Disruptive innovation

Definition

Disruptive innovation refers to the process by which a smaller company with fewer resources successfully challenges established businesses, often by offering simpler, more affordable, or more convenient products or services. This type of innovation typically starts at the bottom of the market and eventually moves up, displacing established competitors and altering industry dynamics.

5 Must Know Facts For Your Next Test

1. Disruptive innovations often create new markets by appealing to overlooked segments of consumers who are either underserved or completely ignored by mainstream players.
2. Companies that fall victim to disruptive innovation typically focus on improving their existing products rather than adapting to new market realities, which can lead to their decline.
3. Classic examples of disruptive innovation include Netflix disrupting Blockbuster's video rental business and smartphones overtaking traditional mobile phones.
4. The pace of technological change can accelerate the process of disruptive innovation, making it crucial for established firms to remain agile and responsive to emerging trends.
5. Successful disruptive innovations often involve business model innovation, requiring companies to rethink how they deliver value and operate within their ecosystems.

Review Questions

• How does disruptive innovation create new market opportunities for emerging businesses?
  • Disruptive innovation creates new market opportunities by targeting customer segments that established companies have neglected or undervalued. Emerging businesses often introduce simpler and more affordable alternatives that attract these overlooked consumers. As they improve their offerings over time, they gradually move upmarket, eventually challenging and displacing established competitors who are too focused on maintaining their high-end products.
• Discuss the relationship between disruptive innovation and business model innovation in the context of market dynamics.
  • Disruptive innovation is closely linked to business model innovation as it often requires companies to rethink how they create, deliver, and capture value. Established firms may struggle when they fail to adapt their business models in response to disruptive changes. For example, a traditional retail company may need to shift towards an online platform or subscription service to compete effectively against a disruptor that offers convenience and lower prices. The ability to innovate on both product and business model levels is essential for survival in dynamic markets.
• Evaluate how disruptive innovation has impacted competitive strategies across various industries and led to both successes and failures.
  • Disruptive innovation has significantly transformed competitive strategies across multiple industries by forcing established firms to adapt or risk obsolescence. Successful cases like Amazon's rise demonstrate how embracing disruption can lead to dominance in e-commerce. Conversely, companies like Kodak illustrate failure when they resisted change in response to disruptive technologies like digital photography. The challenge lies in recognizing potential disruptions early on and being willing to pivot strategically, balancing between sustaining existing operations while exploring new avenues for growth.

Related terms

Sustaining Innovation: Improvements made to existing products or services to enhance their performance, targeting higher-end customers rather than creating new markets.

Market Penetration:

A strategy aimed at increasing market share for existing products in existing markets, often used by companies to fend off disruptive competitors.

Value Proposition:

The promise of value to be delivered to customers, highlighting why a consumer should choose one product over another.