'Disruptive Innovation' Is Everywhere. But What Is It?

UVA Darden.

The Disruption, a lively discussion between UVA Darden School of Business professors Yael Grushka Cocaine and Mike Lennox on cutting edge technologies and practices that are challenging the status quo.

Good afternoon, Ray.

Hey, hello.

Yeah, how are you today?

I'm good.

I'm good.

I'm curious, you know, we've been doing this for a few years now.

Can you believe it?

I believe it.

I know.

So, um, you, I think it was your idea, the whole good bad disruption angle.

I'm curious, like, how do you define good.

Well, let me start.

How do you define disruption, and then we'll talk about how would you think about bad disruptions and good disruptions in abstract 2 years, not everybody knows, you know, let's take a step back, right?

It's a really interesting concept, and it's a word that obviously has much broader use in society, of course, and it's usually used in the pejorative, right, when we talk.

About disruption, it's a negative thing.

Um, our use of it, of course, references typically technologies or changes in, uh, um, you know, technology regimes is often the term I would use, um, and so disruption really in my mind goes back to notions that, uh, Famous economist Joseph Schumpeter, um, what he coined the phrase the gales of creative destruction.

So if you think about, uh, a lot of the work in economics has really been about when do we get these market equilibriums that balance supply and demand and set prices, and this is a wonderful thing that we kind of have come to have a better understanding.

Schumpeter was very interested in the dynamics of innovation and the dynamics of markets, and so this notion of when do new innovations come along and restructure the competitive ordering, that was the notion of the gales of creative distribution.

OK, can you tell us more when you say restructure, does that mean That uh there has to be winners and losers.

There's going to be companies that will fall out.

There's gonna be a big, big step change in terms of that equilibrium of supply and demand and pricing.

Tell us what does that?

I think the answer is probably all of the, um, and I, and I think what makes the notion of disruption sometimes hard to really concretely define.

Um, I think in our kind of canonical examples, right, when we talk about, you know, big technological shifts, uh, one, obviously there's consumption, right?

And you can look at diffusion and adoption.

So the new technology starts to get diffused and adopted at a higher rate than whatever was kind of the old, you know, substitute.

So when people stop buying their Nokias and everybody's buying their iPhone, that's a disruption, right?

Or even go back further in time when everybody is using a washboard to wash their clothes and then they start buying washers and dryers, right?

That's a disruption, a complete kind of transformation in the way we're consuming, uh, you know, or what technology we're using.

So that's number one.

Number 2 is that often when we have those types of technology shifts, we do have this change in the competitive ordering.

So whoever were the most successful companies in the years past, may go away, may not, but there's gonna be a change in that ordering.

Um, so you might have, I always talk about, you know, the, uh, Studebaker brothers who were the number one, horse-drawn carriage manufacturers in the late, you know, 1880s or so.

Uh, and along comes the horseless carriage, the automobile.

Uh, they made the transition, so it wasn't like the automobile put them out of business right away, uh, but they never gained the same level of prominence, and eventually they did go bankrupt and are now this footnote in history.

And so folks, um, you know, there are some clear examples that you can find in any textbook, the, you know, Netflix replacing Blockbuster, uh, um, you know, Tesla maybe tried to disrupt the car industry, and I know that where you come down on that discussion.

Uh, Nokia and iPhone, uh, and the like, uh, Kodak, um, etc.

Yeah, and again, I think if you just look, uh, throughout the economy over, you know, the past century plus, innumerable examples of this type of, again, technology transition and the patterns are, you know, again, every time is unique, but there are some kind of common things that we see every time, you know, these types of disruptions occur.

So we're talking about like the market.

Consumption, like how you, how, how much use they're getting these technologies and the companies have to reorganize what they're doing and how they're doing.

Yeah, I mean, that's, that's good when we've talked about a number of times on this podcast, AI, right?

