key term - Disruptive Innovation

Definition

Disruptive innovation refers to a process where a product or service emerges and disrupts an existing market, eventually displacing established market-leading firms, products, and alliances. It describes the phenomenon of innovative technologies or business models that challenge and transform traditional industries.

5 Must Know Facts For Your Next Test

1. Disruptive innovations typically start by targeting overlooked or underserved segments of the market, often at the low-end or with a more affordable product or service.
2. Over time, disruptive innovations improve in performance and quality, eventually meeting the needs of the mainstream market and displacing established industry leaders.
3. Disruptive innovations often leverage new technologies, business models, or distribution channels to provide a more convenient, accessible, or cost-effective solution compared to traditional offerings.
4. Established companies may struggle to respond to disruptive innovations due to their focus on sustaining existing products and services that cater to their most profitable customers.
5. The success of disruptive innovations is often driven by their ability to create new markets, expand the overall size of the industry, and provide value to previously underserved or overlooked customer segments.

Review Questions

• Explain how disruptive innovation differs from sustaining innovation and its impact on the competitive landscape.
  • Disruptive innovation is distinct from sustaining innovation in that it introduces a new product or service that disrupts the existing market, often by targeting underserved or overlooked customer segments. While sustaining innovation focuses on incremental improvements to existing offerings, disruptive innovation creates new value networks and eventually displaces established industry leaders. The emergence of disruptive innovations can significantly reshape the competitive landscape, forcing incumbent firms to adapt or risk being displaced by the new market entrants.
• Describe the typical characteristics and strategies of disruptive innovators, and how they are able to challenge and transform traditional industries.
  • Disruptive innovators often start by targeting the low-end or overlooked segments of the market with more affordable, accessible, or convenient solutions. They may leverage new technologies, business models, or distribution channels to provide value in a different way than established industry players. Over time, disruptive innovations improve in performance and quality, eventually meeting the needs of the mainstream market. This ability to create new value networks and expand the overall size of the industry allows disruptive innovators to challenge and transform traditional industries, forcing incumbents to adapt or risk being displaced.
• Analyze the role of disruptive innovation in the context of trends in the business environment and competition, and how it can impact an organization's strategic decision-making.
  • Disruptive innovation is a key trend in the business environment that can significantly impact competition within an industry. The emergence of disruptive innovations forces organizations to carefully consider their strategic decision-making and adaptability. Incumbent firms may struggle to respond to disruptive threats due to their focus on sustaining existing products and services that cater to their most profitable customers. Successful organizations must be able to anticipate and respond to disruptive innovations, either by embracing them or developing their own disruptive offerings. Understanding the dynamics of disruptive innovation is crucial for organizations to maintain their competitive edge, identify new market opportunities, and ensure long-term viability in a rapidly changing business landscape.

Related terms

Sustaining Innovation: Sustaining innovation refers to incremental improvements or enhancements to existing products or services that cater to the mainstream market's demands, without significantly disrupting the existing industry.

Disruptive Technology: Disruptive technology is a new technology that unexpectedly displaces an established technology, creating a new market and value network and eventually disrupting the existing market and industry leaders.

Business Model Innovation: Business model innovation involves the creation of new, unique ways of delivering value to customers, often through the use of technology, that disrupt traditional business practices within an industry.