What Is Disruptive Innovation?
Disruptive innovation refers to the innovation that transforms expensive or highly sophisticated products or services—previously accessible to a high-end or more-skilled segment of consumers—to 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 innovations and technologies that make expensive or sophisticated products and services accessible and more affordable to a broader market.
- Disruptive innovation refers to the use of technology that upsets a structure, as opposed to "disruptive technology", which refers to the technology itself.
- Amazon, launched as an online bookstore in the mid-1990s, is an example of disruptive innovation.
- Disruptive innovation requires enabling technology, an innovative business model, and a coherent value network.
- Sustaining innovation is the process of innovating to improving products and services for existing customers.
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Understanding Disruptive Innovation
Disruptive innovation is not the process of improving or enhancing products for the same target group; rather, it involves the technologies used to make them easy to use and available to the larger, non-targeted market. An example of disruptive innovation is the introduction of digital music downloads, which have, by far, replaced compact discs (CDs).
Clayton Christensen popularized the idea of disruptive innovation in the book The Innovator’s Solution, which was a follow up to his The Innovators Dilemma published in 1997. Christensen posited that there were two types of technologies that businesses dealt with.
Sustainable technologies were those that allowed a business to incrementally improve its operations on a predictable timeframe. These technologies and the way they were incorporated into the business were primarily designed to allow companies to remain competitive, or at least maintain a status quo. Disruptive technologies and the way they are integrated—the disruptive innovations—were less easy to plan for and potentially more devastating to companies that did not pay enough attention to them.
Investing in a disruptive innovation can be complicated. It requires an investor to focus on how companies will adapt to disruptive technology, instead of focusing on the development of the technology itself. Companies such as Amazon (AMZN), Google (GOOGL), and Meta (META), formerly Facebook, are examples of companies that have heavily focused on the internet as a disruptive technology.
The internet has become so ingrained in the modern world that the companies that failed to integrate disruptive innovation into their business models have been pushed aside. Artificial intelligence (AI) and its potential to learn from employees and perform their jobs may be a disruptive innovation for the job market as a whole soon.
What makes a technology or innovation “disruptive” is a pointof contention.The term may be used to describe technologies that are not truly disruptive. The internet was disruptive because it was not an iteration of previous technology. It was something new that created unique models for making money that never existed before. Of course, that created losses for other business models.
People using smartphones instead of laptops and desktops for their computing needs, including web browsing and streaming, is another example of disruptive innovation. Technological enhancements have enabled cell phones to be equipped with small processors, chips, and software applications that support these functions.
Smartphone developers targeted the broad market of mobile consumers who have cellular devices and find it inconvenient to carry and access laptops when wanting to surf the net (not to mention an impossible task for desktops). Smartphones are small, easily storable and accessible, and relatively affordable as compared to laptops and desktops.
In contrast,the Model T car is not considered to be a classic example of disruptive innovation because it was an improvement on existing technology and it wasn't widely adopted upon its release. The auto industry didn't take off until mass production brought prices down, moving the entire transportation system from hooves to wheels. In that sense, the system of mass production does meet the criteria for disruptive innovation.
Requirements for Disruptive Innovation
Disruptive innovation requires access to ignored or overlooked markets and technology that can transform a product into a more accessible and affordable one. To be disruptive, the network of partners—suppliers, contractors, and distributors—must also benefit from the new, disruptive business model. Certain core requirements include:
- Enabling Technology: In business, enabling technology is defined as the technologies and innovations that substantially change or improve processes or how people do things. Specific to disruptive innovation, enabling technology is the technology or innovation that makes possible the affordability and availability of a product to a broader market. Basically, the speed with which a market can be disrupted depends on how quickly the technology is developed and subsequently improved upon. However, the speed of the disruption is not necessarily a metric used to gauge the success of the disruption.
- Innovative Business Model: The innovative business model is a business model that uses innovations to target new or bottom-tier customers. These segments generally don't drive profits for established companies nor do they buy their offerings because they either could not afford them or the products were too sophisticated for use. This business model—a model not adopted by incumbents because of the disruptor's initial low-profit margins—seeks to present easy-to-use, economical solutions.
