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JWI 556 (1196) Page 1 of 7

JWI 556

Leading Change by Putting People First

Week Nine Lecture Notes

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JWI 556 (1196) Page 2 of 7

MANAGING CONFLICTS DURING CHANGE

What It Means

Conflict management is an important leadership skill that has been discussed in previous JWMI courses. In

times of change, the opportunities for conflicts to erupt can increase dramatically. Putting people first while

leading change requires that HR professionals be particularly active and sensitive in anticipating where

these conflicts are most likely to occur. It also presents an opportunity to help other managers learn to deal

with conflict in ways that allow the impacted parties to express their concerns without undermining the

momentum or efficacy of the change.

Why It Matters

 Being aware of the most common types of conflicts that surface during change initiatives will help

keep you from being blindsided.

 Taking preemptive actions based on early warning signals makes it a lot easier to manage a

potential conflict rather than fix a problem that has escalated into an all-out battle.

 Leveraging what you learned about competing commitments and hidden assumptions can pave

the way for a more open and honest dialogue.

“All widespread communication in a

change effort must be jargon free.”

John Kotter

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JWI 556 (1196) Page 3 of 7

THE MOST COMMON TYPES OF CONFLICT DURING CHANGE INITIATIVES

Change – especially large, transformational, disruptive change – has the potential to elevate negative

tendencies that, under normal conditions, would not have caused issues. It does this, in part, because it

pushes people out of their comfort zones and asks them to engage with new ways, and often new people,

they may not like.

Change initiatives open the door for all kinds of power struggles. These struggles can be over the control

of a team or business unit, or they can be over control of a process. If there are too many open questions

during the change around who will own what, or which processes will be applied where, the opportunities

for conflict can escalate out of control. This is one of the reasons why having a strong guiding coalition, a

clear vision and communication plan, and well-defined benchmarks is so important.

This increase in conflict can impact even our best managers.

“For people who have been raised in a managerial culture where having everything under

control was the central value, taking steps to push up the urgency level can be

particularly difficult. Bold moves that reduce complacency tend to increase conflict and to

create anxiety, at least at first. Real leaders take action because they have confidence

that the forces unleashed can be directed to achieve important ends.”

Leading Change, p. 46

While conflict can have a variety of drivers, there are several that surface frequently during change

initiatives. Being aware of these can help you identify where to direct your efforts to uncover, and

address, the conflict. The most common sources of conflict include:

 Cultural misalignment where new teams are required to work together, but have deeply

ingrained, often hard-to-articulate values about how business should get done

 Fundamental disagreements over the new model, strategy, or direction the company is taking

 Competition for jobs in the new organization because redundancies will lead to layoffs, and/or

because the new structure will present additional opportunities that will only go to a few

standout players

 A dislike for a new boss or member of a new team; this can arise from a number of real or

perceived issues, including incompatible personalities, management styles, past performance

track records, or inadequate skillsets

 An unwanted reassignment to a new office/city/team/division

 Lack of skills or interest to perform the duties that are part of the post-change workflow

In identifying these potential conflicts, understand which ones are navigable and part of the growing pains

that come with change, and which ones are lethal. You probably won’t know until you begin to address

them, and assess the stakeholders’ willingness and ability to respond to coaching and support.

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JWI 556 (1196) Page 4 of 7

WHAT CAN HR PROFESSIONALS DO TO PREEMPT

AND RESOLVE CONFLICT?

The best approach to managing a conflict is usually to keep it from happening in the first place. There

may be a few circumstances where you will intentionally allow a pending conflict to come to a boil so that

the fallout draws attention to an issue that can no longer be ignored. But this must be done exceedingly

carefully so the outcome does not create more damage than can be managed.

The most effective change leaders are not just the ones who can see a potential conflict before it sparks.

They are the ones who have been working for years to build a culture of truth, trust, and honest dialogue

that allows them to surface an issue and face it head on.

Jack reminds us about the role of HR leadership in such situations.

“If your HR is on track, pastor-parents are ready to handle friction and crises – channeling

anger, forging compromises, and if need be, negotiating dignified endings.

They are there to help managers manage people well.”

Winning, p. 103

In restructuring situations, especially during a merger or acquisition, the opportunities for conflict multiply.

As Jennifer Fondrevay notes in the article, “After a Merger, Don’t Let ‘Us vs. Them’ Thinking Ruin the

Company” (2018), one of the great ironies of M&A activity is that trust, a key ingredient for business

success, often quickly dissolves as M&A activity is usually cloaked in secrecy. A workforce can feel

blindsided when a deal is announced, eroding trust and transparency in three mutually reinforcing ways:

1. Our Company Versus Their Company

Conflicts can develop around culture, quality, processes, or just about anything where people

can ask, “Our way is better than their way, so why do we have to change?”

2. Executives Versus Frontline Employees

The perception is often that executives will be the real winners in a merger or restructuring, and

the employees will be mere pawns

3. Who Stays Versus Who Goes

Often, there are not enough jobs to go around, especially if the merger has taken place to gain

efficiency, and competition and dissatisfaction can be fierce as colleagues either openly or

secretly compete against each other and sow seeds of mistrust

As Fondrevay notes, the challenges with #3 are very real, and are something we will revisit in Week 8.

“Deciding who stays and who goes are hard-wrought decisions. Transparency is difficult

as executives and managers are either legally prohibited from being more open or don’t

know how things will play out. Trust is diluted further when, in an attempt to keep people

motivated, early communications sometimes say that ‘nothing will change,’ and yet

employees see change happening as people are let go.”

