Understanding What Is Disruptive Innovation?

The term "disruptive innovation" refers to a process in which an underappreciated product or service gains enough traction to replace or displace a more established product or service. When a product is "truly" disruptive, it takes root at the bottom of a market and, in many circumstances, develops a terrible or low-class reputation as a result. However, the product gradually becomes more desirable than its competitors within the business due to lower pricing, more accessibility, or other advantages.

This is in contrast to "sustaining innovations," which are fresh inventions and improvements created by established businesses in order to remain relevant with customers. These developments can be beneficial, but in most situations, the goods and services developed along these lines become too complex, inaccessible, or expensive to have any real long-term impact.

As a result, customers seek out less priced, sometimes extreme options to suit their needs. Disruptive innovators are known for having lower gross margins, smaller target markets, and simpler products and services than their competitors. The problem with using this term to describe any new business that disrupts an industry is that it distorts the meaning of actual disruption. It tends to draw more attention to already-popular firms, while true disruptors quietly rise through the ranks.

What Is Disruptive Innovation?

Disruptive innovation is the process of transforming expensive or highly sophisticated products or services that were previously only available to a high-end or more skilled part of the population into products or services that are more affordable and accessible to a wider audience. This change causes market disruption by displacing long-standing, well-established competitors. Disruptive innovation is not the process of upgrading or enhancing items for the same target group; rather, it is the process of using technology to make them simple to use and available to a larger, non-targeted market.

These technologies, as well as how they were integrated into the business, were largely intended to help corporations stay competitive, or at the very least maintain the status quo. Disruptive technologies and the ways in which they are integrated—disruptive innovations—were more difficult to plan for and could be more damaging to businesses that did not pay enough attention to them. It can be difficult to invest in a disruptive breakthrough. It necessitates an investor's attention on how businesses will adapt to disruptive technology rather than on the technology's development.

Types Of Innovation

Innovation is the actual application of ideas that result in a variety of new sorts of new offerings, such as products, services, processes, and business models, with the goal of improving or disrupting existing uses or developing new ones. It makes little difference if you obtain your ideas from outside the company, from brainstorming, merging existing concepts, or radical new thinking within your sector. However, it should be at the heart of your firm and done on a regular basis to maintain its longevity. In order to categorize the type of innovation is to divide it into two categories. The technology it employs and the market in which it operates. We can visualise the most typical types of innovation using the innovation matrix below.

Incremental Innovation

This is one of the most typical types of innovation. It takes advantage of existing technologies in a market that already exists. The purpose is to enhance a current service by adding new features, making design modifications, etc. The best example of incremental innovation is the smartphone market, where the majority of innovation consists of just updating the hardware, enhancing the design, or adding new features, cameras, sensors, etc.

Disruptive Innovation

Applying new technology, processes, or disruptive business models to established sectors is commonly referred to as disruptive innovation. New technologies and business models may appear to be inferior to existing solutions at first, but after a few iterations, they out-perform them and take over the market due to efficiency and/or efficacy benefits. Amazon exploited Internet-based technologies to disrupt the conventional book-selling sector. They had an existing book market, but disruptive technology transformed the way books were sold, transported, and experienced.

Architectural Innovation

At the present, tech behemoths like Amazon, Google, and a slew of others are demonstrating architectural innovation. They adapt their subject knowledge, technology, and talents to a different market. They will be able to enter new markets and expand their consumer base this way. This innovative method is used by digital ecosystem orchestrators like Amazon and Alibaba to explore new markets. They offer new services and products for diverse markets by leveraging their existing expertise in developing apps and platforms, as well as their existing customer base. An example of this is Amazon's recent entry into the medical care industry.

Radical Innovation

Even though it is the most common way most people think of innovation, it is the rarest of all. The introduction of technology, services, and business models that open up totally new markets is what radical innovation entails. The invention of the aeroplane is the best illustration of radical innovation. This revolutionary new technology ushered in a new mode of transportation, a new industry, and a whole new market.

How Does Disruptive Innovation Work?

Disruptive innovation begins with a new company spotting a gap in the market that has gone unfilled, or a part of the population that has been overlooked in the past. They will then provide an alternative product or service that is usually more convenient and affordable, allowing them to reach consumers who were previously neglected.

Lower-performing (or less profitable) spaces are seen as low-hanging fruit by disruptive innovators looking to build a foothold in the market. These businesses can then break into a more competitive market through a process of continuous improvement and innovation. The startup can then push established players out of the market since it has a superior product and a better grasp of consumer experience.

To be disruptive, the new, disruptive business model must also benefit the network of partners—suppliers, contractors, and distributors. The following are some essential requirements.

Enabling Technology

Enabling technology is characterised in the business world as technologies and developments that significantly alter or improve processes or how people accomplish things. Enabling technology, in the context of disruptive innovation, is the technology or innovation that allows a product to be affordable and available to a larger market.

Essentially, the rate at which a market can be disrupted is determined by how quickly technology is produced and then enhanced. However, the speed with which the disruption occurs is not always a criterion used to assess the disruption's success.

