An assessment framework for disruptiveinnovation

C.C. Hang, Jin Chen and Dan Yu

Abstract

Purpose – This paper aims to present an assessment framework which captures the essential

characteristics and holistic success factors for disruptive innovation based on the original theory of

Christensen, a number of clarifications as reported in the literature and a study of known, successful

cases in the literature.

Design/methodology/approach – The framework was designed based on the improved

understanding of disruptive innovation challenges and on the holistic consideration of innovation as a

dynamic process. It consists of structured questions which could be used to guide detailed data

collection and analysis needed to answer the key questions which constitute the assessment framework.

They are grouped under market positioning, technology and other favourable drivers.

Findings – A simple yet comprehensive assessment framework for disruptive innovation has been

developed. Two of the known successful cases, namely the steel minimill of Nucor and the 3.5 inch disk

drive of Conner/Seagate, were presented in more detail to illustrate the use of this systematic framework

in assessing the success potential of these cases of disruptive innovations in either the low-end or new

markets. A third and fairly new example, that of the limited mobile phone system/product of UTStarcom,

was then presented to illustrate a case where the framework revealed reasons for potential failure.

A fourth example of Google’s web-based office applications then illustrated how the framework might be

used to study the disruptive potential of a new product.

Originality/value – This paper enables a more accurate and systematic assessment of disruptive

innovation. The framework also has the potential to be further developed into a systematic tool for

answering the question of whether the disruptive innovation theory could indeed be used to provide

ex ante prediction of the success of a new disruptive innovation.

Keywords Disruptive innovation, Assessment framework, Market position, Technology driver,Assessment

Paper type Research paper

1. Introduction

The disruptive innovation theory, advanced by Christensen in a seminar paper (Christensen

and Bower, 1996) and a famous book (Christensen, 1997), has appealed widely to

practicing managers. It pointed out clearly the threat to successful incumbents which may

over-focus on the necessary sustaining innovation and hence could fail to capture the new

opportunity presented by an emerging disruptive innovation. The disruptive technology may

be inferior initially relative to the performance appreciated by mainstream customers, but

which has certain disruptive characteristics appreciated by non-consumers in the low-end

or a new, niche market (typically cheaper, smaller, easier-to-use, etc.). After building a

market foothold, the technology would need to improve continuously to overcome strong

competitions from other potential disruptors or imitators. When the performance eventually

meets the minimum requirement of over-served customers in the mainstream market, a

disruption would occur as the incumbents are not well prepared for such a surprised attack

from below. Another important reason for the continuing interest in the disruptive innovation

PAGE 4 j foresight j VOL. 13 NO. 5 2011, pp. 4-13, Q Emerald Group Publishing Limited, ISSN 1463-6689 DOI 10.1108/14636681111170185

C.C. Hang is based at the

Division of Engineering and

Technology Management,

National University of

Singapore, Singapore.

Jin Chen is based at the

School of Management,

Zhejiang University,

Zhejiang, China.

Dan Yu is based at The

Gallup Organization,

Singapore.

theory is that the new market thus created could be so large that it could become a strategy

sufficient for creating high-growth new businesses regardless of whether it would succeed in

disrupting the incumbents eventually.

Over the last decade, much clarifications about the disruptive innovation theory have been

made as more cases were studied in the literature (Yu and Hang, 2010). But there remains

an unresolved argument among scholars (Danneels, 2004; Christensen, 2006) on the ex ante

applications of the disruptive innovation theory in predicting whether an early stage

disruptive innovation case would succeed subsequently, since the theory has been largely

based on extensive study of empirical evidences of many successful cases in the past

(ex post). Christensen has stated that the theory could indeed be applied for ex ante

predictions and he cited four successful examples (Christensen, 2006) which he knew.