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JWI 556 (1196) Page 5 of 7

Kotter’s advice on addressing these conflicts and not allowing them to derail the change initiative is

straightforward and compelling:

“From what I’ve seen, the best solution to this kind of problem is usually honest dialogue. Here’s

the story with the industry, the company, our vision, the assistance we need from you, and the

time frame in which we need all this. What can we do to help you help us? If the situation really is

hopeless, and the person needs to be replaced, that fact often becomes clear early in the

dialogue. If the person wants to help but feels blocked, the discussion can identify solutions. If the

person wants to help but is incapable of doing so, the clearer expectations and timetable can

eventually make his or her removal less contentious. The basic fairness of this approach helps

overcome guilt. The rational and thoughtful dialogue also helps minimize the risk that good short-

term results will suddenly turn bad or that [the person resisting the change] will be able to launch

a successful political counterattack.

Guilt, political considerations, and concerns over short-term results stop people all the time from

having these honest discussions. In retrospect, executives often express regret that they didn’t

confront problem managers sooner in the process. If I’ve heard it once, I’ve heard it a hundred

times: ‘I should have dealt with Hal/George/Irene much earlier.’”

Leading Change, p. 118

You’re not going to make peace with everyone all the time, and you’re not going to be able to manage all

situations where everyone comes out with what they want. Still, you have to find as much common

ground as possible. This is, again, where having a strong, clear, and agreed-upon Mission and Values

can pay huge dividends.

 Get clarity on the facts and conflicts and stay away from rhetoric and inflammatory language

 Present the rationale for each position and how this aligns to the stated objectives of the

change initiative

 Make sure everyone’s voice is heard, but don’t let the conflict carry on. If the two sides can’t

agree, then someone will have to go.

In their article, “Make Your Enemies Your Allies” (2012), Brian Uzzi and Shannon Dunlap share the

following:

“Because rivalries can be so destructive, it’s not enough to simply ignore, sidestep, or

attempt to contain them. Instead, effective leaders turn rivals into collaborators –

strengthening their positions, their networks, and their careers in the process. Think of

these relationships not as chronic illnesses you have to endure but as wounds that must

be treated in order for you to lead a healthy work life.”

“Many well-intentioned efforts to reverse rivalries fail in large part because of the complex

way trust operates in these relationships. Research shows that trust is based on both

reason and emotion. If the emotional orientation toward a person is negative – typically

because of a perceived threat – then reason will be twisted to align with those negative

feelings. This is why feuds can stalemate trust: New facts and arguments, no matter how

credible and logical, may be seen as ploys to dupe the other side.”

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JWI 556 (1196) Page 6 of 7

“Most executives who decide they want to reverse a rivalry will, quite understandably,

turn to reason, presenting incentives for trustworthy collaboration. But in these situations,

the ‘emotional brain’ must be managed before adversaries can understand evidence and

be persuaded.”

ADDRESSING THE COMPETING COMMITMENTS AND HIDDEN

ASSUMPTIONS THAT UNDERMINE CHANGE

At the beginning of our course, we looked at a great article by Robert Kegan and Lisa Laskow Lahey

called “The Real Reason People Won’t Change” (HBR 2001). As you consider the guidance presented in

your readings for this week, go back and review this article and the process they outline to:

1. Diagnose the Competing Commitment

2. Identify the Big Assumption

3. Test – and Consider Replacing – the Big Assumptions

In particular, focus on the application of their model in resolving conflicts in organizations, because, as

they remind us:

“Although competing commitments and big assumptions tend to be deeply personal,

groups are just as susceptible as individuals to the dynamics of immunity to change.

Face-to-face teams, departments, and even companies as a whole can fall prey to inner

contradictions that ‘protect’ them from significant changes they may genuinely strive for.”

Kegan & Lahey, 2001

Leading change by putting people first means opening the door for honest discussions. It means not

sweeping issues under the rug, or strong arming people to keep quiet and just get over it. The more you

can channel conflict into positive dialogue, the more you can leverage passions and problem-solving skills

to get to common ground. This is where HR leaders, as neutral parties and advocates for the workforce,

have an important role to play.

Despite all the useful tools that exist to support conflict resolution, we should remind ourselves of what

Patty McCord says about the value of open, candid discussion.

“I [caution] about the limited value of formal employee-development practices such as

conflict-resolution and management classes. There is simply no comparison between the

learning employees may take away from such courses and what they’ll gain from

participating in debates about business decisions. Ask anyone at your company whether

they’d rather spend a day in a negotiation seminar or be able to ask – with impunity – a

tough but fair question of a high-level manager at a big company meeting or engage in a

serious debate with their managers about the problem they’re being asked to solve. I

promise you, nobody but nobody is going to choose the seminar.”

Powerful, p. 67

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JWI 556 (1196) Page 7 of 7

GETTING THE MOST OUT OF THIS WEEK’S CLASS

As you read the materials and participate in class activities, stay focused on the key learning outcomes

for the week:

 Explore the most common types of conflict that occur during change initiatives, including

competition for jobs, cultural misalignment, and sabotage

Identify, and prepare for, the types of conflict you are most likely to encounter during a

change initiative. Run “what-if?” scenarios with managers and HR colleagues to walk

through potential fallout, and to formulate plans to address these conflicts. Use the

stakeholder maps you developed to identify people who are going to be negatively

impacted by the change, and create options for best-case and worst-case conflicts, and

how you will address them.

 Examine the steps that HR professionals can take to preempt and resolve conflict

The best conflict management is the one that addresses the conflict before it escalates.

Proactively sharing information, being honest about what’s happening and why, and

developing clear “what’s in it for me?” and “what’s in it for the company?” statements can

go a long way to head off major conflict. True, you won’t be successful in preempting

everything, but the more that you can ground the change initiative in the Mission and

Values of the organization (assuming these have been front and center before the change),

the more likely it will be that conflicts will resolve themselves as the change unfolds.