Uh, and one of my favorite things that's happening right now is there's a lot of voices out there that I think are correctly saying there's likely a bubble here, right?

That there's too many companies have entered into the space.

Many of them have very flimsy business models, and there's going to be a shakeout, right?

Well, some people interpret that as if it's a fad.

And so they'll reference things like the dot com boom and bust.

And my standard joke about that is like, yeah, that internet thing, you know, it just was that fad we did in the 90s and it just went away.

No, of course not.

Like it has been a transformative, disruptive by the technical definition, you know, technology.

Uh, I think the same thing's happening with AI.

Again, we've talked a lot about that, but we These patterns, we see these patterns where you get massive entry and then a shakeout.

That's very common when we have technology disruptions here.

We have the emergence of new entrepreneurial entrants is often a feature of these disruptions.

Doesn't mean they always win.

In fact, often the earliest entrepreneurial entrants fail.

Yeah, Better Place, Better Place was a company that was very early on in the whole electric Rio was.

First, uh, uh, MP3 player, um, you know, and so we have, you know, history is littered with these companies who kind of come in maybe too early or didn't quite have it right, uh, and then become these footnotes.

So again, all of this is kind of expected when we have these technology transitions.

And so, um, when we think about good disruptions and bad disruptions, then it's a little bit, of course, a subjective assessment and you and I, you know.

Being maybe with our background and you know, engineering and the like, we're a little bit more prone to good, uh, in most cases, to being a little biased, a little biased, yeah, disruption, yes.

What does a bad disruption look like from your, uh, in your perspective?

Well, I think, you know, we talk about this quite frequently, the, um, the negative consequences of technology, and I think you're hard pressed to find instances where there is never any downside to a new technology.

I think there's always, and maybe this is important to separate out, there are the downsides in the moment of disruption.

People lose their jobs, um, again, industries that used to shut down.

One thing that I'm very interested in is there is often an agglomeration effect, as we call a fancy word for basically like a geographic bias for where innovation emerges.

So there are cities throughout the United States and Europe and other places as well that used to be the global center of X.

X gets disrupted by a new technology, and not only does the industry and the companies go away, but then the communities fall in disarray.

Um, I think you could make that argument about like Detroit, uh, in the United States went through a period where retrenchment in the auto industry caused, you know, the city to, to really struggle.

Um, and so that's the short run like.

Disruption and the negative sides that is often highlighted, job loss and again, uh, those community that immediate direct effect, an immediate direct effect.

And then of course there are the kind of, um, what we might say negative spillover effects as well.

Um, I always like to point out like with the automobile when it came about, it solved a huge environmental problem, which was manure, right?

They were literally polluting our cities and processing tons of manure in places like New York City, highly, uh, you know, controversial and problematic.

The horses, right, from the horses, yeah, yes, from the horses, they weren't pulling these things by cows, I don't think, um, but yeah, so we have the automobile, and it's, you know, in some ways this environmental savior, and then of course, as we know, it also emits greenhouse gasses, and now we're worried about climate change and we want to see a transition to electric vehicles, as many people will always, you know, the smart ass person that you know will always point out like, well, electric vehicles use batteries and batteries have a lot of bad stuff, and the answer is yes.

And I think what we're trying to do in this podcast is weigh the positives and the negatives, right?

And, and do the positives outweigh the negatives enough for us to declare good disruption, or do we think that at the end of the day, this is actually a bad, a bad thing for society?

Well, let me push on that even further because sometimes and rarely do we declare no.

Disruption, um, is there, is there an essence that maybe are bad disruptions could be seen as no disruptions in the sense that over time they disappear?

Like a good disruption is one that yes, there's going to be some negativity immediate and some side effects which we know are not always positive.

That is true for, as you mentioned, every disruption.

But ultimately good disruptions or disruptions that stick and have longevity are good because they actually fundamentally change the way that people consume whatever it is that they're consuming and they and they stick around, right?