- Coherent Value Network: The coherent value network includes the upstream and downstream business partners that benefit from a successful disruption. The distributors, suppliers, and vendors may require process changes or reorganization to adapt or conform to the new business model. Members of the network must subscribe to the new business model to prevent failure. Otherwise, old network processes will yield undesirable results by not prescribing to the goal of disruption.
Disruptive innovation is differentiated from disruptive technology in that it focuses on the use of the technology rather than the technology itself.
Disruptive Innovation Vs. Sustaining Innovation
Disruptive innovation is an innovation that simplifies and makes more affordable products and services to undesirable or ignored markets. Established companies typically strive to improve their products and services for their profitable customer base, largely ignoring the needs and desires of untapped segments. This lack of attention gives smaller companies or new entrants ground to target this ignored population with simpler, more affordable options.
Sustaining innovation, on the other hand, is the process of innovating to make existing products and services better for the existing customer base, either based on customer or market demands. Sustaining innovation does not target untapped or ignored markets; rather, it's innovating to remain relevant and competitive. CD makers making CDs with the capacity to hold large volumes of music and that are scratch-resistant is sustaining innovation. A company introducing digital downloads via the internet, making CDs obsolete, is disruptive innovation.
Amazon
A classic example of the disruptive innovation of the internet being unleashed was the restructuring of the bookselling industry. Thebig bookselling chains lost out to Amazon (AMZN) because it could display its inventory without having to own a physical store in every town and then ship the book to the buyer's home. Before online shopping became widely popular, books were sold in traditional bookstores, such as Barnes and Nobles and the now-defunct Borders.
Amazon's popularity grew along with its profits and market share, moving many bookstores to the back of the shelf or out of business. Since its launch, Amazon has been successful in using the internet to create an online shopping platform, whereby most of what's offered in a physical store—including groceries—can be ordered from Amazon's website. And it all began with a small, garage-born company using the power of the internet to attend to the needs of a niche market of online shopping, book enthusiasts.
Netflix
Netflix (NFLX) is another disruptive innovator. During a time when VHS tapes and DVDs were rented in abundance from thousands of video stores, new-entrant Netflix saw an opening to cater to an overlooked market of online shoppers. Utilizing the growing power of the internet, they offered consumers the ability to peruse their catalog of DVDs, rent unencumbered by someone else's choice to rent the same selection, and have their selections sent directly to their home.
Not long after offering mail-delivered DVD rentals, they revised their business model, finding an avenue to disrupt themselves in the market by offering online-streamed entertainment. However, today, competitors have successfully duplicated this business model, taking away from Netflix's market share. Time will tell how long Netflix can remain dominant, but there is no doubt about the disruption that they brought about.
After Netflix disrupted the media industry, Blockbuster went from having more than 9,000 Blockbuster brick-and-mortar stores to one.
The Bottom Line
Disruptive innovation involves the innovative processes used to transform products and services into simple and affordable options for bottom-tier or traditionally unmarketable consumers. Unlike sustaining innovation, it does not involve improving existing products for current customers.
Disruptive innovation requires technology that can transform the product or service into something more affordable and easy-to-use, a business model that supports the disruptive innovation, and a network of upstream and downstream partners who support and will benefit from the success of the disruption. Amazon and Netflix are examples of market disruptors that began as new entrants in industries dominated by well-known, established companies.
What Is the Meaning of Disruptive Innovation?
Disruptive innovation refers to the process of transforming an expensive or highly sophisticated product, offering, or service into one that is simpler, more affordable, and accessible to a broader population. It explains the process of how innovation and technology can change markets by presenting affordable, simple, and accessible solutions and after doing so, disrupts the market from which its predecessors were born.
What Are Examples of Disruptive Innovation?
