Disruption Isn’t the Only Path to Innovation

AI is transforming the world and it starts with the right compute. ARM is the AI compute platform trusted by global leaders, proudly NASDAQ listed, built for the future. Visit arm.com discover. Welcome to the hbr ideacast from harvard business review. I'm kurt nickish. We interviewed Jim McKelvey back in episode 730. He told his story of co founding the mobile payments company Square. He had been annoyed to lose a sale when his independent glass blowing studio couldn't take a credit card. Basically back then if you sold less than $10,000 a year accepting credit car credit cards just wasn't economical. Square made it possible for individuals and small merchants to take credit cards with a mobile phone or tablet. And Visa and MasterCard were happy about it because it was bringing them brand new business they didn't have before. As McKelvey said in that interview, the most interesting part of a market is where it ends because that's where anyone can expand the zone and create wholly new value. A new market. Today's guest says that Square, now a multi billion dollar business, is a great example of non disruptive creation and that more companies can grow in a way that moves beyond a destructive win lose competitive mindset and in a way that creates value without destroying jobs and industries. Renee Mauborin is a professor of Strategy and Management at Insead where she co directs with Chan Kim, the Blue Ocean Strategy Institute. Together they're the co authors of the new book Beyond Disruption. Innovate and Achieve Growth without Displacing industries, companies or Jobs. Renee, thanks for coming on the show.

Glad to be here Kurt.

So why take another look at where we are with innovation today? What's wrong with this thing that you know, we understand fairly well and teach in every business school? Disruptive innovation?

Well, disruption is an important concept. The underlying assumption is that in order to create you must disrupt or destroy. And that even comes from the father of innovation, Joseph Schumpeter, Creative Destruction. But when we looked at our research, what we found is that you don't only need to destroy to create. You can also create with no disruption and no displacement. And that allows companies to not only innovate but in doing so achieve social good and not social good in how I spend money, but in the very way that I make money. And so that is opening up a new terrain. Why should we only focus on disruption and destruction when we can create all new markets without disruption or destruction? We don't have to tear down and destroy to open up profit, opportunity and have impact in society. Why would we Shut ourselves off from all those opportunities. Just the way you discussed Square opened up a billion dollar business. Why would we ever shut those opportunities off? And therefore why are we not having conversations? Honest, that is what excited us. How can we double the terrain in the field of innovation so that we see more opportunity on the horizon for all of us?

Do you feel like the social costs of disruption are I guess underestimated? When jobs are disrupted, people like to point out that new jobs are being created, new value and it's freeing people up to do newer and better things. And there's a lot of rationalizing, I guess, of the social costs. Do you feel like some of that is lip service and that these costs are more damaging and real than the business world? Maybe. Lets on.

You know Kurt, I think it's an interesting point you're raising, but I think that when you have an industry that's no longer efficient, no longer effective, disruption provides a useful mechanism. And yes, there's social costs. That's one thing. There's this whole other area which is that you can create without destroying. Now if I am, am a company and I have an opportunity to create without destroying and to be able to achieve economic and social good which we understand society at the highest levels actually increasingly are saying we need to go beyond just shareholder concerns to stakeholder concerns matters and I can do that in a profitable way as an executive or a business person, I would be a fool not to understand and consider that dimension there. If I walk down the streets of Manhattan right now and I'm on the busiest streets, let's say Madison Avenue, I see shuttered store after shuttered store after closed store, does that wear on the psyche of people? To some extent, yes it does. When I find out that Rochester, New York, when Kodak was completely disrupted by digital photography and Kodak went from some 80,000 employees down to less than 10,000, do I not think that's devastating impact on the employees, the community and the society? Yes, I do. Now was that needed? Was that going to happen? Perhaps it was. But we're saying is what are the non disruptive opportunities that we might have been missing? So we need to understand, just as we say there's competing and creating, they're complementary. The purpose of the book isn't to destroy disruption. We are not destructive, we're positive. Sum it is to open up another horizon that offers billion dollar businesses huge impact and that people haven't been giving enough consideration to.

Let's get into some more examples and talk more specifically about non disruptive creation.

So let's first get some definitional terms here. So when I disrupt, I offer a breakthrough solution to an existing problem. So I create a new market that displaces an existing. So what is non disruptive creation? It's creation without destruction. It's when I create a brand new market outside the bounds of existing industries. So there are no existing industries nor market players to disrupt nor displace. So I look at microfinance. No one ever thought that you could offer financing to people earning less than $2 a day with no stable job, no credit history, no collateral and no one of any wealth to put their name behind and guarantee for them. Microfinance opened up a billion dollar industry. But then, you know, we look here in the US well what about 23andMe? It opens up a brand new non disruptive billion dollar industry for us to understand our genetics and our DNA back TR our genealogy. Another broad non disruptive look at esports. Brand new industry taking off outside the existing video game industry doesn't disrupt displace anyone. Whether in physical sports like football or soccer, or in the gaming industry, creates a whole new market for people to come together in huge stadiums. 50,000 more with 200,000 young people online and old watching video game players, multi game players and teams and exciting for big games, same prizes. So the opportunities, whether in developing markets or bottom of the pyramid markets are huge for companies. And let me back up a minute too. You know, you were mentioning Kurt, that okay, let's just look at social cost, but not disruptive. Creation is more than that. As I said, I can create without displacing industries, companies or jobs. And as we know, increasingly employees want to believe that the company they work for, your brand image, is doing something good for society. They want to believe that you are adding. So let's not forget the image impact. But there's also, as we articulate in our book, four very important operational advantages that come with non disruptive creation over disruption. And that is what organizations need to take into account. So there's practical as well as image and as well as societal implications.

