Disruptive innovation

Definition

Disruptive innovation refers to a process where a smaller company with fewer resources successfully challenges established businesses, often by offering simpler, more affordable products or services. This type of innovation typically starts at the bottom of the market and gradually moves upward, eventually displacing the dominant industry players. It plays a crucial role in transforming industries, particularly in science, technology, and business.

5 Must Know Facts For Your Next Test

1. Disruptive innovations often start by targeting overlooked segments of the market, providing lower-cost solutions that gradually improve.
2. One classic example is how digital photography disrupted the film industry, leading to significant changes in how images are captured and shared.
3. Many successful disruptive innovations leverage technology to create new business models that challenge traditional industries.
4. Established companies often struggle to respond to disruptive innovations due to their focus on sustaining innovations that serve their existing customer base.
5. Disruptive innovation can lead to the creation of entirely new markets and value networks, fundamentally changing the competitive landscape.

Review Questions

• How does disruptive innovation differ from sustaining innovation, and why is this distinction important for businesses?
  • Disruptive innovation differs from sustaining innovation in that it targets lower-end or unserved markets with simpler, more affordable products, whereas sustaining innovation focuses on improving existing offerings for current customers. This distinction is vital for businesses because while sustaining innovations help maintain market position, failing to recognize or adapt to disruptive innovations can lead to loss of market share and eventual obsolescence. Companies must balance their efforts between enhancing current products and being aware of emerging disruptions that could threaten their future.
• Discuss the impact of disruptive innovation on established companies and industries. How can they effectively respond?
  • Disruptive innovation can significantly impact established companies by eroding their market share as new entrants capture customers with simpler and cheaper alternatives. To effectively respond, established companies should embrace flexibility by exploring new markets and investing in research and development to foster innovation. They might also consider creating separate units or startups within their organizations focused on disruptive projects, allowing them to operate without the constraints of traditional corporate structures that may stifle creativity.
• Evaluate the long-term implications of disruptive innovation for the global economy and technological advancement.
  • The long-term implications of disruptive innovation for the global economy include increased competition, enhanced consumer choice, and accelerated technological advancement. As new players enter the market with innovative solutions, they challenge incumbents and push industries towards greater efficiency and improvement. This cycle fosters continuous evolution across sectors, potentially leading to job displacement but also creating new roles in emerging fields. Ultimately, disruptive innovation can reshape economic landscapes by establishing new paradigms for business operations and consumer interactions.

Related terms

Sustaining Innovation: Innovation that improves existing products or services in ways that are generally accepted by the market, helping established companies maintain their position.

Market Disruption:

The change in an industry caused by new entrants offering different value propositions that ultimately challenge and change consumer preferences.

Innovation Adoption Curve: A model that describes how different groups of consumers adopt new innovations over time, ranging from innovators to laggards.