In 1997 the term disruptive innovation was coined by a Harvard Business School professor by the name of Clayton Christensen. This term describes the process that a new service or product undergoes to find acceptance within the bottom or fringes of a specific market or industry. Over time, it turns into a viable business model accepted by a greater number of consumers. Ultimately, it starts displacing the same market’s traditional organizations.
Conventional innovation concepts
Established, large companies have a tendency to approach innovation via more sophisticated products that are often too expensive or complex for many of their normal consumes. These innovations are often based on competitor successes or technical advances. Many organizations consider “sustaining innovations’ as a way to introduce improved versions of successful past products. They are able to maintain profitability by targeting loyal, specific markets and charging higher prices. For example, the software company Intuit drove its profits to 65% over the course of several years of using this type of innovative framework.
However, when this practice is used by companies, it leaves opportunities that are wide-open for ‘disruptive’ innovations to surpass them – those bringing radical new processes or ideas to the market. Affordability and ease of use attract new customers who aren’t interested in spending more on upgrades for what is basically the same product or being forced to learn new technologies.
Why disruptive innovation works so well
There are a number of different reasons why disruptive innovations tend to be avoided by established companies. Switzerland, in particular, has seen a rise in disruptive innovation. Read more on Swisslinx. In the beginning, at least, usually a cheaper product will result in a smaller market segment and a lower profit margin. Products that are truly innovative might also not be consistent with established advertising and branding or detract in other ways from the sales of the company’s proven products. Focusing on more mainstream, lucrative markets allows them to expose part of the bottom market to new competitive and new ideas.
Disruptive innovation is frequently driven by resources and need. Such innovation has been experienced widely by developed countries. However, emerging countries also are finding a ready and broad market for their new fresh ideas. With their limited monetary and technical resources, these markets rely more on disruptive ideas. Many even engage in reverse innovation, where modern solutions and re-engineering are used for more practical, simpler processes that are a better reflection of their own culture and technology.
Consumerism is changed by innovation
New business models and products can significantly impact established markets and practices. Past disruptive innovations include landlines versus cell phones, full-service retailers versus discount outlets, or physical brick-and-mortar schools versus online learning. Another great example is the increased popularity of e-cigs versus tobacco, and other related products like e-juice which allow for a great deal of individual customization. In the US, there are now more than 2,750,000 users of e-cigs.
Disruptive innovations that capture a share of the market are able to provide companies with growth opportunities and adapt to new trends. They can benefit from both consumers and competition by offering more accessible services and cheaper, better products. This allows startups and smaller companies to compete with large corporations by establishing new market segments and growing them. New ideas can be protected and patented as forms of intellectual property. Large businesses, in many cases, will offer huge amounts of money or lucrative deals to incorporate innovative start-up companies into their business models – or to pay them to go away.
Companies also can benefit in numerous ways through sustaining and creating a system that searches for disruptive innovation. Both customer and employee feedback can help to generate new concepts. Employees might have ideas on better technologies or process to increase efficiency and productivity; consumers may provide insights on what types of markets that are interested in. When new solutions are adapted to new insights it can result in disruptive innovations, additional revenue streams, and improved employee engagement.
One of the major restrictions to being able to capitalize on new ideas is establishing regulations for new ideas or products. Consumer privacy and safety are always major concerns for both the public and the government. Although controversy can make for interesting press coverage, it is very important that the invariable resistance for new ideas be anticipated.