Is Tesla disruptive?

Tesla

Is tesla disruptive? In an article that attracted much attention in Harvard Business Review the question was posed on how disruptive Tesla actually is. The reply was, not at all.

The concept of disruptive technology was coined by Clayton Christensen in the book The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail. In the book, Christensen shows how new technology often starts off as a “poorer” and cheaper alternative to the existing solution.

However, the new technology is getting better over time, and as prices are lowered, the existing companies are overthrown. An often repeated example on disruptive technology is how the mainframe was substituted by the minicomputers, which then in turn was ousted by the PC.

Christensen was not the first to observe this, Joseph Schumpeter discussed the phenomenon already in the 1930s. He called it creative destruction. I am of the opinion that Christensen’s definition is too narrow. Disruptive technology does not need to begin with a product that is poorer and cheaper. Smartphones rapidly killed off Nokia’s and Sony Ericsson’s products which resulted in closures and layoffs.

A smartphone is not, as the name implies, a smart mobile telephone. It is a computer packed in a mobile phone shell – also used as a phone! It is not poorer or cheaper. We, the customers, have adapted quickly, a smartphone creates added value for us users. I view smartphones as an example of how disruptive technology essentially transforms the market.

Companies have difficulty to handle changes. They are often stuck in today’s product and business model through their line organization. In these organizations, information and knowledge are power. To make changes in the line organization is not simple, since power is linked to position. In agile organizations, such as Puls, power is to be able to share information and knowledge. Then it is much easier to make changes.

Yes!, or No?

In order to return to Tesla, is Tesla disruptive? Does this change anything for us customers? Is this a threat to the leading manufacturers, Toyota, VW and GM? Tom Bartman, among others, answers no in Harvard Business Review.

Christian Sandström followed up with an article in MIT Technology Review in which he answers yes. Sandström argues that Tesla has built an organization that fits the new product, while the established companies are permanently stuck in an organization adapted to the old product.

It is notoriously difficult to anticipate what will lead to creative destruction and important changes in people’s behaviour. Considering the present situation, I perceive Tesla as a new car manufacturer, exactly as said in the HBR article. Moreover, Tesla is part of a major change in the energy market.

Operators such as BP, Exxon and Statoil have as much to fear from Tesla, as GM, VW and Toyota. Wind energy, solar energy and batteries are all examples of technologies that, compared to existing technology, were (are?) inferior. In the area of energy, an ongoing classic example on exponential growth and creative destruction is, for example, how Vattenfall is watching its assets being erased at an increasingly rapid pace.

Old solutions cemented in the organizational structure

I believe, as does Sandström, that the automotive industry may undergo a fundamental change due to Tesla. Manufacturers stagnated in the diesel technology are in danger of extinction. This is due to a better organization, according to the reasoning of Sandström. Traditional line organizations tend to cement old solutions and business models.

Currently there is new technology under way from Google and Apple that may transform how we perceive cars: driverless cars in urban traffic. Today we see cars as a possession and something we ourselves drive. It should be possible to manufacture a simpler and less expensive car than the cars of today.

Is Tesla disruptive?

Basically, the majority of the car buyers want fast and easy transportation. A smartcar that not only can find the fastest route between A and B, but also does it fast and inexpensively might be a winning concept. Today, it is very expensive to own a car that most of the time is stationary.

If it was possible to reserve transportation from A and B using an app, and a smartcar arrives a few minutes later, maybe a disruptive technology has seen the light of day. The technology development is under way in this direction. Tesla is contributing to this.

Is tesla disruptive? One thing is for certain: changes seldom turn out as intended.

Update December 2018

When this article was written in 2015, Tesla had not yet changed the car market. Three years later everything has changed. Now Tesla is the disruptive force they set themselves to be. But it has been a tough road here, and it does not get easy in the future. Now, however, the playing field is another. All car manufacturers now have huge difficulties in front of themselves, with huge challenges for agile innovative product development. Tesla has made product development great again.

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