What Is Disruptive Innovation?
Disruptive innovation refers to the innovation that transforms expensive or highly sophisticated products or services—previously accessible to a high-end or more-skilled segment of consumers—to those that are more affordable and accessible to a broader population. This transformation disrupts the market by displacing long-standing, established competitors.
- Disruptive innovation refers to innovations and technologies that make expensive or sophisticated products and services accessible and more affordable to a broader market.
- Disruptive innovation refers to the use of technology that upsets a structure, as opposed to "disruptive technology", which refers to the technology itself.
- Amazon, launched as an online bookstore in the mid-1990s, is an example of disruptive innovation.
- Disruptive innovation requires enabling technology, an innovative business model, and a coherent value network.
- Sustaining innovation is the process of innovating to improving products and services for existing customers.
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Understanding Disruptive Innovation
Disruptive innovation is not the process of improving or enhancing products for the same target group; rather, it involves the technologies used to make them easy to use and available to the larger, non-targeted market. An example of disruptive innovation is the introduction of digital music downloads, which have, by far, replaced compact discs (CDs).
Clayton Christensen popularized the idea of disruptive innovation in the book The Innovator’s Solution, which was a follow up to his The Innovators Dilemma published in 1997. Christensen posited that there were two types of technologies that businesses dealt with.
Sustainable technologies were those that allowed a business to incrementally improve its operations on a predictable timeframe. These technologies and the way they were incorporated into the business were primarily designed to allow companies to remain competitive, or at least maintain a status quo. Disruptive technologies and the way they are integrated—the disruptive innovations—were less easy to plan for and potentially more devastating to companies that did not pay enough attention to them.
Investing in a disruptive innovation can be complicated. It requires an investor to focus on how companies will adapt to disruptive technology, instead of focusing on the development of the technology itself. Companies such as Amazon (AMZN), Google (GOOGL), and Meta (META), formerly Facebook, are examples of companies that have heavily focused on the internet as a disruptive technology.
The internet has become so ingrained in the modern world that the companies that failed to integrate disruptive innovation into their business models have been pushed aside. Artificial intelligence (AI) and its potential to learn from employees and perform their jobs may be a disruptive innovation for the job market as a whole soon.
What makes a technology or innovation “disruptive” is a pointof contention.The term may be used to describe technologies that are not truly disruptive. The internet was disruptive because it was not an iteration of previous technology. It was something new that created unique models for making money that never existed before. Of course, that created losses for other business models.
People using smartphones instead of laptops and desktops for their computing needs, including web browsing and streaming, is another example of disruptive innovation. Technological enhancements have enabled cell phones to be equipped with small processors, chips, and software applications that support these functions.
Smartphone developers targeted the broad market of mobile consumers who have cellular devices and find it inconvenient to carry and access laptops when wanting to surf the net (not to mention an impossible task for desktops). Smartphones are small, easily storable and accessible, and relatively affordable as compared to laptops and desktops.
In contrast,the Model T car is not considered to be a classic example of disruptive innovation because it was an improvement on existing technology and it wasn't widely adopted upon its release. The auto industry didn't take off until mass production brought prices down, moving the entire transportation system from hooves to wheels. In that sense, the system of mass production does meet the criteria for disruptive innovation.
Requirements for Disruptive Innovation
Disruptive innovation requires access to ignored or overlooked markets and technology that can transform a product into a more accessible and affordable one. To be disruptive, the network of partners—suppliers, contractors, and distributors—must also benefit from the new, disruptive business model. Certain core requirements include:
- Enabling Technology: In business, enabling technology is defined as the technologies and innovations that substantially change or improve processes or how people do things. Specific to disruptive innovation, enabling technology is the technology or innovation that makes possible the affordability and availability of a product to a broader market. Basically, the speed with which a market can be disrupted depends on how quickly the technology is developed and subsequently improved upon. However, the speed of the disruption is not necessarily a metric used to gauge the success of the disruption.
- Innovative Business Model: The innovative business model is a business model that uses innovations to target new or bottom-tier customers. These segments generally don't drive profits for established companies nor do they buy their offerings because they either could not afford them or the products were too sophisticated for use. This business model—a model not adopted by incumbents because of the disruptor's initial low-profit margins—seeks to present easy-to-use, economical solutions.