Some scholars have contributed to the better understanding of the prediction issue. They

include the general guidance to predict future disruptions by identifying the drivers (Paap

and Katz, 2004), measure of disruptiveness which may be used to make ex ante predictions

about the type of incumbent firms best positioned to develop disruptive innovations

(Govindarajan and Kopalle, 2006; Ganguly et al., 2010), how an incumbent may identify a

potential disruptive threat (Rafii and Kampas, 2002), how industry change may stimulate

disruptive innovations (Christensen et al., 2004), and a criteria sheet for comparing the

relative competitive advantages of incumbent and entrant firms (Keller and Husig, 2009). In

spite of the progress made in the literature, many academics and practitioners still view the

innovation challenge from a specific perspective such as market development, which lacks

the holism needed to more confidently judge if an early stage disruptive innovation case

would have a good chance to succeed.

In this paper, we shall take up this challenge to develop a systematic and yet simple-enough

framework for assessing the success factors for disruptive innovation. It is based on the

improved understanding of disruptive innovation challenges and on the holistic

consideration of innovation as a dynamic process. The framework can be used to guide

detailed data collection and analysis needed to answer the key questions which constitute

the assessment framework. It is noted that our proposed framework is different from the

structural approach to assess innovation by Gatignon et al. (2002). Their structural approach

is valuable to precisely describe innovations and their different importance to innovation

outcomes. However, the typology does not particularly address the scale items to measure

the disruptiveness of innovation. Govindarajan and Kopalle (2006) proposed a clear

measurement of disruptive innovation and is used in our paper as the basic definition. Two of

these well-known and successful cases, namely the steel minimill of Nucor and the 3.5 inch

disk drive of Conner/Seagate, and a new case, that of limited mobile phone system/product

of UTStarcom, were then presented to illustrate the use of this systematic framework in

assessing the success or failure factors of these known cases in either the low-end or new

markets. A fourth and new example of Google’s web-based office applications would then

illustrate how the framework may be used to study its disruptive potential against another

dominant incumbent’s mainstream product. The paper will conclude with remarks on

additional potential applications of this framework.

2. Proposed assessment framework

Christensen has discussed in his major publications all the fundamental success factors for

disruptive innovation (Christensen, 1997; Christensen and Raynor, 2002). However, some

scholars have only focused on one or two particular aspects of his work and missed others,

leading to potential misinterpretations and confusion in the literature and in practice

(Christensen, 2006; Yu and Hang, 2010). In our proposal for a suitable framework for

assessing the disruptive potential of an innovation, we shall ensure that it is holistic enough

to give a more comprehensive consideration; yet we need to make it simple and concrete in

order to be useful to practitioners. Based on this objective, we propose an assessment

framework consisting of three main parts: market positioning, technology and other drivers,

which will be elaborated in the following.

VOL. 13 NO. 5 2011 j foresightj PAGE 5

Assuming that a certain disruptive technology is available, Christensen and Raynor (2002)

have focused on two appropriate market segments to establish an initial foothold for the

disruptive business. One is the low-end market which would appreciate a product/service

with a lower price while still providing a basic ‘‘job-to-be-done’’ at that level. The other is a

new, nichemarket in which the disruptive product/service has good enough performance for

the non-consumers there. It is important to differentiate these two types of initial markets for

establishing a disruptive foothold, as they would alert the incumbents of the potential threat

to a different degree and the uncertainty in market creation would also be different. After

addressing the first stage of establishing the market foothold, the disruptive innovation

theory draws on the asymmetry of motivation to explain the likelihood that incumbents will

run away towards a higher-end, more profitable segment for a low-end disruption by new

entrants to eventually succeed. However, if some strong incumbents decide otherwise to

stay on for a head-on encounter, they often have sufficient resources to win against the new

entrants. In the case of new market disruption, incumbents would most likely ignore the new

entrants as their existing business is not threatened. Even if they want to enter the new, niche

market, incumbents may not have the advantage unlike the case of the low-end disruption.

To summarize, the market positioning part of the assessment framework should include the

type of market for introducing the disruptive innovation (low-end, new or both) and whether

the asymmetry of motivation condition is satisfied.