We, we are still washing our clothes with the machines even though you know there are alternatives but so is it maybe bad disruptions just.

Over a while, people realize that they're bad and they decay and disappear, or, or do they stick around?

Maybe, but I actually think a second thing happens, uh, and again, I'm going to be putting my pro-innovation bias on the table here is, you know, uh, necessity is the mother of invention, the famous line, and this idea that every time we create a new technology, there are going to be negative spillovers and negative impacts of it.

And you know what that does?

It motivates us to innovate again.

So the way I would think about your question is it's not that bad innovations just kind of go away, it forces us to go back and start to innovate again and, and try to correct for those, uh, so that's a very common pattern we see with innovation is that, you know, again, creates the.

Problem and then we invent a new, uh, battery technology.

One of the big problematic pieces with lithium-ion batteries is the use of cobalt, um, controversial, you know, mineral, uh, and the like, and there are already, uh, products on the market that don't use cobalt in their batteries there and they would purposely tried to invent it out because of the problematic nature of that.

So that's, that's how this process works.

Oh, we know, we know the problems that try to innovate new solutions that address the problems of we, we knew, or for at least for a while we were certain that, you know, any use of aerosol was affecting our ozone layer directly.

Um, so we found solutions for that, right, alternatives.

Ironically, one of the main solutions for CFCs, the causation of the, uh, ozone hole, were HCFCs, which are a big greenhouse gas, uh, metal, which is a separate, you know, atmospheric problem.

But again, You know, and then we innovate again and we try to correct it, and I think what makes this topic, I think, um, maybe frustrating to many is, uh, you know, I don't want to be Pollyanna, right?

It's not like innovation just naturally solves all of our problems over time.

I think both of us subscribe to a viewpoint that that innovation is intentional and it's people at the end of the day who make decisions about what do they want to investigate, where they want to place, uh, their resources.

Um, I think both of us, you know, as business school professors recognize, is there a market incentive, um, because that is an incredibly powerful change mechanism when those things come aligned again.

And that's what, you know, Schumpeter was saying a 100 years ago was this really powerful impact markets can have on innovation because it creates these high level incentives to invent the world anew.

So how do we untap that?

Yeah, and then this notion that a good disruption can be good for society, good for individual consumers who want to consume it, and good for the innovator that can make money off of it to continue to invest and to it to innovate, and that's something.

Sometimes I think people feel uncomfortable, uh, with here, you know, Darden, we like to take about, talk about the multifaceted stakeholder perspective that might, might kind of feel more comfortable with that.

I would say, and again, I very much subscribe to the view that you, you really have to take a systems perspective and understanding these processes, and um we don't talk as much in our podcast about like the role of the state, but, you know, look at the history of any innovation, it's not.

Often that it is truly purely, you know, the two people in the garage invent and then off we go.

Um, take Elon Musk and Tesla, uh, you know, there was numerous, numerous, uh, research projects done in the basic R&D often at universities that fueled our improvement on battery technology that allowed electric vehicles to be.

You know, moderately, you know, viable.

There were federal grants that helped Tesla scale their production, um, that Tesla, to their credit, paid back, you know, on time or actually earlier than were even required on those, those grants.

And so this interaction between, um, you know, the government, uh, the society, and the market often is where these kind of innovations and disruptions take place, and I like one of my great interests and one of the things that I, I worry about is, is that engine of economic growth and creation and then solution generation.

Is it, is it continuing to be robust either here in the United States or, or globally.

Um, there has been some really interesting research of late that has shown that the number of breakthrough technologies being invented or innovated is going down.

Um, and there's a number of reasons that might be.

One of them, I think is really interesting.

Interesting.

It's not that we invented everything there is to be invented, right?

Well, it's, that's a little, not, I don't think we're anywhere near that.

But there is this problem.

We haven't made it completely to Mars yet, at least I haven't.

So right, right.

But one of the challenges is things get harder every step of the way.

So think about athletic records, right?

