Apparently not, according to Tom Bartman, an associate with Clay Christensen’s research group at Harvard Business School. In a report from Harvard Business Review, they apply a framework to understand whether a new firm, like Tesla, will disrupt an old one, like GM or Toyota. The framework asks 5 questions:
- Does the product target over-served customers (i.e., with better value for money) or create a new market?
- Does the disruptor have incentives to enter higher performance segments while incumbents retreat?
- Does it have a trajectory for fast, across the board, performance improvements?
- Does it create a new value network (e.g., sales channel)?
- Does it disrupt ALL incumbents?
The answers to these are apparently: no, no, yes, yes and no. That leads Bartman to conclude that Tesla’s products are likely sustaining rather than disruptive.
However, I think this exposes more that they are asking the wrong questions. Disruption occurs when successful firms fail as a result of being unable to respond to a new technological or market opportunity. In this case, it would be the failure of traditional auto-makers when a new, electric-only, auto-makers come into the market.
What appears to be true is that Tesla’s product are not going to sneak up and surprise incumbents because they allow consumers who don’t have cars to own cars or even consumers who don’t have luxury cars to own luxury cars. Tesla isn’t cheap and one of the reasons it isn’t cheap is that batteries are expensive. That may change but the jury is out on whether, even on a full cost environmental basis, electric cars will be the cheapest thing on the market. Instead, demand at the moment is driven because they are a better performing car on dimensions many luxury car buyers like.
But why, you may ask, won’t Tesla move down the consumer chain and offer cheaper cars? Bartman appears to think this is unlikely as one or more of the current incumbents will be able to meet that competitive threat. This is a possibility but it misses another: that the disruption Tesla represents is a supply-side disruption rather than a demand-side one.
I’ve talked before about the differences between these two things here — for instance, in regard to the iPhone. Supply-side disruptions arise when the new technology involves an architectural innovation that changes how products are put together more so than the individual components of the product. While I am no expert, Tesla has all the makings of an architectural innovation. That is why, for example, it has managed to outperform hybrid attempts by other car-makers. Those car-makers may have great components but how the car under this new fuel source operates may be quite distinct.
In that situation, new entrants with an electricity-only focus, may be able to produce cars, at any price point, that are superior to ones that are launched by traditional car-makers. This is the existential threat they face and it is one they are taking seriously. The question is whether their history will allow them to meet it. In other words, disruption turns on question 5 only and in that regard I am not sure Bartman has got all the answers down.