The disruptive technology is different from sustaining technology in that, while the former

does not meet the demand of the mainstream market, it has certain performance features

which are adequate or attractive to the low-end or new niche market customers who are

non-consumers in the past. Once it has established such a market foothold, it would face

fierce competition from other similar firms and so continuous R&D is needed to improve

performance, price/performance, etc. This dimension of fierce competition and need for

continuing R&D has not been sufficiently emphasized in the past as researchers have

focused on the business model innovation dimension. But potential disruptors know this

well. For the technology part of the assessment framework, it is thus important to include the

R&D dimension to ask if the disruptive technology could indeed be further improved in

performance, price/performance, etc. and that the R&D should be affordable. The R&D

strategy, such as miniaturization, seems to be similar in disruptive and sustaining

innovations; there is indeed a major difference owing to different performance targets which

in turn would lead to different degrees of effort – hence the importance of emphasizing

affordability of R&D and the time and resources required in the case of disruptive technology

(Yu and Hang, 2011). For eventual disruption of the mainstream incumbents, one should not

forget the basic assumption that there exists a performance overshoot causing the

mainstream customers to be over-served. As the real-life situation is dynamic, this condition

is not always satisfied and hence needs to be checked regularly.

As in any other type of technological innovations, there exist other significant drivers which

could influence the pace or even fate of innovation over time. Lifestyle change is one of these

drivers, an example being the unexpected appeal of netbook computers to anyone who

needs a mobile office with internet access. Legislation change is another potential driver, an

example being the stricter environmental control law in some countries which facilitates the

introduction of some ‘‘green’’ products. There exist at least two other emerging drivers, one

being the growing importance of large developing countries as new growth markets – better

known as the bottom-of-the-pyramid (BOP) opportunities (Prahalad, 2004). As developed

markets have less opportunity for growth, multinational companies have started to develop

original products suitable for high-growth emerging markets which are typically

characterized by their demand for affordability but also with good-enough performance.

A good example is the recent product development strategy of GE Medical (Immelt et al.,

2009). The other is the graying population starting with Japan and Germany, and rapidly

spreading to US, Europe and even China – the effect of such demographic changes on

future markets and innovation is well-known (Drucker, 1985). A good example is the recent

success of Nintendo Wii game console with intuitive user-interface which appeals to the

senior citizens globally including females (Osterwalder, 2007).The above examples of other

significant drivers are more general in nature; there may be additional drivers more specific

PAGE 6 j foresightj VOL. 13 NO. 5 2011

to a particular industry. A typical one is the ‘‘network effects’’ in the software industry

(Gallaugher and Wang, 2002). Network effects occur when the value of a good increases

with the number of users of that good. Indicators about the extent of network effects include

the switching costs, coordination costs, and also the customers’ expectations of the future

network size of the product which would influence buying decisions. It is noted that the

significant drivers could either be enabling or be unfavorable to innovation. In order to avoid

confusion, we recommend using the term ‘‘favorable’’ drivers, with ‘‘yes’’ indicating

‘‘enabling’’ and ‘‘no’’ indicating negative influence (including any show-stopper).

We have collated and summarized the proposed assessment framework into a one-page

form as shown in Figure 1. An in-depth study of the case to be assessed would indeed be

needed in order to answer ‘‘yes’’ or ‘‘no’’ in each question in the framework with sufficient

confidence. It is thus assumed that the assessor has done sufficient homework/investigation

using primary sources of information, official documents, industry reports, and the conduct

of surveys/interviews, etc as guided by the key questions in the framework. It is indeed not a

simple and straightforward exercise to complete the assessment form and it may need some

iterations to do it confidently. But once the form is completed, it is easy to make assessments

as follows:

B If all the answers are ‘‘yes’’, the framework indicates that both low-end and new market

disruptions are progressing simultaneously.

B If all the answers are ‘‘yes’’, with only two ‘‘no’’ being ticked for low-end market (in market

positioning and technology), then the framework indicates that a new market disruption is

on its way. On the contrary, if two ‘‘no’’ are ticked for new market, then it indicates that a

low-end disruption is on its way.

B If there are other ticks of ‘‘no’’, the framework indicates that there exist doubts about the

eventual success of the disruption.