Um, running, whatever it might be, the 100 m dash.

You know, you set the record, then somebody works harder and trains better and figures out a new approach, and they beat the record and then so, but each time, will there be a limit?

Yeah, it gets harder and harder, and maybe there's no limit, but we might have to wait 20 years for someone to shave 0.1 2nd off, uh, the record.

I was just reading recently, I think it's the triple jump, uh, has been the record has stood for 30 years, right?

So it's the same with innovation that I think as we move down these learning curves, each next incremental step takes that much more effort.

Well, I think about it, as you know, I, I do decision analysis.

I think about everything as probabilities, right?

And so when you think about innovation and disruption, for me, it's that those tails, right?

You're trying to find those ideas that are out there on the tail of the distribution of ideas, if you will, and this is, we might call them extreme events.

Yes, extreme events, for instance, and so.

So how do you get to that tail?

How do you push it?

So one, as you alluded to, you need investment because not your first attempt is not gonna get you there.

You need multiple attempts to kind of try and find it, to try and search for it, to to take risks, and those require high, high investments sometimes.

And so not everybody's able to, uh, to do that.

And if we want to continue to innovate and come up with disruptions because ultimately we think that it's taking society in a good direction, you need to infuse that.

You need people to be willing.

To do the portfolio thing to try 10 projects so that one comes out in that tail, um, but also once you're in that tail progressing along along it and getting even further out is really, really hard unless you fundamentally shift the entire curve, which I think that the.

There are some efforts that do and some industries that still have that room to go.

Getting more extreme events in that tail is going to be increasingly harder and harder.

Absolutely, absolutely.

I think you reflect on, on the US kind of innovation ecosystem, especially since World War II.

Um, the model has been one in which the federal government basically subsidized basic R&D.

Think about the NSF, the NIH, the Department of Defense, and DARPA, which invented, you know, the internet and not Al Gore, but the DARPA, um, you know, the reason for that is basic R&D is very hard for corporate interests to really, um, get enough benefit out of to encourage them to invest, and there's two reasons for that.

One, it's just, you know, highly, highly risky as you.

I mean, you're, you're really throwing a lot of things at the wall and hoping one of them sticks, um, so that's one of the challenges.

The other challenge I think that we need to recognize is in that upstream basic R&D you often have a lot of spillovers.

So the problem is, even if I discover the great new thing, it's really easy for others to copy it or innovate just a little bit around it, and then they benefit from it.

So we talk a lot about like appropriability, who appropriates the gains from innovation.

And as we were talking about earlier, it's not always the person who originally had like the big light bulb idea and came up with it.

Uh, history again is littered with, you know, these amazing, I'll call them inventors and not entrepreneurs here who kind of invent something new, but they never really fully capture the value that they create.

Yeah, isn't there some Tesla story related to this a little bit?

Yeah, I think any technology probably has some of these stories, so you have this basic.

R&D apparatus, you, you know, run through our universities.

I think the other incredible thing we developed in the United States starting in the 50s and 60s was our venture capital industry.

So we brought to your earlier point, you know, money and capital, people willing to give you and invest in you for you to take these risks, really figuring out a model that can work financially to invest in still not this basic R&D but still early stage technologies and early stage businesses to kind of get them down that, um, down that pathway.

But then there's a third piece which I think you were highlighting, which is, you know, how do we then scale and, um, there's been some interesting, you know, worry, I think in the United States that manufacturing and the ability to build things is also part of the learning process.

So we talk about learning curves, but learning comes in a lot of different ways.

Learning can come from, you know, kind of what we typically talk about, just that kind of approach and innovation and I'm learning as I go.

But there is very much this notion of learning by doing and as I manufacture, I figure out how to do it better and I move down that curve, um, and so are we able to continue to innovate if we don't actually build and make things ourselves if everything gets outsourced.

You know, it's the outsourcers we're seeing that actually might move down the learning curve.

