In the New Yorker article “The Disruption Machine: What the Gospel of Innovation Gets Wrong,” Jill Lepore describes the flaws in Christensen’s theories on disruptive innovation. She cites his selective sampling, where incumbents’ successes and disrupters’ failures are ignored in favor of examples where incumbents were toppled by new entrants who disrupted the market.
Lepore uses Toronto Dominion bank’s success during the financial crisis. She describes the subprime mortgages and mortgage-backed securities that caused the eventual financial crisis as disruptive innovation. More people were getting homes, and banks and bankers were making more money, but TD bank, a relatively small foreign company new to the US market, decided to ignore the innovative new strategies and continued its core business. According to Christensen, this should have resulted in TD’s failure at least in the US market where most major banks quickly adopted these now-infamous policies. Instead, while the majority of American banks were reeling from the market collapse and recession, TD was still growing and was able to acquire competitors like Commerce Bank to expand its presence. Today, TD is the 8th biggest bank in the US.
As soon as Lepore mentioned the financial services in her article, I knew where it was going. Last summer I had the privilege of interning with TD bank, and on the first day of orientation, CEO Greg Braca spoke to us about who TD is as a company. He emphasized that TD is a value driven bank, and specifically explained that subprime mortgages and risky lending didn’t fit the company’s values. The bank could have pursued the profits that those practices promised, but instead doubled down on their core offering: convenient, customer-focused banking. He wanted to stress that the bank’s current success was owed to that decision not to pursue a seemingly industry-disrupting practice. Disruptive innovation isn’t always good, and it isn’t a theory that can be applied to the future. There is too much uncertainty for a theory based on historical data, especially when based on a small, biased sample of said data, to be applied looking into the future. As Lepore says, disruptive innovation is a theory that can explain why a business failed in the past, but not much more.