In our recent article Types of Innovation: knowing where to pinpoint your efforts, we provided a brief introduction to the many shapes of innovation, outlining the four main types: Incremental, Sustaining, Disruptive and Radical. Today, we’ll dive into the details of Disruptive Innovation; what it is, why understanding the theory is crucial and the importance of implementing an ideation strategy in staying one step ahead.
Disruptive Innovation is a term coined by academic and business consultant Clayton Christensen. In a Harvard Business Review article written by Christensen himself, he explains the theory as a “process whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses.” The smaller business, often referred to as an entrant, will begin its journey at the root of a market, slowly moving its product or service up the ladder and transforming the market by disrupting an existing one or carving out a brand new market which never existed before.
Introduced in 1995, the theory has been extremely influential across the business world, providing a framework for both entrepreneurs wanting to disrupt a market, as well as an established incumbent who needs to stay alert for potential threats. This type of innovation is seen as high risk because it often involves a brand new business model or technology which is radical and foreign to the customer market. Because of this, the process begins slowly and is inferior to the existing incumbent, but once it reaches the mainstream and customers start adopting what it has to offer, its growth is exponential and fast.
Looking at examples and case studies is a great way to understand the theory. It’s hard to imagine a life before the personal computer, but inaccessible and expensive mainframe and mini computers were once the norm. Cellular phones, which have now become another appendage to us, disrupted the fixed line telephone. Even traditional doctor’s offices are being replaced by retail medical clinics, and more and more students are opting for community college over four-year degrees.
Products like Crest Whitestrips have become a mainstream alternative to the expensive option of visiting your family dentist, and AirBnb has transformed the hospitality industry, providing a less expensive alternative while also offering a chance to experience a more unique and local form of accommodation. One of the most widely used examples to explain this theory is of course the on-demand movie streaming giant Netflix. Once-upon-a -time it initially offered a DVD-by-mail rental service and then introduced an online subscription service. In the early days, this radical new form of streaming couldn’t compete with customers used to the Blockbuster method, but over time as customers responded to the more flexible and accessible way of renting movies, they blew past all other competitors. Of course, companies like Blockbuster will try and respond by ‘copying’ the new method, but by the time the disruption has occurred, the entrant has already established themselves and are already on the exponential side of the business curve.
In Clayton Christensen’s Harvard Business Review article we mentioned above, he notes that the name of the theory has been widely misunderstood and used carelessly to label any market that has a newcomer. If the theory is going to be applied for business strategy purposes, it will only cause harm if done incorrectly. Importantly, he notes that “if managers don’t understand the nuances of disruption theory or apply its tenets correctly, they may not make the right strategic choices.”
To take advantage of the benefits, it is essential to apply it correctly and not conflate it with just any competitive pattern. Because disruptive innovation begins slowly, it is important to know whether to ignore it, or pay attention early on: insignificant competition could be a waste of time to fight against, but if it is truly on a disruptive trajectory then an incumbent must be prepared.
It is a fine line between not jeopardizing the entire core of your business for the sake of being disruptive, while also not being foolish by ignoring a real threat. But, as Christensen notes, it is important to remember that “disrupters start by appealing to low-end or unserved consumers and then migrate to the mainstream market” - so paying attention to this area is key.
Often, companies will unintentionally open the gates for disruption by being unprepared and unaware of the innovative conversations happening at the grassroot level. These oversights are what leads disruptors to disrupt in the first place. To survive in this fast-paced, ever changing business world, a company must always invest in the ideation process, and view it as an extension within their business model.
One of the reasons this form of innovation gets overlooked is because of the successful sustaining strategy which the entire business model is built upon, which leaves no room for any experiments involving big risk or failure. The incumbent is more focused on maintaining what currently brings money in; the desires of their customer base, as well as the share prices which grow out of the conservative model.
If a business is proving successful using a sustaining innovation format, it can be risky to disrupt the method just for the sake of staying ahead. However, it is advisable to create a separate unit whereby disruptive ideas can be explored and experimented with, simultaneously working on many projects at once that have differing innovative strategies. Whether you want to brainstorm how to develop more low cost solutions, pinpoint a growing void, tap into new desires outside of your customer base or simply observe new trends in the market, having an ideation strategy in place is vital. This means allowing time and space within the existing business model for employees to test out radical new ideas among each other.