 Apply tools to articulate and address the competing commitments and hidden

assumptions that undermine change

Ignoring a conflict and hoping it will go away seldom works. You may not have to deal with

in directly at that moment, but it will more than likely continue to simmer and will, in the long

term, lead to ongoing problems that undermine the lasting success of the change.

Don’t be afraid of direct and honest discussion about the conflict. Use what you have

learned in this course to help stakeholders understand where their own sources of conflict

come from and how they can reframe these in a positive way. Review materials from your

previous JWMI courses on emotional intelligence and conflict resolution, and leverage

practices to acknowledge the conflict and the negative impact it has, and to seek out

common ground and find a way forward.

JWI 556: Leading Change by Putting People First

Assignment 4

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556 Assignment 4 (1196) Page 1 of 5

Assignment 4: Case Study, A Cultural Transformation at Southeastern Grocers

Due: Sunday, Midnight of Week 9 (30% of total course grade)

Instructions:

Read the case A Cultural Transformation at Southeastern Grocers. You will likely need to read the case

several times and make notes. All yourself adequate time for this.

Assume the role of chief people officer at Southeastern Grocers (SEG). Create a plan for a change

initiative at SEG. Do not focus on sustaining the changes the company has already undergone. Instead,

determine what other change(s) SEG needs to make in addition to those mentioned in the case. Your

change initiative must be feasible, concrete, and HR-centric. Consider focusing on one particular

workforce topic (e.g., diversity and inclusion, trust in company leadership, attracting new talent) in which

HR can lead a significant change. Your plan should contain both an executive business brief and a

change vision video:

(1) Executive Business Brief

Write a 2-3-page brief that identifies a necessary organizational change. Think of this brief as a

summary document to be shared with SEG’s senior leadership. Your brief must address the

following prompts:

a. How would you describe SEG’s company culture?

b. Describe your change initiative. Why is it necessary?

c. Explain your change plan:

i. What is your change vision? How do you define it?

ii. Is there a sense of urgency? How will you generate it?

iii. How will you create a guiding coalition of key stakeholders and

early adopters?

iv. How will you communicate your change vision to SEG

employees?

v. What are the potential risks of your change initiative?

vi. How will you determine whether the change initiative is

successful?

(2) Change Vision Video Using Zoom, create a 2-3-minute video that compellingly presents your change vision. Think of this video as a pitch to SEG employees. You need their buy-in for your initiative to accomplish anything; you have to generate excitement. Your main points should be simple and memorable, and you should convey an appropriate amount of urgency. Make sure you answer the following questions in your video:

a. What is the change you are implementing? b. Why is this change important and necessary for SEG? c. How will the company benefit?

JWI 556: Leading Change by Putting People First

Assignment 4

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556 Assignment 4 (1196) Page 2 of 5

d. How will individual employees benefit?

e. What does success look like?

Professional Formatting and Submission Requirements for Executive Business Brief:

• Typed, double-spaced, professional font (size 10-12), including headings and subheadings (to

identify main topics and subtopics), with one-inch margins on all sides.

• Use headings to identify each of the assigned prompts. Separate paragraphs by a single space.

• References must be included and provide appropriate information that enables the reader to

locate the original source. Application of course materials and resources is expected, and

additional research is welcome.

• Include a cover page containing the title of the assignment, your name, the professor’s name, the

course title, and the date.

• The length is 2-3 pages, excluding your cover page and reference list. You may exceed 3 pages,

but be sure that what you write adds value to your submission and is not redundant.

Professional Formatting and Submission Requirements for Change Vision Video:

• Upload your video in .mp4 format. Include your first and last name in the filename.

• This should be a video of just you. No PowerPoint slides or props are needed.

• The length is 2-3 minutes.

JWI 556: Leading Change by Putting People First

Assignment 4

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556 Assignment 4 (1196) Page 3 of 5

Rubric: Assignment 4

30% of Total Course Grade

Assignment 4: Case Study

Criteria Unsatisfactory Low Pass Pass High Pass Honors

1. Executive business brief identifies SEG’s company culture, identifies a change initiative, and assesses why the initiative is needed.

Weight: 15%

Does not or unsatisfactorily provides a clear and concise explanation of SEG’s company culture. Does not or unsatisfactorily describes the change initiative and the rationale for it in a compelling or convincing manner.

Partially explains SEG’s company culture. Vaguely describes the change initiative and the rationale for it; the initiative and rationale have very little concrete detail.

Satisfactorily provides a clear and concise explanation of SEG’s company culture. Identifies the change initiative and rationale for it in some level of detail.

Provides a complete, clear, and concise explanation of SEG’s company culture. The change initiative is described in detail. The rationale for it is presented in a compelling and convincing manner.

Provides an exemplary, clear, and concise explanation of SEG’s company culture. The change initiative is described in great detail. The rationale for it is presented in an extremely compelling and convincing manner.

2. Executive business brief explains the change initiative plan according to the assigned prompts, detailing the change vision, sense of urgency, guiding coalition, communication strategy, potential risks, and determination of success. Demonstrates understanding of the course concepts.

Weight: 35%

Does not or unsatisfactorily explains the change initiative plan according to the assigned prompts. Demonstrates little to no understanding of the course concepts.

Partially explains the change initiative plan. Addresses at least four of the assigned prompts. Demonstrates a partial understanding of the course concepts, but lacks a detailed grasp of them.

Satisfactorily explains the change initiative plan. Addresses at least five of the assigned prompts. Demonstrates a satisfactory understanding of the course concepts.

Provides a complete description of the change initiative plan. Addresses all six of the assigned prompts. Demonstrates a detailed understanding of the course concepts.