So a lot of reasons to expand the zone here and find new ways to create economic value where there just wasn't anything before. True creation.

It's creating new markets by looking to problems that people have that have been unaddressed and people have taken for granted as simply the way things are. For example, that problem of generational poverty had long existed. It didn't just suddenly emerge. Right. But people took for granted. That's just a simple fact. Of poverty that you just can't have access to credit until someone, Muhammad Yunus said, no, wait a minute, is there a way that I can lock that opportunity so that I can create a thriving business that's a profitable growth, it's a for profit business and at the same time help these people transition and create a better life for themselves or their families. So one way to create a non disruptive market is to look for all the existing but unexplored problems that exist in the world that we take for granted, can't be solved or just a nuisance to put up with and to solve them. And the other thing is to look at emerging opportunities in the world that are arising because of economics, demographics, societal, technological shifts that we could create a brand new opportunity for or new aspirations or solve a brand new problem. So let me give you an example of that. Today I'm reading in the papers the real problem about commercial real estate. Right after Covid, no one's coming back. The vacancy rates are huge for these commercial real estate in the major cities around. That's an emerging new problem, didn't exist 10 years ago. Now the question is if we apply non disruptive thinking, what is an effective way that we can reconceive of what this office space can be? If I am the holder and the owner of this commercial real estate and I know that I have mortgages on it, but the second that those leases are up, I'm not likely able to release those buildings and I'm going to have a shortfall in my cash. I want to start thinking now. How can I start thinking non disruptive emerging problem to reconceive that space, to create a whole new opportunity for my buildings and, and for my my own profit and for the communities that I serve. Because vacant commercial buildings don't serve anybody. So that's just an example of where there could be a huge non disruptive opportunity in the future.

Does it take a different kind of thinker to see these opportunities?

So most companies, when they're thinking about innovating, they start with a world the way that it is and they use that to tee off and set their ideas for what is possible and probable. What actions can I take? But non disruptive creators don't start with the world as it is. They start with their imagination. They start to think of what could be, what should be in despite of what is. And because of that they start to raise fundamentally different questions and reimagine what is possible.

We started this interview with Square and it was funny reading the book, I kept thinking back to that interview with Jim McKelvey just reminded me so much of what he was talking about. It's one of my favorite episodes and interviews because it was just so freeing to listen to how he thought about new markets and new opportunities. And then lo and behold, Square pops up as an example in your book.

Think about this, Kurt. You've got these major credit card issuers. You have Visa, MasterCard, American Express, all these major players. You've got these huge payment providers that process the credit cards, right?

Yep.

Now you're a glassblower. You missed your sale and then you say, oh, darn it, I wish I could accept credit cards. If I start with what is, I'll say, oh, yeah, but you know, that's just a natural hassle that goes with being a small guy, being an individual. I got to wait till I'm a big guy, be or a big girl before I have the opportunity to have that advantage. Right? But no, he doesn't think like that. He thinks that doesn't make sense. Why should small and micro businesses less than $10,000 or even individuals, babysitters, not be able to have the most convenient form of accepting payment? Why shouldn't they? What would that be and how could that be to do that? So if you think about Jim McKelvey there, he didn't accept the world as it was. He knew that with his own actions and his independent thinking, he could shape that world to create a market because he saw the need and he saw that it was unaddressed. Right. So an existing issue that was unexplored and he set out to explore it. And that's one of the paths to non disruptive creation. And if more companies started to think this way, there'd be more billion dollar businesses in their different industries that could.

Be created, which is encouraging. Right. I mean, just the same way that we can learn to be more entrepreneurial and the same way that people can seek out disruption at organizations, that's got to mean that you can learn to do non disruptive creation at companies too.

When most people use their imagination, unfortunately, they use it the wrong way. They use it to imagine why something can't happen, why something can't be done. When you use your imagination in non disruptive creation, you use it to focus on how you can make it happen.

How does non disruptive creation fit into other trends that you're seeing in business right now? And I'm thinking here of AI ChatGPT, for instance. A lot of people think of that as disruptive it's going to replace jobs in a lot of cases, clerical jobs, knowledge worker jobs, white collar jobs. Is that inevitable?