- Coherent Value Network: The coherent value network includes the upstream and downstream business partners that benefit from a successful disruption. The distributors, suppliers, and vendors may require process changes or reorganization to adapt or conform to the new business model. Members of the network must subscribe to the new business model to prevent failure. Otherwise, old network processes will yield undesirable results by not prescribing to the goal of disruption.
Disruptive innovation is differentiated from disruptive technology in that it focuses on the use of the technology rather than the technology itself.
Disruptive Innovation Vs. Sustaining Innovation
Disruptive innovation is an innovation that simplifies and makes more affordable products and services to undesirable or ignored markets. Established companies typically strive to improve their products and services for their profitable customer base, largely ignoring the needs and desires of untapped segments. This lack of attention gives smaller companies or new entrants ground to target this ignored population with simpler, more affordable options.
Sustaining innovation, on the other hand, is the process of innovating to make existing products and services better for the existing customer base, either based on customer or market demands. Sustaining innovation does not target untapped or ignored markets; rather, it's innovating to remain relevant and competitive. CD makers making CDs with the capacity to hold large volumes of music and that are scratch-resistant is sustaining innovation. A company introducing digital downloads via the internet, making CDs obsolete, is disruptive innovation.
A classic example of the disruptive innovation of the internet being unleashed was the restructuring of the bookselling industry. Thebig bookselling chains lost out to Amazon (AMZN) because it could display its inventory without having to own a physical store in every town and then ship the book to the buyer's home. Before online shopping became widely popular, books were sold in traditional bookstores, such as Barnes and Nobles and the now-defunct Borders.
Amazon's popularity grew along with its profits and market share, moving many bookstores to the back of the shelf or out of business. Since its launch, Amazon has been successful in using the internet to create an online shopping platform, whereby most of what's offered in a physical store—including groceries—can be ordered from Amazon's website. And it all began with a small, garage-born company using the power of the internet to attend to the needs of a niche market of online shopping, book enthusiasts.
Netflix (NFLX) is another disruptive innovator. During a time when VHS tapes and DVDs were rented in abundance from thousands of video stores, new-entrant Netflix saw an opening to cater to an overlooked market of online shoppers. Utilizing the growing power of the internet, they offered consumers the ability to peruse their catalog of DVDs, rent unencumbered by someone else's choice to rent the same selection, and have their selections sent directly to their home.
Not long after offering mail-delivered DVD rentals, they revised their business model, finding an avenue to disrupt themselves in the market by offering online-streamed entertainment. However, today, competitors have successfully duplicated this business model, taking away from Netflix's market share. Time will tell how long Netflix can remain dominant, but there is no doubt about the disruption that they brought about.
After Netflix disrupted the media industry, Blockbuster went from having more than 9,000 Blockbuster brick-and-mortar stores to one.
The Bottom Line
Disruptive innovation involves the innovative processes used to transform products and services into simple and affordable options for bottom-tier or traditionally unmarketable consumers. Unlike sustaining innovation, it does not involve improving existing products for current customers.
Disruptive innovation requires technology that can transform the product or service into something more affordable and easy-to-use, a business model that supports the disruptive innovation, and a network of upstream and downstream partners who support and will benefit from the success of the disruption. Amazon and Netflix are examples of market disruptors that began as new entrants in industries dominated by well-known, established companies.
What Is the Meaning of Disruptive Innovation?
Disruptive innovation refers to the process of transforming an expensive or highly sophisticated product, offering, or service into one that is simpler, more affordable, and accessible to a broader population. It explains the process of how innovation and technology can change markets by presenting affordable, simple, and accessible solutions and after doing so, disrupts the market from which its predecessors were born.
What Are Examples of Disruptive Innovation?
Amazon provides a clear example of disruptive innovation. Jeff Bezos, in 1995, subscribing to the notion that the internet could significantly boost commerce, launched Amazon to sell books to a growing, but largely ignored online shopping community. In doing so, he forced many bookstores to go out of business. Netflix is another prime example. After they disrupted the media industry, the dominant player, Blockbuster, went from having 9,000+ brick-and-mortar stores to 1, which is now an Airbnb.
What Are the Key Requirements for Disruptive Innovation?
