A Theoretical Introduction to Disruptive Innovation

Disruptive innovation was popularised by Harvard Business School professor Clayton M. Christensen in the essay Disruptive Technologies: Catching The Wave (1995) and the book The Innovator’s Dilemma: When New Technologies Causes Great Firms to Fail (1997). 

To explain disruptive innovation, Christensen suggests that a top-level manager who makes the best decisions for the organisation can also lead to failure. New technologies can disrupt existing markets, creating as many opportunities as challenges. He says failures happen when the managers of established companies overlook the competition and customers. 

What Does Disruptive Innovation Mean?

Disruptive innovation focuses on creating a small-scale new market to fit the needs of niche customers, simplifying their pain points, and replacing the existing market. 

Clayton Christensen officially describes disruptive innovation as ‘a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors.’

Top 3 Characteristics of Disruptive Businesses

Have a look at these characteristics outlined by Christensen. 

Lower Gross Margins

One of the essential features of a disruptive business is starting small. The initial target is the low-end or a completely new market.

A company which follows this becomes affordable to customers who previously may not have had access to existing products. 

Here is one example. When personal computers were first introduced, they had significantly lower performance capabilities and gross margins than mainframe computers and minicomputers. However, they were affordable for individuals and small businesses. 

Another example is the pro audio industry. The introduction of Steinberg and Waves plugins and digital audio workstations like Pro Tools in the 90s and 2000s transformed the market. 

Today, individuals can record and produce all within their laptop or desktop using these, and the technology has come far ahead in emulating hardware counterparts. Earlier, one had to go to a recording studio and pay sky-high studio bills daily, which was certainly a huge investment. It still is, but the market segment is divided. 

Smaller Target Market

Disruptive innovations typically start by targeting smaller markets or niche segments that incumbent companies overlook. These markets may seem unattractive or insignificant to established players, but they provide a foothold for disruptive innovation to gain traction and improve over time.

One of the biggest examples is Amazon. When e-commerce companies like Amazon first started, they targeted a relatively small market of online book buyers. Traditional brick-and-mortar bookstores did not initially consider this market a significant threat, as it was a small subset of their overall customer base.

Simpler Products and Services

Disruptive innovations often begin with simpler and more user-friendly products or services that may not appear as attractive as existing solutions when evaluated using traditional performance metrics. 

But, these simpler solutions can be more convenient, accessible, and affordable for a broader range of customers.

For instance, when ride-sharing services like Uber was introduced, it offered a simpler and more convenient way to request transportation compared to traditional taxi services. 

While taxis may have been seen as a more luxurious option, ride-sharing services disrupted the market by providing a straightforward and user-friendly experience through their mobile apps.

The same goes for Airbnb, too. It disrupted the hospitality industry dominated by chains of hotels.  

Dealing with Disruptive Innovation as a Senior Manager

Disruptive innovation is essential to the strategic decision-making process and to gain a competitive advantage when you are at the middle or top level of management. In your managerial role, you need to identify the needs of underserved market segments, revise/reinvent old business models, and position your company strategically. 

In the contemporary curricula of some of the best executive MBA online programmes, you learn to navigate such market challenges by analysing in-depth case studies of factors and strategies that cause success or failure. 

You get hands-on training on identifying unmet needs and adapting to a customer-centric business model accordingly in simulated environments. And since disruptive innovation does not always and necessarily lead to successful business outcomes, you will have stronger and valid reasons whether to leverage it or not.