Disruptive innovation

Definition

Disruptive innovation refers to a process whereby a smaller company with fewer resources successfully challenges established businesses, often by introducing simpler, more affordable products or services that appeal to underserved segments of the market. This concept highlights how innovations can change the competitive landscape by creating new markets or reshaping existing ones.

5 Must Know Facts For Your Next Test

1. Disruptive innovation often starts in niche markets, where larger companies overlook or ignore these emerging needs.
2. This type of innovation typically involves lower-priced products that may initially lack some features compared to established offerings, allowing them to capture underserved customers.
3. Companies like Netflix and Airbnb are prime examples of disruptive innovation, having transformed their respective industries by introducing new business models that challenged traditional competitors.
4. Established companies may struggle to respond to disruptive innovations due to their focus on sustaining innovations and meeting the needs of their most profitable customers.
5. Disruptive innovations can lead to significant shifts in industry dynamics, creating new leaders while displacing established players.

Review Questions

• How do disruptive innovations differ from sustaining innovations in terms of market approach and impact?
  • Disruptive innovations differ from sustaining innovations in that they target overlooked segments of the market with simpler, more affordable products or services, rather than improving existing offerings for mainstream customers. While sustaining innovations focus on enhancing performance and meeting the needs of established customers, disruptive innovations can create new markets and change competitive dynamics by appealing to those who were previously underserved or ignored. This approach often leads to significant changes in industry structures and customer behavior.
• Evaluate the role of exponential technologies in enabling disruptive innovation and transforming traditional business models.
  • Exponential technologies play a crucial role in enabling disruptive innovation by providing tools and capabilities that allow smaller companies to enter markets rapidly and effectively challenge established players. These technologies, such as artificial intelligence and blockchain, can dramatically lower costs, enhance efficiency, and create new value propositions. As a result, they facilitate the emergence of innovative business models that disrupt traditional practices, forcing established companies to rethink their strategies to remain competitive in a rapidly changing landscape.
• Assess the implications of disruptive innovation for intrapreneurship within established organizations and how it fosters a culture of innovation.
  • Disruptive innovation has significant implications for intrapreneurship as it encourages employees within established organizations to think creatively and take risks in developing new products or services that can challenge the status quo. By fostering a culture that embraces experimentation and agility, companies can better position themselves to respond to external disruptions. Intrapreneurs can leverage their understanding of customer needs and emerging trends to drive innovative projects that may lead to transformative changes within their organization, ultimately safeguarding against being overtaken by more nimble disruptors.

Related terms

Sustaining Innovation: Sustaining innovation involves improving existing products and services to meet the demands of mainstream customers, typically focusing on higher performance rather than creating new markets.

Market Penetration:

Market penetration is a strategy aimed at increasing market share for existing products or services within existing markets, often through competitive pricing or enhanced marketing efforts.

Value Proposition:

A value proposition is the promise of value to be delivered to customers, showcasing how a product or service meets their needs better than competitors' offerings.