key term - Disruptive Innovation

Definition

Disruptive innovation refers to a process by which a product or service emerges and disrupts an existing market, eventually displacing established market-leading firms, products, and alliances. It is a type of innovation that creates new markets and value networks, ultimately transforming existing industries.

5 Must Know Facts For Your Next Test

1. Disruptive innovations are typically simpler, more affordable, and more accessible than existing products or services, appealing to a new customer base.
2. Disruptive innovations often start by targeting overlooked or underserved segments of the market, before eventually moving upmarket and displacing established players.
3. The disruptive innovation process is characterized by a period of rapid growth and adoption, followed by the disruption and displacement of incumbent firms and technologies.
4. Successful disruptive innovations create new value networks and business models, challenging the status quo and transforming entire industries.
5. Incumbents often struggle to respond effectively to disruptive innovations due to organizational inertia, resource allocation challenges, and the difficulty of cannibalizing their existing products and services.

Review Questions

• Explain how disruptive innovation differs from sustaining innovation and incremental innovation.
  • Disruptive innovation involves the creation of new markets and value networks, often by targeting overlooked or underserved customer segments with simpler, more affordable, and more accessible products or services. This contrasts with sustaining innovation, which focuses on improving existing products or services to better serve an organization's current customers, and incremental innovation, which involves making gradual improvements to maintain a competitive edge. Disruptive innovations disrupt and transform existing industries, while sustaining and incremental innovations typically reinforce the status quo.
• Describe the process by which disruptive innovations typically emerge and displace established market leaders.
  • Disruptive innovations often start by targeting overlooked or underserved segments of the market, offering a more affordable and accessible product or service. As the disruptive innovation gains traction and improves over time, it begins to move upmarket and challenge the established players. Incumbents may struggle to respond effectively due to organizational inertia, resource allocation challenges, and the difficulty of cannibalizing their existing products and services. This allows the disruptive innovation to gain market share and eventually displace the established market leaders, transforming the industry in the process.
• Analyze the role of disruptive innovation in the context of investments in innovation, and explain how it can create new value networks and business models.
  • Investments in innovation are crucial for driving disruptive innovation, as they enable the development of new technologies, products, and business models that can challenge and transform existing industries. Disruptive innovations often create new value networks and business models that are fundamentally different from those of the incumbent firms. This allows disruptive innovators to target overlooked or underserved customer segments, often with simpler and more affordable offerings. As the disruptive innovation gains traction and improves over time, it can move upmarket and displace the established market leaders, creating new opportunities for growth and investment. Understanding the dynamics of disruptive innovation is therefore crucial for investors and organizations seeking to capitalize on the transformative potential of innovation.

Related terms

Sustaining Innovation: Sustaining innovation refers to the improvement of existing products or services, typically catering to the needs of an organization's existing customers.

Incremental Innovation: Incremental innovation involves making small, gradual improvements to existing products, services, or processes, often to maintain a competitive edge.

Technological Disruption: Technological disruption is the process by which new technologies, products, or business models challenge and eventually replace existing ones, often rendering the old technology obsolete.