To be a successful disruptor, the network of partners—suppliers, contractors, and distributors—must also benefit from the new business model. Certain core requirements include having enabling technology, an innovative business model, and a coherent value network where upstream and downstream business partners benefit from a successful disruption.
Disruptive innovation is the introduction of a product or service into an established industry that performs better and, generally, at a lower cost than existing offerings, thereby displacing the market leaders in that particular market space and transforming the industry.What is disruptive innovation example? ›
Disruptive innovation refers to the use of technology that upsets a structure, as opposed to "disruptive technology", which refers to the technology itself. Amazon, launched as an online bookstore in the mid-1990s, is an example of disruptive innovation.What are the key characteristics of disruptive innovation? ›
The characteristics of disruptive innovations are: Low pricing to gain more customers. Higher risk because the solution either disrupts an existing market or creates an entirely new market segment. The measure of value is fundamentally changed.What is an example of a disruptive product? ›
Netflix. Netflix is a textbook example of successful disruptive innovation strategy. Starting out as a company supplying DVD mailouts, Netflix offered a cost-effective and convenient product to an area of the market that was previously overlooked.What are two 2 types of disruptive innovations? ›
- Low-end disruption: Many innovations struggle to find immediate success with mainstream customers. ...
- New-market disruption: New market disruption happens when a new entrant expands the market by targeting customers who didn't previously use a similar product at all.
The development and adoption of emerging technologies like artificial intelligence, 3D printing, ride-sharing apps, cloud computing, and more, continues to push entire industries toward disruption, even today—driving innovation in the process.Is Nike a disruptive innovation? ›
Special Feature have captured the hearts and minds of a global audience. However, in a world that is fast-digitalising, Nike is transitioning from a marketing-first business into an aspiring tech powerhouse, a process that, to say the least, represents a challenge.Why Netflix is a disruptive innovation? ›
The formation of video as digital content and its delivery over the internet has become a radical innovation, as it destroyed the demand for video rental and DVD mailing services. It has become a disruptive innovation due to the disappearance of incumbents and the rise of a late entrant–Netflix.What are the 6 D's of disruption? ›
This road map comprises the 6 Ds of digital disruption: digitization, deception, disruption, demonetization, dematerialization, and democratization. Although the opportunities are there for the taking, it can be daunting to branch out into uncharted territories.What are three examples of modern day disruptive innovations? ›
The wheel, the light bulb, and the cellphone are three examples of disruptive technologies. At the time, these innovations caused a profound break with previous patterns, bringing about major changes in people's lives.
Tesla clearly doesn't qualify under the traditional definition of a disruptive innovation. In the model described by Clayton Christensen, a new entrant offers substitute products using technology that is cheaper but initially inferior to products offered by mature incumbents.What are the barriers to disruptive innovation? ›
Lack of strategic level orientation, lack of resource allocation for disruptive technology, and focus on continuous development of existing strength are also barrier for adopting the disruptive innovation (Thomond, P., Herzberg, T., & Lettice, F. 2003). Henderson, R.What are the benefits of disruptive innovation? ›
The principles of disruptive innovation allow companies to take a step back and analyze their current products and services, what areas can be improved, where an opportunity exists in consumer needs that can benefit from an innovative solution and more.What is disruptive innovation and why is it important? ›
Disruptive innovation occurs when a product enters a market and that product quickly rises in popularity, displacing competing products and companies in the process. Most products that experience disruptive innovation are initially at a low cost and made widely accessible to consumers.Is McDonald's a disruptive company? ›
It's hard to remember, but McDonald's started out as the disruptor in its industry. Its innovations were many, ranging from standardized, efficient experience in menu and restaurant design, to great marketing.What companies are disruptive innovations? ›
|1||Robinhood||Wall Street's frenemy|
|2||Stripe||The GDP of the Internet|
|3||Discord||The Internet chat room, re-imagined|
|4||SentinelOne||A SolarWinds saving grace|
|5||Didi Chuxing||Your $100 billion IPO is on the way|
Amazon is seen as so disruptive because people think they're getting something for free. Amazon.com founder and CEO Jeff Bezos. Amazon is seen as one of the world's most disruptive companies because people love it so much they forget they've even paid for some of its services.Who started disruptive innovation? ›
Disruptive innovation has been a buzzword since Clayton Christensen coined it back in the mid 1990s to describe the way in which new entrants in a market can disrupt established businesses.What is disruptive strategy? ›
Disruptive strategy alludes to the innovation that changes expensive or exceptionally sophisticated products or services—already available to a top-of-the-line or more gifted portion of customers—to those that are more reasonable and open to a more extensive population.Is disruptive innovation good or bad? ›
Traditionally, most disruptive innovations are not welcomed by the market as they come with high-risk of failures as compared to incremental sustaining innovations. Since they chart unexplored paths, their early performance is comparatively lower than what is offered in the mainstream market.
