Disruptive innovation

Definition

Disruptive innovation refers to the process by which a smaller company with fewer resources successfully challenges established businesses, often by providing simpler, more affordable products or services. This phenomenon can change entire industries, leading to significant shifts in market dynamics and consumer behavior, as well as new technological trends that redefine competition. Disruptive innovations often emerge in unexpected areas and can gradually improve to the point where they displace established players.

5 Must Know Facts For Your Next Test

1. Disruptive innovations often start at the lower end of the market, targeting overlooked customer segments with simpler or cheaper alternatives.
2. These innovations can lead to the obsolescence of established products and companies that fail to adapt to changing market conditions.
3. Disruptive innovation not only applies to technology but can also be seen in business models like subscription services and gig economies.
4. Firms facing disruptive threats can either innovate themselves or risk losing their competitive edge in the market.
5. Examples of disruptive innovation include Netflix transforming video rental and streaming services, and Uber reshaping transportation.

Review Questions

• How does disruptive innovation challenge established companies and alter market dynamics?
  • Disruptive innovation challenges established companies by introducing new products or services that initially appeal to lower-end or niche markets. These innovations often offer simpler solutions at lower prices, gradually improving over time and attracting mainstream consumers. As these new entrants capture market share, they disrupt the traditional business models of established players who may struggle to compete, forcing them to adapt or risk obsolescence.
• Analyze how disruptive innovation relates to technological trends in shaping industries and consumer behavior.
  • Disruptive innovation is closely tied to technological trends because it often leverages new technologies to create unique products or services that meet evolving consumer needs. As these technologies develop, they enable startups and smaller companies to enter markets with innovative solutions that challenge established firms. This shift can alter consumer behavior by providing greater access to services or products that were previously unavailable or too expensive, fundamentally changing the industry landscape.
• Evaluate the implications of disruptive innovation for businesses considering investment in emerging technologies like artificial intelligence and 3D printing.
  • Businesses must recognize that disruptive innovation can stem from emerging technologies like artificial intelligence and 3D printing. Investing in these technologies could either position a company as a leader in its field or expose it to threats from agile competitors who harness these innovations more effectively. Companies should assess how these technologies can enhance their value propositions and whether they can leverage them to create disruptive offerings themselves, thus avoiding being displaced by others who do.

Related terms

Sustaining Innovation:

Sustaining innovation involves improvements to existing products or services, enhancing performance without altering the market structure or competitive landscape.

Market Penetration: Market penetration is a strategy aimed at increasing a company's share of existing markets through competitive pricing, marketing, and enhanced offerings.

Value Proposition: A value proposition is the promise of value to be delivered to customers, highlighting how a product or service meets their needs better than competitors.