Let me just step back. We started out on this research on non disruptive creation because we saw one we don't have to disrupt and displace. There's this whole other space that we can look into. But the second thing is we not only saw it as important, but growing in importance in the future. One of the reasons it's growing in importance is for the precise reason you say. If you look at the world today, we're introducing or being ushered into what we call the fourth industrial revolution, where there's all new forms of AI and smart machines, robotics, and all these smart machines, AI and robotics are on track to displace many people say hundreds of millions of jobs. The exact number no one knows. But the numbers that are thrown, irrespective of the study, are large. Whether they displace them completely or significantly pare down. Now the question is where will all the new jobs come from to absorb all the humans that get released from their jobs? Of course, on the one hand, technology always brings with it new jobs we can't even imagine. And we all hope that'll be the case. But this might not be the case. Often the displacement occurs faster than the new jobs are created to absorb them.

That's kind of the worry here with this technological revolution, right? That unlike previous ones, where we all sort of learn not to be farmers, most of us over many generations, this is happening very quickly.

Yes, I think that the speed at which this new technological revolution is unraveling is unprecedented. And so the real question becomes about creating the jobs as people get displaced. And when we look to it, how do historically, if we look to the theory of innovation and economics, new jobs get created, it's through new markets. So what are the paths to create new markets? There are two. Historically we think of disruption. It's created new markets again and again, but it does so in the short and medium term in the process of displacing yet more existing jobs. Right. So when self driving cars come in, they start to displace all the drivers in this industry. Truck drivers in America, bus drivers, car drivers. That is one of the largest employments in many states in America. So the question is, where are they going to get those jobs? The power of non disruptive creation is it creates new jobs and new industries and new companies without displacing others. If I am a government, I'm in charge of a community. What I want to start thinking about is how can I start encouraging people to start thinking non disruptive so we can have the jobs out there as people get released to be absorbed. So that's one key reason that we believe non disruptive is likely to become even more important in the future.

Once people or organizations have imagined new markets and new opportunities that are wholly new spaces, where are the stumbling blocks when it comes to seizing those and realizing them?

So in our book, we outline what is the process to be able to do that. And one of them is, and we talk about this is where non disruptive has advantage because it actually is emotionally more politically easier and emotionally more acceptable, especially in large established companies, to pursue that which is non disruptive than that which is disruptive and potentially threatens my existing livelihood, my existing revenue stream. So that's in the process of how do I create, how do I reframe and find a way to unlock and how do I realize? And it's all about how do I build a collective confidence and competence?

What can be done? What are some of those steps?

One thing I think people don't realize is once you start thinking about non disruptive creation, what you start realizing is that it's more prevalent than you begin to imagine. It's in front of you everywhere. So what do I mean by that? You think about something like an industry of pet Halloween costumes. They're very big. It's a $500 million industry. It's a non disruptive industry. Life coaching, one of the fastest growing industries in America. Non disruptive industry, environmental consulting. Non disruptive industry. Not disrupting other prior consulting industries that are out there.

Yeah, I was kind of surprised to learn that the cruise ship industry was a non disruptive creation because that just didn't exist before.

It never existed before. And at that point in time, Americans and the world, you know, there were just the ocean liners and then jet travel for the very, very wealthy started. And so the idea of traveling to different countries and being at the ocean and sea at that point in time, that was completely non disruptive. So I guess, you know, the dishwasher non disruptive just stopped us from washing with our hands sanitary napkins that women use on a monthly cycle. Non disrupt. Right. Sesame street, non disruptive. It unlocked the preschool edutainment industry. So I think what you need to realize is we are so trained. You know, the economist John Hicks said that, you know, our theories are often blinkers or rather rays of light that illuminate part of the target, leaving the rest in the dark. And as we use them. We avert our eyes from other things which are important. We have been trained and Kurt, I noticed in your first question, trained to think everything is disruption because that is a lens we've been looking. Our theory comes from Schumpeter and disruption. But once we now have a language system, we have a clear definition of what it is and we recognize its importance. When you start to look at the world, you start to see non disruptive opportunities and you realize how many non disruptive opportunities are out there. So this is what we need to start thinking like.

You know, Rene, a venture capitalist, once told me that there are two kinds of innovation better, faster, cheaper and brave new world. And you've given us a glimpse of that brave new world that more companies can be going after. Thanks so much for coming on the show to talk about it.

Thank you so much, Kurt.

That's Renee Mauborn, a strategy and management professor at INSEAD and a co author of the new book Beyond Disruption. Innovate and Achieve Growth Without Displacing Industries, companies or Jobs. And we have more episodes and more podcasts to help you manage your team, your organization and your career. Find them at hbr.org podcast or search HBR in Apple Podcasts, Spotify or wherever you listen. This episode was produced by Mary Dew. We get technical help from Rob Eckhart. Our audio product manager is Ian Fox, and Hannah Bates is our audio production assistant. Thanks for listening to the HBR IdeaCast. We'll be back with a new episode on Tuesday. I'm Kurt. Nick.