Disruptive innovation is the introduction of a new product or service that creates a new market and value network, eventually displacing established market-leading products or services.
In business, disruptive innovation is typically characterized by a business model innovation that improves upon an existing industry's standard by introducing a new technology or process that is more accessible and affordable. This type of innovation often leads to the creation of a new market and value network, which eventually displaces the established market leader.
Clayton M. Christensen (RIP), whom I had the honor of being his student in his last semester in Harvard Business School, first coined the term "disruptive innovation" in his 1997 book The Innovator's Dilemma. He defined it as "a process by which a smaller company with fewer resources is able to successfully challenge established incumbent businesses." Since then, the theory of disruptive innovation has been widely adopted by business leaders and entrepreneurs as a way to explain how new companies can successfully compete against larger, more established businesses.
Disruptive innovation is often misunderstood as simply being about technology. However, it is much more than that. While new technologies can certainly be a part of disruptive innovation, the concept is much broader. At its core, disruptive innovation is about creating something new that meets the needs of a previously unserved or underserved market. This can be done in a number of ways, such as introducing a new business model, product, or service. While Clayton Christensen's original theory of disruptive innovation focused on technology-based businesses, the concept has since been expanded to include any type of business, whether it be a product, service, or business model.
There are three primary types of disruptive innovation:
1. Low-end disruption: A low-cost provider enters a market and competes against established incumbents by offering a lower price.
2. New-market disruption: A new entrant focuses on a market that has not been served by the incumbents and offers a new or innovative product or service.
3. High-end disruption: An upstart luxury brand enters the market and competes against established luxury brands by offering a higher quality product or service.
Disruptive innovation is not about being the first to market with a new product or service. Rather, it is about being the first to successfully meet the needs of a previously unserved or underserved market.
The key to success with disruptive innovation is to have a deep understanding of the needs of your target market. Once you have identified a need that is not being met by the incumbents, you can then focus on creating a new product or service that meets that need in a better way. While there is no surefire formula for success with disruptive innovation, there are a few key principles that can help increase your chances of success:
1. Focus on a specific need or problem that is not being adequately addressed by the incumbents.
2. Develop a deep understanding of your target market and what they are looking for.
3. Create a new product or service that meets the needs of your target market in a better way than the incumbents.
4. Focus on delivering value to your customers, not on trying to beat the incumbents.
5. Be prepared to rapidly adapt and change as the market evolves.
While disruptive innovation can be a powerful tool for business growth, it is important to keep in mind that it is not without risk. When pursuing a disruptive strategy, it is important to be aware of the potential pitfalls and to have a plan in place to mitigate them.
Some of the risks associated with disruptive innovation include:
1. The risk of failure: Disruptive innovation is by its very nature risky. There is always the possibility that your new product or service will not be successful in the market.
2. The risk of cannibalization: When you introduce a new product or service that is significantly different from your existing offerings, there is a risk that it will cannibalize your existing business.
3. The risk of being outpaced by the incumbents: If you are not able to keep up with the pace of innovation, the incumbents may quickly catch up and overtake you.
4. The risk of losing focus: When pursuing a disruptive innovation strategy, it is important to maintain focus on your core business. If you lose sight of your core business, you may find yourself chasing after too many different opportunities and spreading yourself too thin.
Despite the risks, the potential rewards of disruptive innovation make it a strategy worth pursuing for many businesses. When done correctly, disruptive innovation can lead to significant growth and market share gains.