21 April 2016:
The term “disruptive innovation” has emerged with the model being developed and published in Christensen’s text “Disruptive Technologies Catching the Wave”.
Twenty years since its inception, Christensen and his colleagues revisited the theory of disruption as they believe that the concept has been misinterpreted: “many researchers, writers and consultants use “disruptive innovation” to describe any situation in which an industry is shaken up and previously successful incumbents stumble”.
In summary, the disruption innovation theory is one where a smaller company with fewer resources successfully challenges an established incumbent in a specific industry. As the incumbent firm focuses on product and service improvements for their most demanding (profitable) customers, they exceed the needs of some segments and ignore the needs of others. Here, disruptive entrants successfully target the overlooked segments and build a market by providing a more suitable proposition/product at a lower price. The incumbents businesses which are still servicing their profitable customers tend not to respond strongly to the new entrant, which provides them with an opportunity to grow and move upmarket, delivering the product/service which incumbents’ mainstream customers require while utilising their disruption advantage to build their business (figure 1).
Fig. 1. The Disruptive Innovation Model (Christensen et. al 2015, p. 49)
The authors discuss the case study of Uber and conclude that, according to the theory, Uber is not a disrupting innovation as their financial and strategic achievements do not qualify the company as “disruptive”. Firstly, as Uber’s disruptive innovation didn’t originate in low-end or new markets, and secondly, because disruptive innovations aren’t becoming mainstream until quality matches their standards. Uber developed a “sustaining innovation” solution which is better than some of their competitors’ value proposition.
While Uber has increased total demand (they provide a better, less expensive solution), they didn’t originally focus on low-end or unserved customer needs. In the contrary, they first built a proposition for the mainstream market.
There are two key drivers to identify true disruptive innovations: 1) disruption is a process (when Netflix launched in 1997, its product was for a niche market [DVDs sent via postal mail] and incumbent players didn’t respond to Netflix); and 2) disruptors often build business models that are very different from the current players.
The authors advise managers of incumbent firms not to overreact to disruption by dismantling a still profitable business. Instead managers should try to understand if the disruptors create a new technology or business model and consequently build a new division focused on the growth opportunities that arise from the disruption.
Christensen, Clayton M.; Raynor, Michael E. & McDonald, Rory 2015: “What Is Disruptive Innovation?”, Harvard Business Review, December, pp. 44-53.
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