Provides an exemplary description of the change initiative plan. Addresses all six of the assigned prompts, offering unique insights and clear, persuasive arguments. Demonstrates a complete, detailed understanding of the course concepts.

JWI 556: Leading Change by Putting People First

Assignment 4

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556 Assignment 4 (1196) Page 4 of 5

30% of Total Course Grade

Assignment 4: Case Study

Criteria Unsatisfactory Low Pass Pass High Pass Honors

3. Executive business brief is logical, professionally formatted, and free from grammatical errors.

Weight: 10%

Executive business brief is illogical, unprofessional, and contains multiple mechanical and usage errors. References and citations may be missing.

Executive business brief is somewhat professional in format and contains some mechanical and usage errors. Sources are not consistently cited and/or the reference list is incompletely or improperly formatted.

Executive business brief is satisfactorily logical and professional in format. Sources are mostly cited in-text and the reference list is adequately formatted. There are a few mechanical and usage errors, but they do not seriously impact the flow of the brief.

Executive business brief is logical and professional formatted. Most sources are consistently cited in-text and the reference list is included. Mechanical and usage errors, if any, are minor and have no impact on the flow of the brief.

Executive business brief is highly logical and professionally formatted. All sources are consistently cited in-text and references are included in a manner that enables the reader to easily identify sources. There are no mechanical or usage errors.

4. The change vision video is presented in a compelling manner that engages listeners. Video addresses all 5 questions about the change vision.

Weight: 30%

The change vision video is unsatisfactorily presented. Little to no synthesis of ideas is demonstrated and logical reasoning is not included or evident. Video is not engaging and does not address any of the 5 questions about the change vision.

The change vision video is presented. It partially depicts the rationale for change, but does not create a sense of urgency. It partially explains what success looks like, but not how SEG and its employees benefit. The video is not very engaging and addresses 3 of the questions about the change vision.

The change vision video is satisfactorily presented. It details the rationale for change, creates some sense of urgency, lays out how SEG and its employees benefit, and explains what success looks like in general terms. Video is fairly engaging and addresses 4 of the questions about the change vision, albeit not in detail.

The change vision video is well-presented. It details the rationale for change, creates a sense of urgency, lays out how SEG and its employees benefit, and succinctly explains what success looks like. Video is compelling, engaging, and addresses all 5 questions about the change vision.

The change vision video is presented in exemplary fashion. It thoroughly details the rationale for change, creates a strong sense of urgency, comprehensively lays out how SEG and its employees benefit, and succinctly explains what success looks like. Video is highly compelling, engaging, and addresses all 5 questions about the change vision.

JWI 556: Leading Change by Putting People First

Assignment 4

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556 Assignment 4 (1196) Page 5 of 5

30% of Total Course Grade

Assignment 4: Case Study

Criteria Unsatisfactory Low Pass Pass High Pass Honors

5. The change vision video has a professional look and feel and stays within the timeframe.

Weight: 10%

The change vision video is not professional. The student is not professionally dressed, does not have an appropriate background, makes no eye contact, voice is not dynamic, and verbal cues are unsatisfactorily applied. Video does not adhere to the 2-3-minute time limit.

The change vision video is partially professional. The student is fairly professionally dressed, has a somewhat appropriate background, makes little to no eye contact, voice is fairly dynamic, and verbal cues are partially applied. Video may not adhere to the 2-3- minute time limit.

The change vision video is professional. The student is somewhat professionally dressed, has an appropriate background, makes good eye contact, voice is somewhat dynamic, and verbal cues are satisfactorily applied. Video may be over the 3- minute time limit, but by no more than 2 minutes.

The change vision video is very professional. The student is professionally dressed, has an appropriate background, makes eye contact, voice is mostly dynamic, and verbal cues are completely applied. Video may be over the 3-minute time limit, but by no more than 1 minute.

The change vision video is extremely professional. The student is professionally dressed, has an appropriate background, makes eye contact, voice is dynamic, and verbal cues are applied in exemplary fashion. Video adheres to the 2- 3-minute time limit.

Summary.   

Disruptive Innovation

What Is Disruptive Innovation? by Clayton M. Christensen, Michael E. Raynor, and Rory McDonald

From the Magazine (December 2015)

For the past 20 years, the theory of disruptive innovation has been

enormously influential in business circles and a powerful tool for predicting which

industry entrants will succeed. Unfortunately, the theory has also been widely

misunderstood, and the “disruptive” label has been applied too carelessly anytime

a market newcomer shakes up well-established incumbents.

In this article, the architect of disruption theory, Clayton M. Christensen, and his

coauthors correct some of the misinformation, describe how the thinking on the

subject has evolved, and discuss the utility of the theory.

They start by clarifying what classic disruption entails—a small enterprise targeting

overlooked customers with a novel but modest offering and gradually moving

upmarket to challenge the industry leaders. They point out that Uber, commonly

hailed as a disrupter, doesn’t actually fit the mold, and they explain that if

managers don’t understand the nuances of disruption theory or apply its tenets

correctly, they may not make the right strategic choices. Common mistakes, the

authors say, include failing to view disruption as a gradual process (which may lead

incumbents to ignore significant threats) and blindly accepting the “Disrupt or be

disrupted” mantra (which may lead incumbents to jeopardize their core business as

they try to defend against disruptive competitors).

The authors acknowledge that disruption theory has certain limitations. But they

are confident that as research continues, the theory’s explanatory and predictive

powers will only improve.

JUST FOR SUBSCRIBERS

The theory of disruptive innovation, introduced in these pages in

1995, has proved to be a powerful way of thinking about innovation-

driven growth. Many leaders of small, entrepreneurial companies

praise it as their guiding star; so do many executives at large, well-

established organizations, including Intel, Southern New Hampshire

University, and Salesforce.com.

