What Is Disruptive Innovation?
Disruptive innovation refers to the innovation that transforms expensive or highly sophisticated products or services—previously accessible only to a high-end or more-skilled segment of consumers—into those that are more affordable and accessible to a broader population. This transformation disrupts the market by displacing long-standing, established competitors.
Key Takeaways
- Disruptive innovation refers to making expensive or sophisticated products and services accessible and more affordable to a broader market.
- It involves using technology to upset existing market structures.
- Amazon, launched as an online bookstore in the mid-1990s, is a classic example of disruptive innovation.
- It requires enabling technology, innovative business models, and a coherent value network.
- In contrast, sustaining innovation improves products and services for existing customers without disrupting the market.
Understanding Disruptive Innovation
Disruptive innovation involves using technologies to make products easier to use or access and available to a larger, non-targeted market. This differs from the process of improving or enhancing products for the same target market. For instance, digital music downloads have largely replaced compact discs as a more convenient form of music consumption.
Clayton Christensen popularized the notion of disruptive innovation in his book The Innovator’s Solution, which followed The Innovator’s Dilemma, published in 1997. Christensen suggested that businesses deal with two types of technologies:
- Sustainable technologies, which incrementally improve operations in a predictable time frame.
- Disruptive technologies, which are harder to anticipate and can be more devastating to established companies that fail to adapt.
Investing in disruptive innovation necessitates focusing on how companies adapt to the disruptive technology, rather than on the technology’s development.
Introducing Real-world Disruptors
Companies like Amazon, Google, and Meta (formerly Facebook) have focused heavily on using disruptive technology—the internet—to transform their business models. Those who failed to integrate disruptive innovation, like former brick-and-mortar giants, have been sidelined. Artificial Intelligence (AI) is predicted to be the next big disruptor, potentially transforming the job market drastically.
Despite advancements, the internet wasn’t just an iteration of existing technology; it was a completely new paradigm that changed the way business operations are conducted and profits are generated, often at the expense of older, traditional business models. The shift from laptops and desktops to smartphones for computing and streaming illustrates disruptive innovation. Technology advancements have made it possible to perform complex software operations on mobile devices.
Key Components for Successful Disruptive Innovation
Disruptive innovation needs more than just creative ideas; it must fulfill several core requirements to genuinely transform markets:
- Enabling Technology: These technologies significantly change or improve processes. For disruption specifically, this refers to innovations that significantly increase a product’s affordability and accessibility.
- Innovative Business Model: An approach that targets new or previously neglected customers with affordable, user-friendly solutions. These segments were often ignored by existing players due to low-profit margins.
- Coherent Value Network: Includes suppliers, distributors, and vendors who need to align and benefit from the business model. Their support is critical to adopt a new disruptive standard.
Disrupt: The Difference Between Disruptive and Sustaining Innovation
Disruptive innovation targets ignored markets, making complex and costly products simple and affordable. In contrast, sustaining innovation involves improving existing products for established markets without necessarily reaching new or under-served segments. For example, steadily improving CD technology is a form of sustaining innovation, whereas digital music distribution is a disruptive innovation.
Prime Examples of Disruptive Innovation
Amazon
Amazon revolutionized the bookselling industry by using the internet to sell directly to consumers rather than operating physical bookstores. This not only changed book retailing but expanded to streamline almost every type of retail. Amazon started as a modest online bookstore dealing with a niche segment but grew rapidly, pushing many traditional bookstores out of business. Now, it offers nearly every type of good online, reshaping how consumers purchase products globally.
Netflix
Netflix disrupted the video rental industry by leveraging the power of the internet to offer DVD rentals by mail. This innovation was further advanced with online streaming, which has become a defining model in the media entertainment industry, leading to the decline of video rental stores like Blockbuster. As competitors adopt the streaming model, Netflix must continue to innovate to maintain its market dominance.
Boiling It Down
Disruptive innovation transforms expensive products into simpler, more affordable options, reaching untapped consumer bases and overhauling entrenched market leaders. Essential to its success are technologies, business models that deliver simplicity and affordability, and partners that buy into these radical changes. Amazon and Netflix exemplified this disruptive innovation, fundamentally altering their respective industries and providing effective blueprints for other innovators aiming to achieve disruptive growth.
Related Terms: sustaining innovation, disruptive technology, innovative business models, enabling technology.
References
- Christensen Institute. “The Innovator’s Dilemma”.
- Clayton M. Christensen and Michael E. Raynor via Google Books. “The Innovator’s Solution”, Page 34. Harvard Business Review Press, 2013.
- The Brookings Institution. “Artificial Intelligence Will Disrupt the Future of Work. Are We Ready?”
- Christensen Institute. “Disruptive Innovation”.
- Harvard Business School. “Reinventing Retail: The Novel Resurgence of Independent Bookstores”, Page 6.
- Georgia Institute of Technology, Scheller College of Business. “The Secret Ingredients in Netflix’s Success Story”.
- Blockbuster. “Our Story”.
