Disruptive innovation is a challenge which all organisations can face – an organisation may either be the disrupter or be disrupted by innovation.
The theory of disruptive innovation was created by Harvard professor Clayton M. Christensen.
Christensen explains how many successful companies are pushed aside by disruptive technologies because they fail to abandon traditional business practices and outdated business models. Businesses have a choice: innovate or die; disrupt or get disrupted.
1. Disruptive innovation fundamentally changes entire industries; therefore, it can make core resources and capabilities obsolete.
2. Disruptive innovation often develops in niche markets, being ignored by core businesses due to its perceived inferiority. These businesses are then undermined once the innovation improves.
Disruptive innovation refers to any innovation that creates a new market by providing a different set of values, which ultimately and unexpectedly overtakes an existing market.
One typical way innovation starts is when a disruptive market entrant introduces an inferior, yet inexpensive and accessible product or service to the market.
Because larger companies often have a superior offering, they ignore the new entrants as competitors in their industry.
As the innovation process unfolds, the disrupter increases their offering’s value while still maintaining low cost and convenience, ultimately edging out the established companies, taking their market shares on the strength of a new business idea.
Finding a new way to produce or deliver an existing product or service is the most common type of innovative disruption.
Christensen argues that disruptive innovations can be difficult for established companies to pursue.
This is because they often require new business models, new manufacturing processes, and new distribution channels.
Established companies may be reluctant to invest in these new areas because they are seen as risky and unproven.
Moreover, disruptive innovations often have a lower profit margin than existing products and services.
This means that established companies may be reluctant to invest in them because they do not offer the same return on investment.
For a short presentation on this subject click on this link.