In the literature, especially the two famous books of Christensen (Christensen, 1997;

Christensen and Raynor, 2002), more than 30 examples of successful cases have been

described. Out of these 30 known, successful cases, ten had been studied quite extensively

with more data available (Yu and Hang, 2008, 2010). The assessment framework has been

verified using these ten known and successful cases. Two of these cases, namely the steel

minimill of Nucor and the 3.5 inch diskdrive of Connor/Seagate will be presented in more

detail in the next section.

Figure 1 Proposed assessment framework

VOL. 13 NO. 5 2011 j foresightj PAGE 7

It should be pointed out that the purpose of this paper is not to focus on the challenge of

‘‘ex ante prediction’’ although the proposed assessment framework would contribute

towards this goal in future. More references on ex ante prediction could be found in the

literature (Ganguly et al., 2010; Rafii and Kampas, 2002; Sainio and Puumalainen, 2007).

3. Application examples

We shall present two well known cases to illustrate how the proposed assessment framework

would work for successful cases. In addition, two more new cases, one which was not

successful eventually and one which is still ongoing, which further illustrate the applications

of this framework, will be presented. More details and examples could be found elsewhere

(Hang and Chen, 2010).

3.1 Nucor’s Minimill

Minimill steel making first became commercially viable in the mid-1960s (Christensen, 1997).

Employing widely available and familiar technology and equipment, minimills melt scrap

steels in electric arc furnaces instead of the conventional way of producing molten steel from

iron ore in blast and basic oxygen furnaces. They are called minimills because their scale is

typically one-tenth of that of integrated mill. When Nucor established the first steel minimill

(Christensen, 1997) to produce rebars, the conventional integrated steel mills could not

compete with its good enough quality and yet lower-priced products. But since the profit

margin for making rebars using the conventional production process with iron ores as raw

materials was lower than angle iron, bars and rods, they were quite happy to run away from

rebars to move to this higher-price, higher-margin and also larger market as indicated in

Table I. The new production process of minimills using scrapped steels rather than raw iron

cores enabled Nucor to reduce the energy consumption and achieve a 20 percent overall

cost reduction, resulting in a good profit margin to build a strong business foothold. When

other new entrant competitors in the rebars market also improved their processes and

caused a further drop in price, the continuing R&D effort in Nucor created a cheaper way to

make bigger and better steel, which enabled it to attack the angle iron, bars and rods

market. The conventional steel mills responded in the same way: to run away to focus on the

next tier of structural steel which has a higher margin and a much larger market. Several

years later, Nucor repeated the strategy to encroach the structural steel market forcing the

conventional steel mills to run away and focus on the high-quality sheet steel market which

has a higher margin and larger market size. We have mapped the above analysis into the

assessment form as shown in Figure 2. It is evident that Nucor had all the positive answers

which ensured its success in disrupting the incumbents at the lower-ends. It did not have a

new market disruption dimension and there was no other significant driver in this area of

business.

3.2 Conner/Seagate’s 3.5 inch disk drive

Seagate pioneered and then became a strong incumbent in 5.25 inch disk drives for the

desktop PC market after its success in disrupting the 8 inch disk drive makers in the early to

mid-1980s. With the data storage capacity in the market increasing at more than 25 percent

per year, it did not pay much attention immediately when Rodime first developed a 3.5 inch

drive in 1984 (Christensen, 1997). After 1987, Conner Peripherals, a spinoff from Seagate

Table I Market segments of steel products

Market Gross margin (%) Relative market size (%)

Rebar 7 4Angle iron; bars and rods 12 8Structural steel 18 22Sheet steel 25-30 55Other higher-end products .30 11

Source: Christensen (1997)

PAGE 8 j foresightj VOL. 13 NO. 5 2011

then introduced a small, lightweight 3.5 inch drive and found a new application – portable

laptop computers for Compaq and its competitors. It was very difficult for Seagate’s senior

management to initially make a case for this smaller drive product which could not meet the

needs of its key customers in the desktop computer industry as indicated by the

performance gap in Table II. Even after Seagate reversed its earlier stand and introduced its

own 3.5 inch drives in 1988, it could not compete well against the agility of Conner

Peripherals which was able to grow rapidly by finding new customers in the mobile

computing industry. In September 1995, Seagate announced that it would acquire Conner

Peripherals in a deal valued at US$1 billion. Conner at that time was not only a manufacturer

of disk and tape drives, it also owned a software subsidiary Acada Software. After

experiencing component shortages, price pressures, and significant losses, Conner agreed

to the merger with Seagate.

