Written by Chan Kim and Renée Mauborgne, with Mi Ji, Senior Executive Fellow at the INSEAD Blue Ocean Strategy Institute.
SmileDirectClub (SDC), an American teledentistry company once valued at nearly $9 billion and poised to disrupt the traditional braces industry, went bankrupt in December 2023. SDC offered a breakthrough solution for teeth straightening. With the price (originally some $1,800 vs. the standard $3,000-$6,000), the time of treatment (6 months vs. around 2 years), no required office visits, plus clear aligners you can slip on and off, it is not surprising that SDC took off. Since its founding in 2014, a customer base of 2 million people opted for SDC vs. traditional braces.
What led this innovative company to shut its doors after such phenomenal growth?
The initial success of SDC’s huge customer pull away from dentist professionals seems to have boomeranged. Threatened by the SDC’s disruptive move, dentists allied with regulators and rallied against SDC. They challenged SDC’s quality and safety of care, sparking lawsuits, regulatory investigations, and with that, negative attention in the media.
The high cost and time of legal disputes coupled with a massive advertising expense to mitigate reputation damage and attract new customers, resulted in mounting debt. Four years after going public in September 2019, SDC’s swelling debt ultimately led to its downfall.
Managers should recognize that when it comes to innovation and growth, disruption is not the only path
Disruption is often intuitively appealing to managers and entrepreneurs, as the industry to be disrupted provides a clear target of a known market size and deals with a known need for which people have demonstrated a willingness to pay.
However, as SDC shows, targeting the core of an existing industry with disruptive solutions often invites strong resistance and direct confrontation from well-entrenched incumbents and other vested interests. Companies that want to disrupt should be prepared for this, both mentally and strategically.
Managers should recognize that when it comes to innovation and growth, disruption is not the only path. Creation without disruption or nondisruptive creation is about creating a new market outside or beyond existing industry boundaries, and has its own organizational and business advantages. Let’s run through them.
SDC was poised to disrupt. the traditional braces industry
Nondisruptive creation allows you to avoid direct confrontation with established incumbents.
As in the case of SDC, stories of disruption are not always about David taking down Goliath. When facing strong counterattacks from established organizations with a deep network, financial and marketing resources, disruptors may sometimes feel like Don Quixote fighting windmills.
Bear in mind that, at the outset, there is an alternative way to innovate and grow without disruption. Consider Sesame Street. With its colorful Muppets like Elmo and Big Bird, catchy tunes, and fun lessons, the TV program teaches preschool children how to count, name colors and shapes, and recognize the letters of the alphabet. It also teaches them skills like how to listen, focus, and be nice to others in a way so fun that children don’t realize it’s educational.
Despite its great popularity, “Sesame Street,” did not displace preschools or libraries. Instead, it unlocked the nondisruptive new market of preschool edutainment — education infused with entertainment — that had largely not existed before.
Sesame Street’s nondisruptive creation allowed it to grow fast and unhindered, becoming a global phenomenon that reaches millions of children in over 150 countries, and spawning the multimillion-dollar industry of preschool edutainment.
It is an effective way to respond to full-on disruption.
Companies are often locked into the thinking that disruption can only be countered with disruption. But direct retaliation is only one way to deal with disruption, and not always a viable one nor the best way.
Consider the experience of the British company Cunard, a leader in the transatlantic ocean liner industry. When commercial airflights disrupted the industry in the 1950s, Cunard saw no way its ocean liner could match or beat the speed and convenience offered by transatlantic jet air travel.
What to do?
The company’s first instinct was to match this disruption with its own disruptive move before the entire ocean liner industry was displaced. It entered the airline industry by acquiring Eagle Airways and rebranding it as Cunard Eagle. However, the airlines retaliated. Soon, its main competitor, British Overseas Airways Corporation (BOAC), used its industry clout to have Cunard Eagle’s license revoked.
Companies are often locked into the thinking that disruption can only be countered with disruption.
