Demystifying Disruption: A New Model for Understanding and Predicting Disruptive Technologies

Abstract

The failure of firms in the face of technological change has been a topic of intense research and debate, spawning the theory (among others) of disruptive technologies. However, the theory suffers from circular definitions, inadequate empirical evidence, and lack of a predictive model. The authors develop a new schema to address these limitations. The schema generates seven hypotheses and a testable model relating to platform technologies. The authors test this model and hypotheses with data on 36 technologies from 7 markets. Contrary to extant theory, technologies that adopt a lower attack (“potentially disruptive technologies”) 1) are introduced as frequently by incumbents as by entrants, 2) are not cheaper than older technologies, and 3) rarely disrupt firms, and 4) both entrants and lower attacks significantly reduce the hazard of disruption. Moreover, technology disruption is not permanent due to multiple crossings in technology performance and numerous rival technologies co-existing without one disrupting the other. The proposed predictive model of disruption shows good out-of-sample predictive accuracy. The authors discuss the implications of these findings.

Keywords: technology disruption, firm disruption, demand disruption, correlated hazards, prediction of disruption

JEL Classification: M3, O3, C3