Unfortunately, disruption theory is in danger of becoming a victim of

its own success. Despite broad dissemination, the theory’s core

concepts have been widely misunderstood and its basic tenets

frequently misapplied. Furthermore, essential refinements in the

theory over the past 20 years appear to have been overshadowed by

the popularity of the initial formulation. As a result, the theory is

sometimes criticized for shortcomings that have already been

addressed.

There’s another troubling concern: In our experience, too many

people who speak of “disruption” have not read a serious book or

article on the subject. Too frequently, they use the term loosely to

invoke the concept of innovation in support of whatever it is they

wish to do. Many researchers, writers, and consultants use

“disruptive innovation” to describe any situation in which an industry

is shaken up and previously successful incumbents stumble. But that’s

much too broad a usage.

close

The Ubiquitous “Disruptive Innovation”

Visual by Clayton M. Christensen , Michael E. Raynor , and Rory McDonald

The problem with conflating a

disruptive innovation with any

breakthrough that changes an

industry’s competitive patterns is

that different types of innovation

require different strategic

approaches. To put it another way,

the lessons we’ve learned about

succeeding as a disruptive

innovator (or defending against a

disruptive challenger) will not apply to every company in a shifting

market. If we get sloppy with our labels or fail to integrate insights

from subsequent research and experience into the original theory,

then managers may end up using the wrong tools for their context,

reducing their chances of success. Over time, the theory’s usefulness

will be undermined.

This article is part of an effort to capture the state of the art. We begin

by exploring the basic tenets of disruptive innovation and examining

whether they apply to Uber. Then we point out some common pitfalls

in the theory’s application, how these arise, and why correctly using

the theory matters. We go on to trace major turning points in the

evolution of our thinking and make the case that what we have

learned allows us to more accurately predict which businesses will

grow.

 PLAY 2:08

First, a quick recap of the idea: “Disruption” describes a process

whereby a smaller company with fewer resources is able to

successfully challenge established incumbent businesses. Specifically,

as incumbents focus on improving their products and services for

their most demanding (and usually most profitable) customers, they

exceed the needs of some segments and ignore the needs of others.

Entrants that prove disruptive begin by successfully targeting those

overlooked segments, gaining a foothold by delivering more-suitable

functionality—frequently at a lower price. Incumbents, chasing

higher profitability in more-demanding segments, tend not to

respond vigorously. Entrants then move upmarket, delivering the

performance that incumbents’ mainstream customers require, while

preserving the advantages that drove their early success. When

mainstream customers start adopting the entrants’ offerings in

volume, disruption has occurred.

Is Uber a Disruptive Innovation?

Let’s consider Uber, the much-feted transportation company whose

mobile application connects consumers who need rides with drivers

who are willing to provide them. Founded in 2009, the company has

enjoyed fantastic growth (it operates in hundreds of cities in 60

countries and is still expanding). It has reported tremendous financial

success (the most recent funding round implies an enterprise value in

the vicinity of $50 billion). And it has spawned a slew of imitators

(other start-ups are trying to emulate its “market-making” business

model). Uber is clearly transforming the taxi business in the United

States. But is it disrupting the taxi business?

According to the theory, the answer is no. Uber’s financial and

strategic achievements do not qualify the company as genuinely

disruptive—although the company is almost always described that

way. Here are two reasons why the label doesn’t fit.

Disruptive innovations originate in low-end or new-market

footholds.

Disruptive innovations are made possible because they get started in

two types of markets that incumbents overlook. Low-end footholds

exist because incumbents typically try to provide their most profitable

and demanding customers with ever-improving products and

services, and they pay less attention to less-demanding customers. In

fact, incumbents’ offerings often overshoot the performance

requirements of the latter. This opens the door to a disrupter focused

(at first) on providing those low-end customers with a “good enough”

product.

In the case of new-market footholds, disrupters create a market where

none existed. Put simply, they find a way to turn nonconsumers into

consumers. For example, in the early days of photocopying

technology, Xerox targeted large corporations and charged high

prices in order to provide the performance that those customers

required. School librarians, bowling-league operators, and other

small customers, priced out of the market, made do with carbon

paper or mimeograph machines. Then in the late 1970s, new

challengers introduced personal copiers, offering an affordable

solution to individuals and small organizations—and a new market

was created. From this relatively modest beginning, personal

photocopier makers gradually built a major position in the

mainstream photocopier market that Xerox valued.

A disruptive innovation, by definition, starts from one of those two

footholds. But Uber did not originate in either one. It is difficult to

claim that the company found a low-end opportunity: That would

have meant taxi service providers had overshot the needs of a

material number of customers by making cabs too plentiful, too easy

to use, and too clean. Neither did Uber primarily target

nonconsumers—people who found the existing alternatives so

expensive or inconvenient that they took public transit or drove

themselves instead: Uber was launched in San Francisco (a well-

served taxi market), and Uber’s customers were generally people

already in the habit of hiring rides.

Uber has quite arguably been increasing total demand—that’s what

happens when you develop a better, less-expensive solution to a

widespread customer need. But disrupters start by appealing to low-

end or unserved consumers and then migrate to the mainstream

market. Uber has gone in exactly the opposite direction: building a

position in the mainstream market first and subsequently appealing

to historically overlooked segments.

Disruptive innovations don’t catch on with mainstream

customers until quality catches up to their standards.

Disruption theory differentiates disruptive innovations from what are

called “sustaining innovations.” The latter make good products better

in the eyes of an incumbent’s existing customers: the fifth blade in a

razor, the clearer TV picture, better mobile phone reception. These

improvements can be incremental advances or major breakthroughs,

but they all enable firms to sell more products to their most profitable

customers.