Amazon provides a clear example of disruptive innovation. Jeff Bezos, in 1995, subscribing to the notion that the internet could significantly boost commerce, launched Amazon to sell books to a growing, but largely ignored online shopping community. In doing so, he forced many bookstores to go out of business. Netflix is another prime example. After they disrupted the media industry, the dominant player, Blockbuster, went from having 9,000+ brick-and-mortar stores to 1, which is now an Airbnb.
What Are the Key Requirements for Disruptive Innovation?
To be a successful disruptor, the network of partners—suppliers, contractors, and distributors—must also benefit from the new business model. Certain core requirements include having enabling technology, an innovative business model, and a coherent value network where upstream and downstream business partners benefit from a successful disruption.
FAQs
Disruptive innovation is the introduction of a product or service into an established industry that performs better and, generally, at a lower cost than existing offerings, thereby displacing the market leaders in that particular market space and transforming the industry.
What is disruptive innovation give an example? ›
Disruptive innovation refers to the use of technology that upsets a structure, as opposed to "disruptive technology", which refers to the technology itself. Amazon, launched as an online bookstore in the mid-1990s, is an example of disruptive innovation.
What are the four 4 points to identify disruptive innovation? ›
This illustration shows four important elements of the theory of disruptive innovation: (1) sustaining innovation, (2) overshoot of customer needs, (3) the emergence of a disruptive innovation to which incumbents have the ability to respond, and (4) incumbent firms floundering as they are disrupted.
How do you identify disruptive innovation? ›
If your innovation incrementally improves the existing product, then the innovation is sustainable. But if it completely changes the way the product has been used so far, or if it serves a completely different set of customers, then the innovation is disruptive.
What are two 2 types of disruptive innovations? ›
2 Types of Disruptive Innovation
- Low-end disruption: Many innovations struggle to find immediate success with mainstream customers. ...
- New-market disruption: New market disruption happens when a new entrant expands the market by targeting customers who didn't previously use a similar product at all.
Tesla clearly doesn't qualify under the traditional definition of a disruptive innovation. In the model described by Clayton Christensen, a new entrant offers substitute products using technology that is cheaper but initially inferior to products offered by mature incumbents.
Is disruptive innovation a strategy? ›
Disruptive innovation is a theory: Before it was a strategy or an industry buzzword, 'disruptive innovation' was a hypothesis. Christensen sought to understand how new businesses were able to accelerate in growth, meet their customers' needs and take legacy brands out of the picture.
Is Nike a disruptive innovation? ›
Special Feature have captured the hearts and minds of a global audience. However, in a world that is fast-digitalising, Nike is transitioning from a marketing-first business into an aspiring tech powerhouse, a process that, to say the least, represents a challenge.
What are the 6 D's of disruption? ›
This growth cycle takes place in six key steps, which Peter Diamandis calls the Six Ds of Exponentials: digitization, deception, disruption, demonetization, dematerialization, and democratization.
What is a key feature of disruptive innovation? ›
The key to disruptive innovation is the ability to break the existing operating model and create the right conditions for the emergence of a new one. Disruption is about doing things differently and making a deliberate choice to try to change the general notions in the industry.
The characteristics of disruptive innovations are: Low pricing to gain more customers. Higher risk because the solution either disrupts an existing market or creates an entirely new market segment. The measure of value is fundamentally changed.
What causes disruptive innovation? ›
Disruptive innovations originate in low-end or new-market footholds. Disruptive innovations are made possible because they get started in two types of markets that incumbents overlook.
What is disruptive behavior examples? ›
Examples of disruptive behavior
Making physical or verbal threats. Making loud and distracting noises. Answering cell phones or allowing electronic devices to beep. Exhibiting erratic, irrational behavior. Persisting in speaking without being recognized.
What are the two types of disruptive? ›
Types of Disruptive Innovation. In the online course Disruptive Strategy, Christensen explains that there are two types of disruptive innovation: low-end and new-market.
What are disruptive strategies? ›
Disruptive strategy alludes to the innovation that changes expensive or exceptionally sophisticated products or services—already available to a top-of-the-line or more gifted portion of customers—to those that are more reasonable and open to a more extensive population.