While 4G has been considered as an incremental innovation from its predecessors (3G and 2G), design features and key technologies have indicated 5G as a disruptive innovation. Consequently, 5G will create new market values, in which new services and applications will emerge in unexpected ways.What is the next big disruptive technology? ›
AR and VR are among the top upcoming technologies that are conquering the B2B market. Major manufacturers of AR/VR equipment are teaming up with leading collaboration platforms or developing their own tools that help users work, learn, and receive professional training in the field.Is social media a disruptive innovation? ›
Wright Mills' vision of the sociological imagination and are as relevant today as they always have been, especially in relation to the emerging contours of digital societies. 'Disruptive' technologies include Social Media, Big Data, Robotics and new forms of Additive Manufacture.Is Bitcoin an example of disruptive innovation? ›
Disruptive technology has come to the financial world. Bitcoin and other digital currencies are reshaping how we think about money.What makes a brand disruptive? ›
Disruptive brands are those that work to continuously develop their services and evolve their marketing methods. Each process is to be executed with the specific goal of meeting the needs and wants of their audience. With disruptors at the forefront of innovation.Is Starbucks a disruptive innovation? ›
So Starbucks was a disruptive innovator. It brought flavor, a friendly social setting, quality, plus the consistency that only a chain can do.Why is Google a disruptive innovation? ›
Google has been often referred as the king of the disruptive technology. It has provided many path-breaking technologies that rocked the world and changed the way how we gathered information, interacted with each other, etc. Consumers got exposed to innovations which simplified their day-to-day life.What is disruption model? ›
What is a disruptive business model? Disruptive business models are a type of disruptive innovation that brings a new idea or technology to an existing market. Disruptive market entrants usually capture unmet-demands in the existing market.What are the two sources of disruption? ›
Disruptive events, the author explains, come from two sources: demand (low-end market) and supply (a new architecture).How many types of disruptive innovation are there? ›
In the online course Disruptive Strategy, Christensen explains that there are two types of disruptive innovation: low-end and new-market.
The story of Zoom's disruptive innovation has been a process and continues to unfold. In the meantime, let's keep Zooming!What is a product of disruptive innovation? ›
A product is considered disruptive if it has the following properties: Low cost. Highly accessible. Lower gross margins than its incumbents. Caters to least-demanding markets before experiencing tremendous growth.Is Spotify an example of disruptive innovation? ›
To disrupt an industry means to deliver on consumer desires with a business model that displaces the incumbents, creating an almost unfair competitive advantage. Spotify, the digital audio streaming service, meets these criteria.How do you handle disruptive innovation? ›
- They must not always apply existing business models to new markets;
- They must respond to disruptive competitors in low-profit segments by investing in nimble startups or by launching their own ventures outside of the core operations;
Briefly, the three key requirements for managing disruptive innovation successfully over time are: Avoiding distractions created by focusing the balance sheet. Instead, focus on the income data. Maintaining a focus on identifying the job that the customer needs to have done.Why do disruptive innovations fail? ›
Most big firms are not comfortable with disruptive innovations as these innovations do not satisfy their current customers. They only focus on the demands of the mainstream customers. If the customer wants better products, they'll keep evolving the products.What is the benefit of disruptive innovation? ›
Disruptive technology provides opportunities for startup companies to gain a significant foothold in existing industries. Those who begin offering the new technology early can establish themselves as thought leaders in a fresh market.Why is disruptive innovation successful? ›
Disruptive Innovations are NOT breakthrough technologies that make good products better; rather they are innovations that make products and services more accessible and affordable, thereby making them available to a larger population.Why is disruptive innovation a threat? ›
Disruptive innovations are the new innovations whose applications can significantly affect a market or industry functions. They create a new market and value systems which eventually disrupts the existing market, displacing market-leading firms, products etc.