Michael Raynor's analysis of disruption - and higher education

In a recent post that focused on the business model for higher education, I discussed how I believe that the greatest pressure on the "Resources" component of that model comes from the new "off the shelf" course-rich world in which we live. College-level courses, which formerly had to be created in-house by faculty, are suddenly to be found everywhere. MOOCs are, of course, a very visible and discussed new component of this course-rich world, but not the only component. Other sources of the course-rich world are textbook companies such as Pearson and McGraw-Hill and open source materials such as can be found at the OpenSourceWare Consortium.   I will be looking at some of these new sources of college-level courses (NCLCs) and considering how they might impact the higher education business model in a series of upcoming posts. First, however, I want to introduce another approach that I have found useful in these reflections.

 Michael E Raynor's The Innovator's Manifesto: Deliberate Disruption for Transformational Growth extends Christensen's theory of disruptive innovation in interesting directions. His goal is to make disruption a predictive theory, so he focuses on identifying the characteristics of an innovation that increase the likelihood that it will eventually be disruptive. He also considers the relationships of some of the characteristics of the innovation to the speed with which it can grow into disruption. This post will focus on explaining his approach and some of his results that are most pertinent to higher education.

Not surprisingly, it turns out that many conditions must come together in order for an innovation to have the potential to be disruptive. In a future post, I will apply Raynor's results to the NCLCs to see if and how they might drive a disruptive approach.  In later posts, I will pull all of this information together to discuss new institutions built around the NCLCs, and ways in which existing institutions might use the NCLCs.

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Raynor's discussion makes considerable use of Michael Porter's Productivity Frontier (PF) for an industry:

Imagine for a moment a productivity frontier that constitutes the sum of all existing best practices at any given time. Think of it as the maximum value that a company delivering a particular product or service can create at a given cost, using the best available technologies, skills, management techniques, and purchased inputs.

The PF is therefore a two dimensional curve that describes the best possible combinations of nonprice value and cost that can be provided for a particular business model at a given point in time. Nonprice value includes all of the different elements of the product that customers are interested in.  The figure at right, adapted from Raynor's work, shows several such curves.

Curve #1 represents the PF for an industry at a particular point in time. An efficient company will operate on this curve at a point that describes the best value product that can be produced at a given relative cost. Not all efficient companies will operate at the same point, however, since for strategic reasons they may choose differing combinations of value and cost that lie on the curve.  Inefficient companies operate at points inside the curve, leading to lower value or higher cost (or both) than was potentially possible.

An innovation breaks the trade-offs that defined the original PF, enabling new combinations of value and cost to be achieved by efficient companies.  An innovation that expands the PF outward while maintaining its basic shape (indicating that the basic business model has not changed substantially) is called sustaining (curve #2). Sustaining innovations enable companies to produce higher value products at lower cost without changing business model. Sometimes, however, a new innovation enables a very different type of business model to be created, one that has a PF that is entirely different in shape from the dominant one (curve #3). That is, the new PF is made up of combinations of possible value and cost that generally could not be reached on the old PF. Typically, this new PF defines a product that has relatively lower value and lower cost than the dominant product, and thus defines a product that can be thought of as inferior. However, there are often numerous potential customers for a product that is less than excellent if the price is right, and as indicated in the diagram, this new PF defines a product that is considerably less expensive over a portion of its range than products of similar low quality made with the traditional approach. It is worth noting that the same innovation can often be used within the context of the original business model, and in the context of a new business model that is designed to optimize use of the innovation.

Raynor looks in detail at the case in which a new innovation leads to a new PF, thus looking like a potentially disruptive innovation. He shows that two different results may occur depending on the dynamics of this new innovation that enabled the new PF. As the new innovation itself is improved through continuing innovation, the PF defined by curve #3 will expand outward, enabling the new approach to reach higher and higher levels of value at lower costs than those that are possible with the traditional approach. Thus, an increasing set of potential customers will find the new product to have both the desired value and lower cost. 

Raynor points out what should be the obvious, however: in order for this new innovation to actually disrupt the traditional approach, i.e. to supplant it, it must be able to improve at a rapid clip within the confines of the new business model itself. That is:

Disruption demands that the business model that defines this new frontier be pushed outward by a technology or set of processes that incumbents are at a disadvantage in adopting. 

Importantly, Raynor shows that innovations that are driven by technology tend to improve more rapidly than innovations that depend on processes. 

What of new business models driven by innovations that don't improve rapidly, if at all? They are not necessarily failures simply because they are not disruptive. They can access cost/value points that the old business model cannot access. Thus, if there are a sufficient number customers who find the cost/value relationship of some point on  the PF of the new model to be attractive, a company working at that point can do a great business - it just can't destroy the established businesses in the field. Raynor describes such companies as strategic innovators.

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So what kind of an innovation are the NCLCs, and what can we say about their ability to improve in value over time? If they can improve, will improvements come from improvements in technology or improvement in process? I discuss these issues in How a course-rich world might impact higher education: I. Technology vs pedagogy. I then put all of these considerations together to consider the uses of NCLCs in creating new types of institutions in How a course-rich world might impact higher education: II. Creating new institutions, and in helping existing institutions meet the challenging environment for higher education in How a course-rich world might impact higher education:III.