Why is Netflix disruptive innovation? ›
The formation of video as digital content and its delivery over the internet has become a radical innovation, as it destroyed the demand for video rental and DVD mailing services. It has become a disruptive innovation due to the disappearance of incumbents and the rise of a late entrant–Netflix.
Why is the iPhone considered a disruptive innovation? ›
The fifth industry the iPhone has disrupted has been taxi and personalized hired transportation. The iPhone has birthed services like Uber, Lyft, and others that have turned this industry upside down. It woke up the stagnant taxi market and made hiring a personal ride easy and efficient.
Is TikTok a disruptive innovation? ›
TikTok is a platform that has grown exponentially in recent years and become a major player in the social media landscape. It provides a unique content offering that has completely disrupted the industry through relatable and engaging short-form video content.
Is Amazon considered disruptive innovation? ›
Amazon is seen as so disruptive because people think they're getting something for free. Amazon.com founder and CEO Jeff Bezos. Amazon is seen as one of the world's most disruptive companies because people love it so much they forget they've even paid for some of its services.
Is Uber an example of disruptive innovation? ›
According to Christensen, a truly disruptive business starts with a low-quality product, then ultimately covers the mainstream market by improving quality. He points out that Uber does not fit into this box either. In parallel, the author gives the example of Netflix as a classical disruptive business.
Innovation strategies can be classed as proactive, active, reactive and passive (Dodgson et al.
What are the three 3 strategies in innovation? ›
The three critical innovation strategies for changing products and technologies are exploration, cooperation, and entrepreneurship. An exploration strategy involves creating a conducive environment that encourages creativity and new ideas.
Who is the father of disruptive innovation? ›
Dr. Clayton Christensen was a Harvard Business School professor who coined the term “disruptive innovation”.
What are disruptive tools? ›
Disruptive technologies are innovations that come to replace a process, a product, or technology that is already well-established, giving rise to a new way to operate, be it for consumers, organizations, or both.
What is an example of disruption? ›
Two examples of new-market disruption outlined in Disruptive Strategy are the emergence of personal computers and, later, smartphones. Together, they illustrate how disruptors become incumbents that can then be disrupted by a new innovation.
Is McDonald's a disruptive company? ›
It's hard to remember, but McDonald's started out as the disruptor in its industry. Its innovations were many, ranging from standardized, efficient experience in menu and restaurant design, to great marketing.
Is Amazon a disruptive company? ›
No other organization in the world better embodies the power of audacious and continual disruption than Amazon. This is the company that, upon its founding by Jeff Bezos in 1994, took on publishers and booksellers around the world.
Is Disney+ a disruptive innovation? ›
The launch of Disney+ is not a disruption on its own, but it is part of a wider change with big consequences. "The launch of Disney+ adds competitive pressure to pay-TV providers and other OTT players as part of a wider market shift."
What are the main phases of a disruptive change? ›
The Three Stages of Disruptive Innovation: Idea Generation, Incubation, and Scaling | Stanford Graduate School of Business.
What is a disruption framework? ›
The DISRUPT framework is a comprehensive list of circular strategies for products. It includes 80 tangible strategies that provide guidance and inspiration for you to render your product circular.
Product Disruptions versus Market Disruptions.
Why is disruptive innovation effective? ›
The principles of disruptive innovation allow companies to take a step back and analyze their current products and services, what areas can be improved, where an opportunity exists in consumer needs that can benefit from an innovative solution and more.
What are the barriers to disruptive innovation? ›
Lack of strategic level orientation, lack of resource allocation for disruptive technology, and focus on continuous development of existing strength are also barrier for adopting the disruptive innovation (Thom*ond, P., Herzberg, T., & Lettice, F. 2003). Henderson, R.
Why is disruptive innovation successful? ›
Most products that experience disruptive innovation are initially at a low cost and made widely accessible to consumers. This allows the product to build a customer base quickly, which can expand as more consumers learn about the product and its benefits.
