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How Disruptive Innovation Benefits The Marketplace

Though it can destabilize large incumbents, disruptive innovation creates opportunities

19Dec

Disruptive innovation is a term coined in 1997 by Clayton Christensen, a professor at the Harvard Business School. It describes the process whereby a new product or service finds acceptance at the fringes or bottom of a particular industry or market. In time, it becomes a viable business model that takes up a larger share of consumers until it begins to displace traditional organizations in the same market. 

Conventional innovation ideas

Large, established companies tend to approach innovation through more sophisticated products that often end up too complex or expensive for their usual consumers. Often they base these innovations on technical advances or competitor successes. Many enterprises consider 'sustaining innovation' to be introducing better versions of past successful products. By charging higher prices and targeting specific, loyal markets, they can maintain profitability. Software company Intuit, for instance, drove profits up 65% over several years by adopting such an innovative framework.

But by conforming to this practice, companies leave wide-open opportunities for 'disruptive' innovations - those that bring a radical new idea or process. Ease of use and affordability attract new customers who are not interested in learning new technologies or spending on upgrades to basically the same products.

Why disruptive innovation works

There are several reasons why established companies tend to avoid disruptive innovations. At least in the beginning, a cheaper product generally means both lower profit margins and a smaller market segment. Truly innovative products may also be inconsistent with established branding and advertising, or otherwise detract from sales of proven products. By focusing on the more lucrative, main-stream markets, they expose a share of the bottom market to new ideas and new competition.

Disruptive innovation is often driven by need and resources. Developed countries have seen their share of such innovation, but emerging countries are also finding a wide, ready marketplace for their own new ideas. With limited technical and monetary resources, their marketplaces are more reliant on disruptive concepts. Many are even engaging in reverse innovation, which involves re-engineering modern solutions to simpler, more practical processes that reflect their own technology and culture. 

Innovations change consumerism

New products and business models can have a profound impact on established practices and markets. Disruptive innovations of the past include cell phones vs land lines, discount outlets vs full-service retailers, or online learning vs physical brick-and-mortar schools. Another good example is the rising popularity of e-cigarettes vs tobacco, and related products such as e-juice that allow individual customization. There are now over 2,750,000 e-cig users in the US.

Benefits

Disruptive innovations that take a share of the market can deliver growth opportunities to companies adapted to leading new trends. It can benefit both competition and consumers by providing better, cheaper products and more accessible services. It allows smaller companies and startups to compete with corporate enterprises by establishing and growing new market segments of their own. New ideas can be patented and protected as intellectual property. In many cases, big business will make lucrative deals or offer huge cash sums to incorporate these innovative startups into their own business model - or make them go away.

A company can also benefit in a number of ways through creating and sustaining a system that looks for disruptive innovation. Both employee and customer feedback can generate new ideas. Employees may have ideas on better processes or technologies that will increase efficiency; consumers can provide insights into what various markets are looking for. Adapting solutions to new insights may lead to some disruptive innovations, better employee engagement, and further revenue streams.

One of the major restrictions to capitalizing on new ideas is the establishment of regulations regarding new products or ideas. Consumer safety and privacy are always a major concern with both government and the public. While controversy can make good press, it's important to anticipate the inevitable resistance to new ideas.

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