Wednesday, April 19, 2017

Disruptive Innovation and Uber

Christensen’s theory on disruptive technologies has impacted many in the business field, and is still prominent in strategy development today. Disruptive technologies are introduced into smaller or unknown markets and usually underperform against established products at the start. These disruptive technologies are usually cheaper, smaller, simpler, and easier to use for the consumer. A firm’s most profitable and loyal customers avoid disruptive technologies when they are introduced, but they do appeal to some fringe customers. Additionally, in the readings given, Christensen’s drives home the point that in these disruptive markets those who do research or create forecasts are almost always wrong. Because the disruptive technology is new and has not been introduced to the consumer, the market is unknown and cannot be studied in depth.  As was the case with HP’s Kittyhawk product, whose forecast estimates lead managers to failure.

In an updated article on the Harvard Business Review, Christensen along with other Harvard Business school professors look back at the innovation dilemma and decide if it can it apply to Uber. Before reading the article, I assumed that Uber would be considered a disruptive technology. The ride-sharing service has created great anxiety and disruption in the taxi business. Leaving many to wonder if the taxi is the product of the past.  

However, they decide that Uber is not a disruptive technology. They give two reasons. The first is that Uber did not originate in a new-market or low-end foothold. Meaning that disruptive technologies usually are created to appeal to low-end or under-represented customers, or are created in a market that did not exist before. Uber had gone in the opposite direction, and built a position in a mainstream market that already exists and services those who were already receiving the exact service from taxi companies. 

The second reason given was that disruptive technologies are initially inferior to their sustaining counterparts.  Usually, customers are not immediately willing to move to the new product until the quality rises, even if it is at a lower price.  Once the quality rises to their standards, customers will move to the disruptive technology. Uber, however, does not seem to fit this mold. Their cars and services are rarely described as inferior to taxicabs, and today most would describe Uber as being the better product. Uber’s cars are usually clean, calling one can be done on your phone, and payment is easy with the use of a credit card.  The quality of Uber’s services and product did not start as inferior to the taxicab, but were on the same level from the start.

The example of Uber can be confusing because most would view it as a disruptive technology in the market of transportation. Recognizing what is a true disruptive technology can be quite hard. Disruptive technologies can seem to be obvious to most, but the article finds that there is some nuance being used in identifying disruptive technologies.  

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