What happens during a disruptive innovation? ›
In business theory, disruptive innovation is innovation that creates a new market and value network or enters at the bottom of an existing market and eventually displaces established market-leading firms, products, and alliances.
What are the impacts of disruptive innovations? ›
When they're first developed, disruptive technologies often create a new market. They establish their own value network and are often seen as risky outliers when they're introduced. In other cases, disruptive technologies enter an established market but radically change the way business is handled and needs are met.
What are 3 techniques for managing disruptive behaviors? ›
What to do
- Be steady, consistent and firm.
- Acknowledge the feelings of the individual.
- Remember that disruptive behavior is often caused by stress or frustration.
- Address the disruption individually, directly and immediately.
- Be specific about the behavior that is disruptive and set limits.
causing trouble and therefore stopping something from continuing as usual: His teacher described him as a noisy, disruptive influence in class. business specialized.
What is the word disruptive mean? ›
adjective. dis·rup·tive dis-ˈrəp-tiv. : disrupting or tending to disrupt some process, activity, condition, etc. : causing or tending to cause disruption.
Is disruptive innovation good or bad? ›
Traditionally, most disruptive innovations are not welcomed by the market as they come with high-risk of failures as compared to incremental sustaining innovations. Since they chart unexplored paths, their early performance is comparatively lower than what is offered in the mainstream market.
In practice, Spotify completely changed the technological paradigm of the music industry, going from transaction to access, and in just a few years streaming has reached such a relevant position in the market that it will probably be universally accepted as the dominant design in the near future.
What is the meaning for disruptive? ›
/dɪsˈrʌp.tɪv/ C2. causing trouble and therefore stopping something from continuing as usual: His teacher described him as a noisy, disruptive influence in class.
What does it mean when something is disruptive? ›
adjective. dis·rup·tive dis-ˈrəp-tiv. : disrupting or tending to disrupt some process, activity, condition, etc. : causing or tending to cause disruption. a disruptive weather pattern.
What is the meaning of disruptive in business? ›
When it comes to business strategy, “disruption” refers to a process in which market entrants come armed with non-conventional business models, and what at their outset seem to be poor-performing products actually come to challenge and eventually replace industry incumbents over time.
What is the meaning of Distruct? ›
New Word Suggestion. the act of giving wrong instruction. Sample: I distructed them on how to plant a bomb so they ended up blowing themselves up.
What does disruptive innovation call for? ›
The theory of disruption predicts that when an entrant tackles incumbent competitors head-on, offering better products or services, the incumbents will accelerate their innovations to defend their business.
What is the best definition of disruptive selection? ›
Disruptive selection, also known as diversifying selection, describes population genetic changes that favor extreme values of a trait over intermediate values. In this instance, the trait's variation increases, and the population is split into two groups.
What makes a technology disruptive? ›
A disruptive technology is one that displaces an established technology and shakes up the industry or a ground-breaking product that creates a completely new industry. Harvard Business School professor Clayton M. Christensen coined the term disruptive technology.
What is a disruptive strategy? ›
Disruptive strategy alludes to the innovation that changes expensive or exceptionally sophisticated products or services—already available to a top-of-the-line or more gifted portion of customers—to those that are more reasonable and open to a more extensive population.
Is Netflix a disruptive innovation? ›
With the rise of the digitization wave, a late entrant Netflix has become a poster child of disruptive innovation, whereas once market leader Blockbuster disappeared. In the 1980s, the growing adoption of video recorders and players at home started creating the market of rental service of VHS videotapes.
To prove his point, Christensen uses Uber as an example. He suggests that while Uber is innovative, it's not a disruptive innovation. Instead, it's a sustaining innovation, meaning that Uber represents only an incremental improvement on the existing taxi industry.
Why is disruptive innovation important? ›
The principles of disruptive innovation allow companies to take a step back and analyze their current products and services, what areas can be improved, where an opportunity exists in consumer needs that can benefit from an innovative solution and more.
Is Zoom a disruptive innovation? ›
The story of Zoom's disruptive innovation has been a process and continues to unfold. In the meantime, let's keep Zooming!