The successfully enlarged Seagate in 1996 accounted for 33 percent of all hard-drives sold

globally making it the no. 1 market leader (Yu, 2008). Thereafter, Seagate focused on both

market and technology developments to sustain its market shares in 3.5 inch and the related

2.5 inch disk drive products for the desktop PC and the mobile PC sectors. We have

mapped the above analyses into the assessment form as shown in Figure 3. It is evident that

Conner/Seagate had all the positive answers which ensured its success in creating a new

and large mobile PC market, and eventually disrupting other incumbents in the desk-top PC

market. There was also absence of other significant drivers that might affect the above

assessment.

3.3 UTStarcom’s limited mobile system/phone

UTStarcom successfully introduced a good enough limited-range mobile phone

system/product (the PAS System/Litte-Smart Phone) in China since the late-1990s. While it

Figure 2 Nucor’s minimill (success)

Table II Performance comparison of disk drives in 1986

5.25 inch drive 3.5 inch drive

Capacity .80MB 40MBAverage access time (msec) 33.4 37.3Data transfer rate (1KB/sec) 1,250 1,000Size (mm) 146.1 £ 41.4 £ 203 101.6 £ 25.4 £ 146Cost US$1,695 US$500

VOL. 13 NO. 5 2011 j foresightj PAGE 9

did not offer roaming service (which was provided by the incumbent firms using the GSM), it

was good enough for wireless communication within a city. The low-capital equipment

attracted China Telecom, which did not have a mobile-phone license and was happy to

adopt it as a fixed-line extension to earn revenues. Customers who were previously

non-consumers were satisfied with the lower charging rates as well as the lower-priced

Little-Smart phones. The PAS/Little-Smart enabled UTStarcomm to earn an enviable revenue

of more than US$2 billion in 2004 with about 60 percent share of the PAS/Little-Smart market

which reached over 50 million customers after five years of phenomenal growth. It had

certainly established a strong foothold at the low-end mobile phone market and looked set to

create a successful disruptive innovation. However, for various reasons including the

expected delay of the 3G introduction and an attempt to fight back, the incumbents started

to drop prices and introduce a new generation low-end GSM mobile phones. The growth of

UTStarcom started to slow down while the profit margin was eroded owing to keen

competitions. Furthermore, it was not clear how the original PAS technology of UTStarcom

could be further improved. UTStarcom also did not invest sufficiently in the low-end R&D as it

diverted precious resources to pursue the 3G opportunity and another unrelated market –

IPTV. There were other significant drivers in the dynamic mobile phone sector, including the

potential withdrawal of the PAS/Little-Smart operational frequency range to make way for 3G,

and the likelihood of the backing off of China Telecom if it eventually obtained a 3G mobile

phone license, etc. We have mapped the above analyses into the assessment form as

shown in Figure 4. The many ‘‘no’’ and ‘‘?’’ entries give strong indications of the potential

failure of the PAS/Little-Smart which was finally confirmed in 2009. This is in contrast to an

earlier paper by Yuan et al. (2006) which predicted that the PAS/Little-Smart would co-exist

with 2G/2.5G mobile communication networks for a considerable period of time.

3.4 Google’s web-based office applications

Unlike the dominant Microsoft’s desktop office software product such as ‘‘Office 2007’’

which is tied to its Window Operating System, Google has exploited its internet capabilities

to offer web-based office applications. Although a web application runs on a central server

on the internet and is accessed via a web browser, it is independent of the Operating System

which vastly simplifies the application deployment. Web applications are often

accompanied by a new business model, referred to as ‘‘Software as a Service’’, where

software is financed by subscriptions, transaction fees or advertisements instead of retail

sales or volume license deals (Keller and Husig, 2009).

