If you have never read the Innovator’s Dilemma by Clayton Christensen, he breaks it all down for you here in this concise video at hbr.org. He first explains that a disruptive innovation is not a breakthrough that makes a good product better. Instead, it transforms a product that is normally so expensive that only a few can afford it and makes it accesible to a larger population. He uses the example of the electronics industry and the movement from mainframe to personal computers and even smartphones.
The innovator’s dilemma is when a company is faced with the choice of making better products, that can be sold with higher margins to their existing customers or making an inferior product that maybe none of their customers would want, but might open up a much larger market to them.
The auto industry is a perfect example of this. The Big Three in the United States for years stayed up market and gave the lower end to Toyota and Honda. It was obvious this wasn’t working too well for them for many years – and it was particularly apparent when gas prices started to go up. It all really came to the head though in 2008 when demand dropped precipitously, leading to the now famous auto bailout in 2009.
Christensen goes on to say that “the only way you can look into the future is to have a good theory.” He argues that there really is no data for the future. Relying on data makes you slow or late. All you have to go on is your theory. “And that’s what the theory of disruption is about.”
I am just wondering now what theory the US auto companies are working under. By the way the initial electric cars are being priced, you would argue that they are still staying high end and trying to sell to the same customer base. Part of the hope of the bailout was that things would change at least in part. Yes, GM is making the Chevy Volt, but is their strategy really any different? They are pricing it like a mainframe computer. This strategy was not working before the bailout. Do they need to change something beyond a slight adjustment to their product mix?
Electric vehicles seem to have the potential to meet Christensen’s definition of a disruptive innovation. Why are they still going after the same customers?