Innovative Business Model

Upstream and downstream business partners who benefit from a successful disruption are included in the cohesive value network. To adapt or conform to the new business model, distributors, suppliers, and vendors may require process adjustments or reorganisation. To avoid failure, network members must subscribe to the new business model. Otherwise, by not adhering to the purpose of disruption, existing network processes will produce negative effects.

Coherent Value Network

A company plan that leverages innovations to target new or bottom-tier clients is known as an innovative business model. These markets don't generate profits for existing businesses, and they don't buy their products because they can't afford them or the items are too complicated to use. This business strategy, which incumbents haven't adopted because of the disruptor's initial low-profit margins, aims to provide simple, cost-effective solutions.

Steps To Making Disruptive Innovation Work

We already know that disruptive innovation works because of a number of well-known success stories. The catch is that disruptive innovation only succeeds if it is executed properly. It's a simple concept, but it's not easy to put into practice. Here are some steps and suggestions to creating a disruptive innovation strategy.

Change Your Mindset

Without a shift in mindset, disruptive ideas will never be realised. When these innovations are viewed from the perspective of the present business model, impediments to deployment will undoubtedly arise. Re-evaluate and change your procedures to accommodate for disruption.

Be Flexible

An agile approach to disruption is essential for success since it allows for ongoing testing and reiteration. Because many of these breakthroughs entail the creation of new markets or products, much of the process is based on trusting the unknown. Because no pre-existing study or knowledge will be available to enable data-driven decisions, intuition and creative discovery will be the only options.

Not Your Customers, But The Market

It's easy to conflate disruptive innovation's goal with altering your customers' minds and attitudes. This is not, however, the best strategy; instead, it should be about changing the market to serve customers, not the other way around.

Do Not Be Afraid To Experience Failure

Disruptive innovation isn't always successful; it's in the nature of disruption to be a little tumultuous. Nonetheless, by going through a sequence of less-than-successful inventions, you are laying the groundwork for a new and viable company model in the long term.

Example Of Disruptive Innovation And What It Is Not

Disruptive innovation is a type of invention that simplifies and makes products and services more affordable for untapped or underserved markets. Established businesses tend to focus on improving their products and services for their profitable customer base, while mainly disregarding the requirements and desires of new markets. This lack of attention allows smaller businesses or newcomers to target this underserved market with simpler, more economical products.

Examples of Disruptive InnovationWhat Disruptive Innovation Is Not
Netflix, On-Demand Video, And Over The Top (OTT) - A disruptive innovation that has nearly wiped out physical video rental outletsUber - Just improved the traditional taxi service concept with technology to make it more convenient and affordable
Wikipedia - A disruptive innovation from Encyclopaedias that was created and published for profits for centuries.Google - Was not the first search engine but they did do more than improve an existing model
Skype - Completely transformed traditional ways of communicationTesla - While they use a new power source, they don't enable transportation in any way that is market-changing

To summarise the example of real-life disruptive innovation, Netflix and other streaming services are currently still disrupting the entertainment sector. Customers could not help but think about their media in a different manner when over-the-top (OTT) services like Hulu and Pluto TV appeared apparently out of nowhere as a low-cost alternative to traditional subscriptions.

It is ironic that you can learn about disruptive innovation on Wikipedia which is a disruptive innovation in and of itself. Younger generations may not recall but customers would have to pay $1,000 or more for a few hundred pounds worth of hardcover volumes and hope that it remained relevant for longer than a year or two until it was updated with new information. Wikipedia, however, is regularly updated and provided for free, despite the fact that it was initially viewed with scepticism.

Another example is Skype. Skype is a revolutionary service allowing people from all over the world to chat, call and video chat for free (or for very low fees). Skype began with a small market of consumers grown to be over 74 million active users.

To summarise what is not a disruptive innovation, Uber, though frequently looks to as an example of disruption, however, is not accurate. Uber did replace the taxi industry for many tourists globally, but they fall short of being disruptive. Uber did not create a new market or profit from low gross margins.

Google was the first internet corporation to demonstrate the utility of online search, as well as the first to generate large sums of money from online advertising but they are not the first search engine by any means.

Tesla is another firm that is commonly referred to as a disruptor, owing to their stylish vehicles that are unlike anything else on the market. Tesla despite its ground-breaking innovations in everything from vehicle design to organizational structure is not a disruptor. Furthermore, even the cheapest versions in America started at $35,000 making it way too expensive for the entry-level market.

Conclusion

Disruptive innovation refers to the techniques that are utilised to turn products and services into simple and affordable solutions for consumers who are on the lower end of the market or who are historically unmarketable. It does not involve upgrading existing items for present customers, unlike sustaining innovation.

Disruptive innovation necessitates the development of technology that can transform a product or service into something more affordable and simple to use, as well as a business model that supports the disruptive innovation and a network of upstream and downstream partners who will benefit from the disruption's success.

Reference

What Is Disruptive Innovation

Type of Innovation

How Does Disruptive Innovation Work

Example Of Disruptive Innovation And What It Is Not

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Written by Cherylle Phua

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