Disruptive innovations, on the other hand, are initially considered

inferior by most of an incumbent’s customers. Typically, customers

are not willing to switch to the new offering merely because it is less

expensive. Instead, they wait until its quality rises enough to satisfy

them. Once that’s happened, they adopt the new product and happily

accept its lower price. (This is how disruption drives prices down in a

market.)

Most of the elements of Uber’s strategy seem to be sustaining

innovations. Uber’s service has rarely been described as inferior to

existing taxis; in fact, many would say it is better. Booking a ride

requires just a few taps on a smartphone; payment is cashless and

convenient; and passengers can rate their rides afterward, which

helps ensure high standards. Furthermore, Uber delivers service

reliably and punctually, and its pricing is usually competitive with (or

lower than) that of established taxi services. And as is typical when

incumbents face threats from sustaining innovations, many of the taxi

companies are motivated to respond. They are deploying competitive

technologies, such as hailing apps, and contesting the legality of some

of Uber’s services.

Why Getting It Right Matters

Readers may still be wondering, Why does it matter what words we

use to describe Uber? The company has certainly thrown the taxi

industry into disarray: Isn’t that “disruptive” enough? No. Applying

the theory correctly is essential to realizing its benefits. For example,

small competitors that nibble away at the periphery of your business

very likely should be ignored—unless they are on a disruptive

trajectory, in which case they are a potentially mortal threat. And

both of these challenges are fundamentally different from efforts by

competitors to woo your bread-and-butter customers.

As the example of Uber shows, identifying true disruptive innovation

is tricky. Yet even executives with a good understanding of disruption

theory tend to forget some of its subtler aspects when making

strategic decisions. We’ve observed four important points that get

overlooked or misunderstood:

1. Disruption is a process.

The term “disruptive innovation” is misleading when it is used to

refer to a product or service at one fixed point, rather than to the

evolution of that product or service over time. The first

minicomputers were disruptive not merely because they were low-

end upstarts when they appeared on the scene, nor because they were

later heralded as superior to mainframes in many markets; they were

disruptive by virtue of the path they followed from the fringe to the

mainstream.

Most every innovation—disruptive or not—begins life as a small-scale

experiment. Disrupters tend to focus on getting the business model,

rather than merely the product, just right. When they succeed, their

movement from the fringe (the low end of the market or a new

market) to the mainstream erodes first the incumbents’ market share

and then their profitability. This process can take time, and

incumbents can get quite creative in the defense of their established

franchises. For example, more than 50 years after the first discount

department store was opened, mainstream retail companies still

operate their traditional department-store formats. Complete

substitution, if it comes at all, may take decades, because the

incremental profit from staying with the old model for one more year

trumps proposals to write off the assets in one stroke.

The fact that disruption can take time helps to explain why

incumbents frequently overlook disrupters. For example, when

Netflix launched, in 1997, its initial service wasn’t appealing to most

of Blockbuster’s customers, who rented movies (typically new

releases) on impulse. Netflix had an exclusively online interface and a

large inventory of movies, but delivery through the U.S. mail meant

selections took several days to arrive. The service appealed to only a

few customer groups—movie buffs who didn’t care about new

releases, early adopters of DVD players, and online shoppers. If

Netflix had not eventually begun to serve a broader segment of the

market, Blockbuster’s decision to ignore this competitor would not

have been a strategic blunder: The two companies filled very different

needs for their (different) customers.

Because disruption can take time,

incumbents frequently overlook

disrupters.

However, as new technologies allowed Netflix to shift to streaming

video over the internet, the company did eventually become

appealing to Blockbuster’s core customers, offering a wider selection

of content with an all-you-can-watch, on-demand, low-price, high-

quality, highly convenient approach. And it got there via a classically

disruptive path. If Netflix (like Uber) had begun by launching a

service targeted at a larger competitor’s core market, Blockbuster’s

response would very likely have been a vigorous and perhaps

successful counterattack. But failing to respond effectively to the

trajectory that Netflix was on led Blockbuster to collapse.

2. Disrupters often build business models that are very different

from those of incumbents.

Consider the health care industry. General practitioners operating out

of their offices often rely on their years of experience and on test

results to interpret patients’ symptoms, make diagnoses, and

prescribe treatment. We call this a “solution shop” business model. In

contrast, a number of convenient care clinics are taking a disruptive

path by using what we call a “process” business model: They follow

standardized protocols to diagnose and treat a small but increasing

number of disorders.

One high-profile example of using an innovative business model to

effect a disruption is Apple’s iPhone. The product that Apple debuted

in 2007 was a sustaining innovation in the smartphone market: It

targeted the same customers coveted by incumbents, and its initial

success is likely explained by product superiority. The iPhone’s

subsequent growth is better explained by disruption—not of other

smartphones but of the laptop as the primary access point to the

internet. This was achieved not merely through product

improvements but also through the introduction of a new business

model. By building a facilitated network connecting application

developers with phone users, Apple changed the game. The iPhone

created a new market for internet access and eventually was able to

challenge laptops as mainstream users’ device of choice for going

online.

3. Some disruptive innovations succeed; some don’t.

A third common mistake is to focus on the results achieved—to claim

that a company is disruptive by virtue of its success. But success is

not built into the definition of disruption: Not every disruptive path

leads to a triumph, and not every triumphant newcomer follows a

disruptive path.

For example, any number of internet-based retailers pursued

disruptive paths in the late 1990s, but only a small number prospered.

The failures are not evidence of the deficiencies of disruption theory;

they are simply boundary markers for the theory’s application. The

theory says very little about how to win in the foothold market, other

than to play the odds and avoid head-on competition with better-

resourced incumbents.

