Disruptive innovation

Definition

Disruptive innovation refers to a process where a smaller company with fewer resources successfully challenges established businesses, typically by offering simpler, more affordable, or more accessible products or services. This phenomenon often leads to the transformation of entire industries, as new technologies or business models emerge that shift consumer behavior and expectations.

5 Must Know Facts For Your Next Test

1. Disruptive innovations often start in low-end markets or create entirely new markets, gradually moving upmarket as they improve and attract mainstream customers.
2. Famous examples of disruptive innovation include personal computers disrupting mainframe computers and streaming services like Netflix challenging traditional cable television.
3. Disruptive innovations can be difficult for established companies to recognize, as they may initially seem less profitable or appealing compared to existing offerings.
4. The impact of disruptive innovation can lead to the decline of once-dominant firms, forcing them to adapt or risk obsolescence.
5. In global business, technological advancements drive disruptive innovations by enabling new ways of connecting with consumers and delivering products and services.

Review Questions

• How does disruptive innovation differ from sustaining innovation in terms of market impact and business strategy?
  • Disruptive innovation focuses on creating new markets or challenging established ones with simpler, more affordable solutions, whereas sustaining innovation targets existing markets by improving current products for high-end consumers. Disruptive innovations can transform entire industries and shift consumer preferences dramatically, often leaving established companies struggling to adapt. In contrast, sustaining innovations tend to reinforce the positions of current market leaders without fundamentally altering the competitive landscape.
• Discuss the role of technological advancements in facilitating disruptive innovations within global markets.
  • Technological advancements play a critical role in enabling disruptive innovations by providing new tools and platforms that challenge traditional business models. For example, advancements in digital technology have allowed startups to create applications that disrupt established industries like banking and retail. This accessibility to technology not only lowers entry barriers for new entrants but also enables them to scale quickly, making it harder for established companies to compete unless they innovate their own offerings.
• Evaluate the long-term implications of disruptive innovation on established firms and industry standards, considering both challenges and opportunities.
  • The long-term implications of disruptive innovation for established firms include both significant challenges and unique opportunities. Firms must constantly adapt to avoid losing market share as new entrants leverage innovative technologies and business models. However, this disruption also presents opportunities for established companies to reinvent themselves by adopting new strategies and technologies. Those that embrace change can potentially harness the benefits of innovative practices while retaining their customer base and industry relevance.

Related terms

Sustaining Innovation: Sustaining innovation involves improvements made to existing products or services that cater to the needs of high-end customers, maintaining the status quo rather than disrupting it.

Market Disruption: Market disruption occurs when new entrants challenge the dominance of established companies by changing the market landscape, often through innovation or significant shifts in consumer preferences.

Business Model Innovation: Business model innovation refers to the creation of new ways a company delivers value to its customers, often involving changes in how products are sold or how revenue is generated.