Yeah, and you know that speaks to some of my operations research background and you have it too, operations management and uh what it takes to, to be good at production and actual manufacturing, which is not trivial, and there's lots of learning and innovation there too.

Um, you know, let's talk about where things are today.

It feels to me, and maybe this is, um, like always, I'll blame my age, um, or my generation, but it feels to me like there is so much going on around us right now.

AI is just the tip of the iceberg, but there's like so much disruption all over the place, um, that it feels like it's quite unsettled, meaning.

And definitely since COVID, but even maybe before, there's so many new ideas and new emerging technologies that people are almost getting a little bit phased, meaning they're disinterested because they're like, OK, what is this new Snapchat?

What, that's old, uh, new, you know, social media, whatever it is.

The new fat of the day people are becoming a little bit more indifferent to it because it's overwhelming.

Is that a, is there a sense of that?

So I'm gonna tell, you know, two contradictory observations.

If you go back in history.

Every generation says technology is moving too fast and the world is, is, so I just sound like my mother and like my grandmother, right?

So and I mean literally you can go back to like, you know, Wall Street Journal or New York Times from 100 years ago and they'll have articles about the world is moving too fast, we're innovating too much.

I can't keep up, you know, back then it might have been the automobile and the, you know, uh, airplanes and all the things that were coming in in transportation.

So I think that's a truism.

There is also evidence that the um pace of these industry life cycles that we study and look at is increasing um if you look at something like the Fortune 500 companies, um, the turnover in them is actually much higher now than it was 50, 60 years, meaning the companies that are on that list turning over and other ones are rising up, you know, quicker.

I mean, think about, um, you know, Nvidia, right?

Like this is a company no one was barely talking about 6 or 7 years ago.

Now it's one of the most valued companies in the world, um, so I think there is something to be said that the pace of change is accelerating and that is very, uh, disruptive, use that word, uh, for the individuals.

I mean, how do you, how do you think about it?

How do you see the world in this, in this moment?

Well, I definitely think that you're right that it feels like there's more turnover, more surprises, and while, yes, the generation divide is there, um.

That I know, I mean, I'm, I'm thinking about this mostly from a consumer perspective, so from individual's life.

So I think that in a way we are becoming more savvier consumers of all of this.

We pick and choose, right?

We pick and choose.

I'm really into the fitness, so I'm gonna go all in and invest in my watch and in.

My apps and in my whatever um as opposed to somebody who's more into let's say the, you know, the cars and so you go all in and you have two electric vehicles and you've invested in your whole solar, you know, panels and stuff I think it's really more of a pick and choose type of situation where some people are kind of.

You know, very much disruptive, but in a much more mac micro way, in a very dedicated myopic way to whatever fits them and whatever they're interested in, but not everybody's adopting everything.

Does that make sense?

No, it does, and it comes up something else that's been coming up frequently on our podcasts, which are, um, dare I say, like income inequality and the, uh, perverse effects this might have on just kind of societal ordering.

For to to be grandiose and, and obviously this has come up repeatedly with AI, uh, the idea of a jobless future, the idea that this is gonna massively increase productivity, which should actually reduce the number of workers in a given space, um, that, that I think is, you know, again, dare I say it's giving technology a bad name, if you will, um, I mean, I remember the heady days of kind of everybody wanted to be in Silicon Valley and be part of that change.

Uh, it ebbs and flows.

I think we're may be back in one of those moments right now with AI.

At least there's a lot of people, you know, you know, rushing for gold in, in AI, um, but the narrative feels different.

Well, I think, um, we go through cycles, right?

We go through cycles, and this podcast could very well, you know, be a, a geopolitical conversation around how, you know, forces around the world are affecting how we view technology, how we view the media, the media, and how the media affects how we view disruption and technology if we're giving it a bad rep or embracing it.