Figure 3 Conner/Seagate’s 3.5 inch disk drive

PAGE 10 j foresightj VOL. 13 NO. 5 2011

Microsoft’s main customer segment is that of the enterprise customers and the original

equipment manufacturers (OEMs). Its business model is built around developing operating

systems and desktop software packages licensed to these customers. These clients do not

find web applications attractive, because of security concerns and a high demand for

performance and features, even if they have inadvertently driven the performance to

overshoot majority of user requirements. Google, on the other hand, found web applications

suitable for its mode of rapid application development. It introduced Google Docs, a new

suite of office applications, explicitly targeting Microsoft’s overshot customers. Google Docs

offers less features and speed than Microsoft desktop applications. It is simpler to deploy

without the need for software installation and is available free online to anyone with a web

browser. It has begun to establish a foothold market and web applications could be further

improved to offer desktop-like performance in the next few years. However, strong network

effects which favor Microsoft’s products, have to-date resulted in customer inertia effectively

blocking the advancement of Google Docs’ entry into the mainstream market.

In addition, being aware of the disruptive threat from Google Docs, Microsoft does not

choose to flee into higher customer segments. For instance, it has kept offering low-priced

versions of its software for students and consumers. It has also been moving towards the

Software as a Service model offering a mix of web and desktop applications to consumers

and business clients. It has thus the option to use the time gained to co-opt the web-based

innovation introduced by Google (Keller and Husig, 2009). We have mapped the above

analyses into the assessment form as shown in Figure 5. The many ‘‘no’’ entries give strong

indications of the difficulty for Google Docs to disrupt Microsoft in the mainstream market.

4. Conclusion

We have developed a systematic assessment framework for assessing disruptive innovation

based on the theory of Christensen and subsequent clarifications in the literature. The

Framework will require the assessor to consider key success factors in market positioning,

technology and other favorable drivers. As shown in its application to the assessment of the

selected cases, the framework has guided the detailed data collection and analysis needed

to confidently answer the key questions which constitute the framework. It should be pointed

out that the mapping of detailed information gathered to the assessment framework is not a

simple exercise and it may require some iterations. This could be a further research area to

Figure 4 UTStarcom PAS/Little Smart (eventual failure)

VOL. 13 NO. 5 2011 j foresightj PAGE 11

explore a more detailed sub-framework to simplify the data collection and subsequent

mapping.

In addition to the potential use of this assessment framework for researching into the

question of whether the disruptive innovation theory could indeed be used ex ante to

systematically predict future disruptive innovation candidates, we see future potential to use

this framework to assess business plan, R&D plan, innovation plan, etc. as the systematic

and holistic approach as required in the framework will ensure that a more holistic

assessment is made. We also feel that a systematic assessment of disruptive innovation

potential will play an increasing role in technology policy or strategy formulation especially in

large companies and in publicly funded research institutes.

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About the authors

C.C. Hang received a PhD in Control Engineering from the University of Warwick, UK in 1973.He is Professor and Head, Division of Engineering and Technology Management, NationalUniversity of Singapore, and a Professor of Policy and Strategy at NUS Business School. Hiscurrent research interest is innovation management in emerging markets. C.C. Hang is thecorresponding author and can be contacted at: etmhcc@nus.edu.sg

Jin Chen received a PhD in Engineering Management from Zhejiang University in 1994. He isProfessor and Director of ZJU Research Center for Science, Technology and EducationPolicy, and also Deputy Dean of the Undergraduate School. His research interests are intechnology and innovation management, and S&T policy. He has published in internationaljournals including IEEE Transactions On Engineering Management, Technovation, and R&DManagement.

Dan Yu received her PhD Degree from National University of Singapore in 2010, majoring inManagement of Technological Innovation. She has published papers in international journalssuch as International Journal of Management Reviews and Journal of Software. She also haspapers under review. Currently, she is working as a consulting specialist in Gallup Singaporeoffice.

VOL. 13 NO. 5 2011 j foresightj PAGE 13

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