If we call every business success a “disruption,” then companies that

rise to the top in very different ways will be seen as sources of insight

into a common strategy for succeeding. This creates a danger:

Managers may mix and match behaviors that are very likely

inconsistent with one another and thus unlikely to yield the hoped-

for result. For example, both Uber and Apple’s iPhone owe their

success to a platform-based model: Uber digitally connects riders

with drivers; the iPhone connects app developers with phone users.

But Uber, true to its nature as a sustaining innovation, has focused on

expanding its network and functionality in ways that make it better

than traditional taxis. Apple, on the other hand, has followed a

disruptive path by building its ecosystem of app developers so as to

make the iPhone more like a personal computer.

4. The mantra “Disrupt or be disrupted” can misguide us.

Incumbent companies do need to respond to disruption if it’s

occurring, but they should not overreact by dismantling a still-

profitable business. Instead, they should continue to strengthen

relationships with core customers by investing in sustaining

innovations. In addition, they can create a new division focused solely

on the growth opportunities that arise from the disruption. Our

research suggests that the success of this new enterprise depends in

large part on keeping it separate from the core business. That means

that for some time, incumbents will find themselves managing two

very different operations.

Of course, as the disruptive stand-alone business grows, it may

eventually steal customers from the core. But corporate leaders

should not try to solve this problem before it is a problem.

What a Disruptive Innovation Lens Can Reveal

It is rare that a technology or product is inherently sustaining or

disruptive. And when new technology is developed, disruption theory

does not dictate what managers should do. Instead it helps them

make a strategic choice between taking a sustaining path and taking a

disruptive one.

The theory of disruption predicts that when an entrant tackles

incumbent competitors head-on, offering better products or services,

the incumbents will accelerate their innovations to defend their

business. Either they will beat back the entrant by offering even better

services or products at comparable prices, or one of them will acquire

the entrant. The data supports the theory’s prediction that entrants

pursuing a sustaining strategy for a stand-alone business will face

steep odds: In Christensen’s seminal study of the disk drive industry,

only 6% of sustaining entrants managed to succeed.

When new technology arises, disruption

theory can guide strategic choices.

Uber’s strong performance therefore warrants explanation. According

to disruption theory, Uber is an outlier, and we do not have a

universal way to account for such atypical outcomes. In Uber’s case,

we believe that the regulated nature of the taxi business is a large part

of the answer. Market entry and prices are closely controlled in many

jurisdictions. Consequently, taxi companies have rarely innovated.

Individual drivers have few ways to innovate, except to defect to

Uber. So Uber is in a unique situation relative to taxis: It can offer

better quality and the competition will find it hard to respond, at least

in the short term.

To this point, we’ve addressed only whether or not Uber is disruptive

to the taxi business. The limousine or “black car” business is a

different story, and here Uber is far more likely to be on a disruptive

path. The company’s UberSELECT option provides more-luxurious

cars and is typically more expensive than its standard service—but

typically less expensive than hiring a traditional limousine. This lower

price imposes some compromises, as UberSELECT currently does not

include one defining feature of the leading incumbents in this market:

acceptance of advance reservations. Consequently, this offering from

Uber appeals to the low end of the limousine service market:

customers willing to sacrifice a measure of convenience for monetary

savings. Should Uber find ways to match or exceed incumbents’

performance levels without compromising its cost and price

advantage, the company appears to be well positioned to move into

the mainstream of the limo business—and it will have done so in

classically disruptive fashion.

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How Our Thinking About Disruption Has Developed

Initially, the theory of disruptive innovation was simply a statement

about correlation. Empirical findings showed that incumbents

outperformed entrants in a sustaining innovation context but

underperformed in a disruptive innovation context. The reason for

this correlation was not immediately evident, but one by one, the

elements of the theory fell into place.

Smart disrupters improve their products

and drive upmarket.

First, researchers realized that a company’s propensity for strategic

change is profoundly affected by the interests of customers who

provide the resources the firm needs to survive. In other words,

incumbents (sensibly) listen to their existing customers and

concentrate on sustaining innovations as a result. Researchers then

arrived at a second insight: Incumbents’ focus on their existing

customers becomes institutionalized in internal processes that make

it difficult for even senior managers to shift investment to disruptive

innovations. For example, interviews with managers of established

companies in the disk drive industry revealed that resource allocation

processes prioritized sustaining innovations (which had high margins

and targeted large markets with well-known customers) while

inadvertently starving disruptive innovations (meant for smaller

markets with poorly defined customers).

Those two insights helped explain why incumbents rarely responded

effectively (if at all) to disruptive innovations, but not why entrants

eventually moved upmarket to challenge incumbents, over and over

again. It turns out, however, that the same forces leading incumbents

to ignore early-stage disruptions also compel disrupters ultimately to

disrupt.

What we’ve realized is that, very

often, low-end and new-market

footholds are populated not by a

lone would-be disrupter, but by

several comparable entrant firms

whose products are simpler, more

convenient, or less costly than

those sold by incumbents. The

incumbents provide a de facto price umbrella, allowing many of the

entrants to enjoy profitable growth within the foothold market. But

that lasts only for a time: As incumbents (rationally, but mistakenly)

cede the foothold market, they effectively remove the price umbrella,

and price-based competition among the entrants reigns. Some

entrants will founder, but the smart ones—the true disrupters—will

improve their products and drive upmarket, where, once again, they

can compete at the margin against higher-cost established

competitors. The disruptive effect drives every competitor—

incumbent and entrant—upmarket.

With those explanations in hand, the theory of disruptive innovation

went beyond simple correlation to a theory of causation as well. The

key elements of that theory have been tested and validated through

studies of many industries, including retail, computers, printing,

motorcycles, cars, semiconductors, cardiovascular surgery,

management education, financial services, management consulting,

cameras, communications, and computer-aided design software.

Making sense of anomalies.