Um, and, and what's what I love to see is also just the, the genuine day to day entrepreneurial spirit of individuals like everybody's a little bit of an, of an entrepreneur and everybody's willing to kind of take a, take a little bit of a risk in different ways.

Um, yeah, well, it's interesting your, your, you know, point about kind of geopolitically.

I just recently was at a conference where we had representatives from North America, Europe, and Asia really talking about the future of innovation and entrepreneurship.

Um, and, you know, we're, we're in a moment where after roughly 50, 60 years of, uh, liberalization in the sense of like breaking down trade barriers and the like, led to this global exchange of technologies and marketplaces and you know, the word that people have been using is decoupling, uh, especially between US and China, uh, and especially with the rise of the use of tariffs again and the like, like we're moving into a very different epoch than we had been in the last 50, 60 years.

It has huge implications for innovation, you know, where technologies arise, how they arise, what markets are available to technologies as they scale, where you manufacture, how you manufacture, how you learn from the manufacturing process.

And again, with especially some of these digital technologies, the, um, um, the, the security and defense concerns that these now have become issues of national security.

Do you.

You have, you know, the computational power to run these large models, um, it's becoming again, not just an economic issue or even a social issue, but a, a governance and military issue.

Uh, maybe they've always been, but, um, it is making it feel like a, uh, a a disruptive time in the history of disruption.

Well, maybe, maybe that's our bad disruption, but, um, well, maybe that's, maybe we should end, you know, this discussion with that exact, you know, uh, conversation which we've always have, like if we think about our current moment, are we in a moment of good disruption, bad disruption.

Or no disruption.

Oh, it's hard.

It's hard.

That's a tough, tough question.

I, I kind of feel like it's definitely a disruption, um, so no disruptions out, no disruptions out.

I think things are changing, and they're gonna, as we said earlier, they're gonna breed other innovation that people are gonna come up with in order to, to deal with the current disruption.

Um, I, I feel like there's a little bit of a, maybe skepticism and doubt and lack of trust, so from that perspective, I would say bad.

Um, just because people don't trust the technology, don't trust, trust the so-called disruptive technologies, so maybe they won't embrace them as much, or maybe they will only use or highlight the negative aspects of them.

So in that sense I'm a bit skeptical.

Um, long, long term, I think that ultimately we will, you know, creativity will ensue and we will turn, uh, you know, lemons into lemonade, and it will become that you. that eventually it will only yield us, uh, or push us to, uh, to, to yield better technologies and, and better innovation and disruption, although maybe in unexpected areas.

Yeah, and I think again it's, it's a probably an impossible question to answer, and I think when, um, you, you look out at the world and what's happening now, it is easy to say it's being disruptive and maybe it's, it's bad disruption.

I, I, I'm an optimist as well as, as you know, and as our listeners know, and You know, uh, what's the line from, uh, Matthew McConaughey, you know, life is a flat circle or the world's a flat circle, uh, you know, time replaces, you know, repeats itself.

I do think there, there's an element of truth to that, that, um, we have these epochs that emerge.

I do think often when we have these epics, it's actually ends up being maybe more, uh, innovation actually occurs.

And merges and we get step change functions during these, you know, quote unquote, highly disruptive times.

Um, so I'm gonna, I'm gonna play the, you know, eternal optimist and say, you know, while the, the path might be, as we talked about in the moment, really disruptive and can be very, you know, you know, uh, disruptive to people's lives and the like, um.

I think we come out at the end, uh, in a better place as a society in a world.

One would like to hope that is, uh, for sure.

Well, Mike, thank you so much for sharing.

I always learn from our conversation.

Same here, as always, let me thank our producer Gary, our lead researcher extraordinary.

Becky, uh, and our other additional researcher Katie, who has been incredibly helpful again in making Yael and I look maybe a little bit smarter than we are, or at least have some knowledge of these topics that, uh, sometimes we come into and we don't.

So thank you all.

Thank you.

Good Disruption is a podcast from the University of Virginia Darden School of Business.

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