Disruption on a Global Scale…

One of the most interesting sections of Christensen’s book dealt with the idea of economic systems that focus on disruption in the global context. These would include countries that place a high value on competition and allowing new innovations to spring up in existing markets. It also explains why countries like the United States has managed to maintain a position of dominance in the global economy.

               To understand this system, we must first understand the cycle that all existing firms go through. As with the business cycle, new firms enter as disruptors and experience success. As the success continues these firms will begin to seek up market opportunities to increase their revenue production. Once they make this move and experience their growth, they should become the incumbent in the industry. This is when growth stops, and firms tend to lose their dominant position. In the case of many Silicon Valley companies, management from incumbents, that were former disruptors, branch out and become disruptors themselves. This cycle continues with each new firm supplanting the previous and pushing technology further. The question then is what the United States do specifically to maintain control over this cycle.

               Christensen suggests that there are 6 factors that predict a countries proclivity towards encouraging disruption. The first is the market for talent that is flexible and encourages entrepreneurship. Economic mobility must remain fluid if a country wishes to provide the proper motivation for its citizens to innovate. The second is an investment mindset among entities outside of the banking system. Debt based financing can become a death sentence for entrepreneurs as the inconsistency of disruption does not create consistent revenue streams to cover debtor obligations. The third is the access by the disruptor to overshot or non-customers within the industry. As explained in my previous posts, non-customers and overshot customers are created by asymmetrical motivations between firms existing in the industry. Both groups are untapped and unsatisfied with current solutions. The final 3 factors are supportive infrastructure, vibrant competition and intellectual property protection. Among these the IP protection is the most important when a competing as a disruptor. Major firms must by out smaller companies if they wish to remove the risk for displacement. If this system isn’t in place the larger incumbent can easily copy the smaller firm’s success and produce the given product or service in both cheaper and more convenient ways.  It is important to understand that United States patents and protections only apply in our own country. This means that firms seeking to go international with their brand must either file the proper paperwork if possible or have the resources to beat out potential competitors that will simply copy the IP.