Additional refinements to the theory have been made to address

certain anomalies, or unexpected scenarios, that the theory could not

explain. For example, we originally assumed that any disruptive

innovation took root in the lowest tiers of an established market—yet

sometimes new entrants seemed to be competing in entirely new

markets. This led to the distinction we discussed earlier between low-

end and new-market footholds.

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minimills and discount retailers)

come in at the bottom of the

market and take hold within an

existing value network before

moving upmarket and attacking

that stratum (think integrated

steel mills and traditional

retailers). By contrast, new-market

disruptions take hold in a completely new value network and appeal

to customers who have previously gone without the product.

Consider the transistor pocket radio and the PC: They were largely

ignored by manufacturers of tabletop radios and minicomputers,

respectively, because they were aimed at nonconsumers of those

goods. By postulating that there are two flavors of foothold markets in

which disruptive innovation can begin, the theory has become more

powerful and practicable.

Another intriguing

anomaly was the

identification of

industries that have

resisted the forces of

disruption, at least

until very recently.

Higher education in

the United States is

one of these. Over the

years—indeed, over

more than 100 years

—new kinds of

institutions with

different initial

charters have been

created to address the

needs of various

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population segments,

including

nonconsumers. Land-

grant universities, teachers’ colleges, two-year colleges, and so on

were initially launched to serve those for whom a traditional four-

year liberal arts education was out of reach or unnecessary.

Many of these new entrants strived to improve over time, compelled

by analogues of the pursuit of profitability: a desire for growth,

prestige, and the capacity to do greater good. Thus they made costly

investments in research, dormitories, athletic facilities, faculty, and so

on, seeking to emulate more-elite institutions. Doing so has increased

their level of performance in some ways—they can provide richer

learning and living environments for students, for example. Yet the

relative standing of higher-education institutions remains largely

unchanged: With few exceptions, the top 20 are still the top 20, and

the next 50 are still in that second tier, decade after decade.

Because both incumbents and newcomers are seemingly following the

same game plan, it is perhaps no surprise that incumbents are able to

maintain their positions. What has been missing—until recently—is

experimentation with new models that successfully appeal to today’s

nonconsumers of higher education.

The question now is whether there is a novel technology or business

model that allows new entrants to move upmarket without emulating

the incumbents’ high costs—that is, to follow a disruptive path. The

answer seems to be yes, and the enabling innovation is online

learning, which is becoming broadly available. Real tuition for online

courses is falling, and accessibility and quality are improving.

Innovators are making inroads into the mainstream market at a

stunning pace.

Will online education disrupt the incumbents’ model? And if so,

when? In other words, will online education’s trajectory of

improvement intersect with the needs of the mainstream market?

We’ve come to realize that the steepness of any disruptive trajectory

is a function of how quickly the enabling technology improves. In the

steel industry, continuous-casting technology improved quite slowly,

and it took more than 40 years before the minimill Nucor matched

the revenue of the largest integrated steelmakers. In contrast, the

digital technologies that allowed personal computers to disrupt

minicomputers improved much more quickly; Compaq was able to

increase revenue more than tenfold and reach parity with the

industry leader, DEC, in only 12 years.

Understanding what drives the rate of disruption is helpful for

predicting outcomes, but it doesn’t alter the way disruptions should

be managed. Rapid disruptions are not fundamentally different from

any others; they don’t have different causal mechanisms and don’t

require conceptually different responses.

Similarly, it is a mistake to assume that the strategies adopted by

some high-profile entrants constitute a special kind of disruption.

Often these are simply miscategorized. Tesla Motors is a current and

salient example. One might be tempted to say the company is

disruptive. But its foothold is in the high end of the auto market (with

customers willing to spend $70,000 or more on a car), and this

segment is not uninteresting to incumbents. Tesla’s entry, not

surprisingly, has elicited significant attention and investment from

established competitors. If disruption theory is correct, Tesla’s future

holds either acquisition by a much larger incumbent or a years-long

and hard-fought battle for market significance.

We still have a lot to learn.

We are eager to keep expanding and refining the theory of disruptive

innovation, and much work lies ahead. For example, universally

effective responses to disruptive threats remain elusive. Our current

belief is that companies should create a separate division that

operates under the protection of senior leadership to explore and

exploit a new disruptive model. Sometimes this works—and

sometimes it doesn’t. In certain cases, a failed response to a

disruptive threat cannot be attributed to a lack of understanding,

insufficient executive attention, or inadequate financial investment.

The challenges that arise from being an incumbent and an entrant

simultaneously have yet to be fully specified; how best to meet those

challenges is still to be discovered.

Disruption theory does not, and never will, explain everything about

innovation specifically or business success generally. Far too many

other forces are in play, each of which will reward further study.

Integrating them all into a comprehensive theory of business success

is an ambitious goal, one we are unlikely to attain anytime soon.

But there is cause for hope: Empirical tests show that using disruptive

theory makes us measurably and significantly more accurate in our

predictions of which fledgling businesses will succeed. As an ever-

growing community of researchers and practitioners continues to

build on disruption theory and integrate it with other perspectives,

we will come to an even better understanding of what helps firms

innovate successfully.

A version of this article appeared in the December 2015 issue (pp.44–53) of Harvard Business Review.

Clayton M. Christensen was the Kim B. Clark

Professor of Business Administration at Harvard

Business School and a frequent contributor to

Harvard Business Review.

Michael E. Raynor is a director at Deloitte

Consulting LLP. He is the coauthor, with Mumtaz

Ahmed, of The Three Rules: How Exceptional

Companies Think (New York: Penguin Books,

2013).

Rory McDonald is the Thai-Hi T. Lee (MBA 1985)

Associate Professor of Business Administration in

the Technology and Operations Management unit

at Harvard Business School.