Strategy Amid Disruption: Adaptation or Creating New

Christensen’s Theory of Disruptive Innovation

Clayton Christensen described the mechanism by which successful companies lose to new entrants:

1. The market leader focuses on the best customers (high-margin segment)
2. The new entrant offers “worse, but cheaper” — captures lower segments
3. The leader ignores: “those are not our clients”
4. The new entrant improves the product, moves up the market
5. By the time the leader notices the threat, the new entrant is already strong

Examples: digital cameras vs Kodak; Netflix vs Blockbuster; Discord vs Slack for gaming communities.

Why Leaders Fail to Respond in Time

Resource Allocation Problem: internal processes allocate resources to existing customers, not future ones.

Fear of Cannibalization: the new product will take share from the existing one. Better to do this yourself than wait until a competitor does.

Organizational Inertia: culture, structure, metrics optimized for the current business.

Strategies for Responding to Disruption

Ignore — only if disruption truly does not threaten. Rarely the right strategy.

Defend the core business — accelerate innovation in response. Requires time.

Create a separate unit — independent business unit with different metrics, culture, and freedom. AWS as a separate business within Amazon.

Acquire the disruptor — buy the threat. Instagram, WhatsApp → Facebook.

Lead the disruption — create the new wave yourself. Apple with iPhone disrupted its own iPod business.

Practical Assignment

A bank faces a threat from neobanks (Tinkoff, Revolut) and payment systems (Apple Pay, PayPal). Which response strategy do you recommend? Develop a 3-year plan: (1) what to protect in the core business, (2) what to build new, (3) what to acquire?