Disruptive innovation

Definition

Disruptive innovation refers to a process where a smaller company with fewer resources is able to successfully challenge established businesses. This concept highlights how innovations can create new markets and value networks, ultimately displacing existing market leaders and reshaping entire industries. Such innovations often start at the lower end of the market and gradually move up, impacting larger companies and their market positions over time.

5 Must Know Facts For Your Next Test

1. Disruptive innovation often begins by targeting overlooked segments or creating entirely new markets, making it easier for smaller companies to gain traction.
2. The theory of disruptive innovation was first introduced by Clayton Christensen in his 1997 book 'The Innovator's Dilemma', which explained how established companies can fail despite doing everything right.
3. Disruptive innovations typically improve over time, eventually appealing to mainstream customers and challenging established products or services.
4. Examples of disruptive innovation include the rise of digital photography that replaced film cameras and the emergence of streaming services that disrupted traditional cable TV.
5. Established companies often struggle to adapt to disruptive innovations because they are focused on improving existing products for their current customers rather than exploring new markets.

Review Questions

• How does disruptive innovation differ from sustaining innovation, and what implications does this have for established businesses?
  • Disruptive innovation focuses on creating new markets by targeting under-served customer segments or entirely new groups, whereas sustaining innovation seeks to improve existing products for current customers. For established businesses, this distinction is crucial because it means that they may overlook potential threats from smaller competitors focusing on disruptive innovations. As these disruptive innovations evolve and gain traction, they can shift consumer preferences and ultimately challenge the market position of established players.
• Evaluate the impact of disruptive innovation on market dynamics and consumer behavior in various industries.
  • Disruptive innovation significantly alters market dynamics by introducing new products or services that redefine consumer expectations and preferences. For instance, the rise of e-commerce disrupted traditional retail by offering convenience and competitive pricing, changing how consumers shop. This shift forced established retailers to adapt their strategies, leading to changes in supply chains, marketing approaches, and customer engagement practices to remain relevant in a rapidly evolving marketplace.
• Assess how established companies can strategically respond to disruptive innovations while maintaining their competitive edge.
  • Established companies can strategically respond to disruptive innovations by fostering a culture of innovation within their organization, allowing them to explore new ideas and technologies proactively. They can also invest in research and development focused on emerging trends or collaborate with startups to stay ahead of the curve. By diversifying their product offerings and actively engaging with disruptive technologies, these companies can better position themselves to adapt to changing market conditions and continue meeting consumer needs without losing their competitive edge.

Related terms

sustaining innovation: Sustaining innovation refers to improvements that enhance the performance of established products and services, primarily targeting existing customers in established markets.

market disruption: Market disruption occurs when a new entrant changes the dynamics of an existing market, leading to significant shifts in consumer behavior, competitive strategies, and overall industry structure.

innovation diffusion: Innovation diffusion is the process through which new ideas and technologies spread within and between markets, influencing consumer adoption and market trends.