Disruptive Innovation

Definition

Disruptive innovation refers to an innovation that creates a new market and value network, ultimately disrupting an existing market and displacing established market-leading firms, products, and alliances. It is a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up, eventually displacing established competitors.

5 Must Know Facts For Your Next Test

1. Disruptive innovations are often simpler, more convenient, and affordable products or services that initially target overlooked segments of the market.
2. Disruptive innovations can lead to the displacement of established market leaders, as new entrants with disruptive offerings gain a foothold and then move upmarket.
3. Disruptive innovations may underperform established products on attributes that matter most to mainstream customers, but they excel on other dimensions that are valued by an emerging customer segment.
4. The success of disruptive innovations often depends on their ability to continuously improve and move upmarket, eventually meeting the needs of the mainstream market.
5. Disruptive innovations can create new markets, transform existing ones, and lead to the emergence of new business models and value networks.

Review Questions

• Explain how disruptive innovation differs from sustaining innovation in the context of entrepreneurship and new product development.
  • Disruptive innovation is a process by which a product or service takes root in simple applications at the bottom of a market and then relentlessly moves up, eventually displacing established competitors. This is in contrast to sustaining innovation, which refers to innovations that improve an existing product or service, typically along the dimensions of performance that mainstream customers in major markets have historically valued. Disruptive innovations often target overlooked market segments, offering a different value proposition that may initially underperform on attributes valued by mainstream customers but excel on other dimensions. The success of disruptive innovations depends on their ability to continuously improve and move upmarket, eventually meeting the needs of the mainstream market, which can lead to the displacement of established market leaders.
• Analyze how the concept of disruptive innovation relates to the process of developing ideas, innovations, and inventions, as well as researching potential business opportunities.
  • The concept of disruptive innovation is closely linked to the process of developing ideas, innovations, and inventions, as well as researching potential business opportunities. Disruptive innovations often emerge from the identification of overlooked market segments and the development of products or services that address their unique needs, even if they initially underperform on attributes valued by mainstream customers. Entrepreneurs and innovators must be attuned to these emerging market opportunities and be willing to challenge existing industry norms and business models. By researching potential business opportunities through the lens of disruptive innovation, entrepreneurs can identify new avenues for growth and create value in ways that disrupt established players in the market.
• Evaluate how the design of a business model can enable or hinder the successful commercialization of a disruptive innovation.
  • The design of a business model is crucial in enabling or hindering the successful commercialization of a disruptive innovation. Disruptive innovations often require a different value proposition, cost structure, and target customer segment than what is typical in the mainstream market. Entrepreneurs must carefully design their business model to support the unique characteristics of the disruptive innovation, such as a focus on simplicity, affordability, and accessibility for emerging customer segments. If the business model is not well-aligned with the disruptive innovation, it can create barriers to adoption and limit the innovation's ability to move upmarket and displace established competitors. Conversely, a business model that is tailored to the disruptive innovation can facilitate its growth and help it gain a foothold in the market, ultimately leading to the disruption of the existing industry.

Related terms

Sustaining Innovation: Sustaining innovation refers to innovations that improve an existing product or service, typically along the dimensions of performance that mainstream customers in major markets have historically valued.

Incremental Innovation:

Incremental innovation involves making small, gradual improvements to an existing product or service, often to maintain or enhance its competitiveness.

Radical Innovation: Radical innovation refers to the development of products or services that represent a dramatic departure from existing products, often creating new markets or transforming existing ones.