 The behavior of the incumbent firm
Christensen (1997a) explains that incumbent firms tend to invest where the return is at its highest. However, what this leads to is that incumbents become rigid and stuck in their current processes which in return makes them more interested in developing their current processes than taking on disruptive innovations (Obal, 2013). Initially, Christensen and Bower (1996) observed how established firms chose not to allocate resources to disruptive innovation as they were unappealing for their existing source of income, existing customers. Even so, empirical research has suggested that incumbents have tried to cram disruptive technologies in their current processes, although this has only resulted in changing the nature of the disruptive innovation into a sustaining one and therefore neutralizing the disruption (Christensen, 2006; Christensen & Raynor, 2003;
Christensen, et al. 2018). In comparison, the entrant is considered more flexible and eager to seize opportunities and being motivated to make current technology extinct, which gives them an advantage while developing disruptive innovations (Obal, 2013;
Christensen, 1997; Tushman & Anderson, 1986). It is suggested that most of discontinues change and innovations are developed by entrants (Christensen & Bower, 1996; Tushman
& Anderson, 1986). Macher and Richman (2004) argue that entrants outperform incumbents due to its smaller sized, shorter history and less limited commitments to their current networks and technologies. However, the path of the entrant is not always easy.
Kumaraswamy, et al. (2018) explains that there is often a significant challenge in gaining access to the resources which are held by the incumbents, especially if they would challenge them in their most profitable market.
The main issue which is often discussed in the relationship between incumbents and disruptive innovations is how they are believed to be ill-suited for each other (Christensen
& Rosenbloom 1995, Christensen 1997a, Tushman and Anderson 1986). The reason is believed to connect with behavior and that incumbents are usually trapped in their core rigidities and organizational myopia (Leonard-Barton, 1992; Levinthal & March, 1993;
Kumaraswamy et al., 2018). The organizational inertia is believed to come from structured routines as well as traps in their existing competencies (Leonard-Barton, 1992). Christensen, et al. (2018) explains that the core rigidities of incumbents are dependent on how the managers would frame the innovation; as a threat or opportunity.
Gilbert (2005) explains that framing the disruptive innovation as a threat often leads to more allocation than for an incumbent to when considering it an opportunity.
Christensen and Bower (1996) found that incumbents tend to focus on the processes which improve the offering to existing customer and therefore making it difficult for managers to shift their investments towards disruptive innovations. However, on the contrary Henderson (2006) have found that arguing the incumbent firms are ill-equipped to handle disruptive innovations is not always the case. It is possible to sometimes the incumbent did identify the needs of the low-end or new market, however they lacked the market-related competence in order to serve these customers.
2.3.1 An explanation based on the Resource Dependency Theory
One way to explain the rigidness of the incumbents and their inability to act upon disruptive innovations comes from resources dependency theory. Christensen and Bower (1996) found that a firm’s strategic intent often is bounded by their interest of external entities, e.g. customers, which provides the firm with resources they need to survive. They explained that customers wield power to direct the investments of firms which results in sustaining technologies that address their needs. Based on this theory, incumbent firms will, and should not, direct their resources towards markets where estimated early potentials are low (Bower & Christensen, 1995; Christensen et al., 2018).
One of the rigidities can be connected to the concept Cost Structure (Christensen, 1997a).
Bower and Christensen (1995) explain how a firm's income and cost structure plays a vital part in the decisions whether or not to develop technological innovations. The incomes which incumbents can expect from a low-end market are usually low and therefore it is hard for them to estimate how much they could earn. This in turn implies that an incumbent firm which has spent many resources in establishing and developing their current processes will have significant challenges when they attempt to handle a disruptive innovation. It is considered as ‘not meaningful’ and thus rarely happens.
Christensen, et al. (2018) argues that changing the cost structure to something which does not provide the mainstream customer with better products are not typically not valued in incumbent firms. Furthermore, it is known that incumbent firms tend to have more resources allocated to sustaining innovations rather than disruptive, and when a manager gets the choice of investing in a technology with lower earning potential versus higher earning potential, it is usually not a hard decision.