Disruptive Innovation

Definition

Disruptive innovation refers to a process where a smaller company with fewer resources successfully challenges established businesses. This often happens by offering simpler, more affordable products or services that initially appeal to overlooked customer segments. Over time, these innovations improve and begin to capture mainstream customers, ultimately transforming entire industries.

5 Must Know Facts For Your Next Test

1. Disruptive innovations often start in niche markets, targeting less demanding customers who are overlooked by established players.
2. These innovations typically improve over time and eventually attract more demanding customers, threatening established companies' market positions.
3. Famous examples of disruptive innovation include Netflix disrupting traditional video rental stores and smartphones replacing dedicated cameras.
4. The concept was introduced by Clayton Christensen in the mid-1990s and has since become a key framework for understanding changes in various industries.
5. Not all new technologies are disruptive; some can be sustaining innovations that help established companies maintain their market dominance.

Review Questions

• How do disruptive innovations differ from sustaining innovations, and what impact do they have on established businesses?
  • Disruptive innovations focus on creating simpler, more affordable solutions for overlooked customer segments, while sustaining innovations enhance existing products for current customers. Disruptive innovations can threaten established businesses by gradually taking away market share as they improve over time. Companies that fail to recognize the potential of disruptive innovations may find themselves unable to compete effectively against new entrants.
• Discuss the role of market penetration in the context of disruptive innovation and how it can affect a company's growth strategy.
  • Market penetration plays a crucial role in the context of disruptive innovation as it involves targeting existing markets with innovative offerings. When a disruptive innovation successfully penetrates a market, it can lead to significant shifts in consumer preferences and behaviors. Companies may need to adjust their growth strategies to accommodate these changes by either improving their offerings or investing in new disruptive technologies to stay competitive.
• Evaluate the implications of the innovator's dilemma for established companies facing disruptive innovations in their industries.
  • The innovator's dilemma presents significant challenges for established companies as they must balance the needs of their current customer base with the potential risks posed by disruptive innovations. Many companies hesitate to invest in new technologies that could undermine their existing business models. This reluctance can result in lost opportunities for growth and market relevance if they fail to adapt or innovate, ultimately leading to their decline as smaller, more agile competitors seize market share.

Related terms

Sustaining Innovation: Sustaining innovation involves improvements to existing products or services, typically enhancing performance and meeting the needs of current customers.

Market Penetration: Market penetration is the strategy of increasing market share by promoting existing products within existing markets, often through aggressive marketing tactics.

Innovator's Dilemma: The innovator's dilemma describes the challenge that established companies face when they must choose between focusing on their current customer base and adopting new technologies that may disrupt their business model.