Was Cunard destined for demise as the disrupted? On the contrary, Cunard pivoted and made a nondisruptive move by innovating “luxury vacationing at sea,” ushering in the modern cruise industry. In this brand-new industry, ocean liners would no longer be viewed and used as a means to an end.
Instead, the voyage would be the end itself. People would take cruises more for pleasure and star-studded entertainment than to be transported from point A to B. Cunard’s move went beyond the boundaries of any existing industries of the time. Cunard’s nondisruptive creation allowed it to escape the disruptive force of airlines that destroyed other ocean liners.
The company today is part of Carnival Corporation, and the cruise tourism industry it pioneered some 60 years ago generates revenues of about $30 billion annually and has created more than a million jobs.
Kodak was too late to act on its innovation
It makes it easier to secure support from internal stakeholders.
When established companies want to innovate in their existing industry space and that innovation is bound to disrupt and displace their own current business and the revenues that go with it, they often face high execution hurdles with their internal stakeholders — employees, directors, executives, managers, and investors.
Consider the classic case of Kodak, which invented the world’s first digital camera. While Kodak understood the disruptive threat digital photography posed, it couldn’t get behind making this move as it would cannibalize the company’s existing profitable film and printing business and with that, potentially all employees’ livelihoods that depended on them. Internal resistance and disagreement about introducing the digital camera led to management indecision and reluctance to act on its innovation until it was too late.
Unlike a disruptive move, nondisruptive creation offers established companies a viable and less threatening path to growth and market innovation. Consider the nondisruptive creation of Viagra. Initially developed by Pfizer as a treatment for high-blood pressure, the blue pill didn’t consistently work for its original purpose in development trials.
However, it revealed a confirmed “side effect” that addressed impotence in men. Since the marketplace lacked widely accepted treatments for ED, Viagra promised huge pent-up demand. More than that, it wouldn’t displace any of the company’s existing drugs.
Instead, it would create a new growth engine for the company if successful. The result: Pfizer’s internal stakeholders felt energized rather than fearful and fully embraced moving forward to create the new market. Shortly after its launch, Viagra became a global phenomenon, ranking among the highest grossing prescription drugs in Pfizer’s portfolio and generating more than $30 billion in sales for the company.
As the success of Viagra shows, there is significant money, opportunity, and impact to be realized with this nondisruptive, less threatening approach to innovation and growth. It allows established companies to navigate organizational politics more effectively, alleviate employee anxieties, and can often more easily secure strong buy-in.
It largely avoids backlash from external stakeholders.
External stakeholders are the people or groups outside the organization that are nonetheless affected by an organization’s market-innovation move, including society, government, nonprofit associations, and even the media.
By displacing existing players and often circumventing industry rules and regulations, disruption is often more apt to attract opposition from social interest groups, government agencies, and nonprofit associations. This resistance may lead to lobbying efforts to restrict, regulate, or tax the disruptor.
Nondisruptive creation, largely avoids triggering negative backlash from external stakeholders
That was certainly the case for Airbnb as hotel associations lobbied against it as it was poised to not only disrupt the industry, but skirted taxes required of hotels. More than that, as cities saw residential rental properties taken off the market and instead repurposed for short-term Airbnb stays, its disruptive move also posed a housing challenge for many city governments as the housing supply shrank. The result: cities like New York stepped in and placed growing restrictions on Airbnb’s short-term rental properties.
In contrast, nondisruptive creation, largely avoids triggering negative backlash from external stakeholders. As it solves brand-new problems or creates brand-new opportunities outside existing industry boundaries, no social carnage is unlocked. Whether it be Sesame Street, Viagra, microfinance or life coaching: none of these nondisruptive moves prompted external stakeholders to initiate intense legal attacks, counter-lobby to curtail or restrict the innovation, or push back in apprehension of job losses in their community.
By highlighting the advantages of nondisruptive creation, our aim here is not to claim that it is superior to disruption. In reality, disruption and nondisruptive creation are complementary. Depending on specific market conditions, companies may find it workable and beneficial to pursue disruption, nondisruptive creation, or a combination of the two.
First published in the Harvard Business Review
