ANR #67: Disruptive innovation

Companies are always looking for new ways to innovate and stay ahead of the competition. Sometimes, some companies do it in a disruptive manner, a way that revolutionizes entire industries, but what is disruptive innovation?

What is disruptive innovation?

Disruptive innovation is a term coined by Clayton Christensen in his book “The Innovator’s Dilemma.” It refers to a process by which new entrants into a market introduce a product or service that is not initially as good as the established players but eventually surpasses them due to its lower cost, convenience, or other advantages. This can lead to the displacement of the existing market leaders and the creation of new markets.

Simply put, it’s a way of doing things that breaks the norm, the way it has always been done, and has the potential to create new markets or value networks. Disruptive innovations often starts small and unexpected but can hugely impact the world around them. Think about the sudden appearance of ChatGPT.

Disruptive innovation has been a force of change in organizations across a wide range of industries. It has led to the rise of new players in established markets and the creation of entirely new markets. Companies that fail to recognize and respond too late risk of being left behind as their competitors gain an advantage.

Incremental innovation vs. disruptive innovation

Incremental innovation focuses on improving the features or performance of an existing product or service and is often led by existing companies in the market. For example, improving a car’s performance by using more efficient engines or adding new features like the navigation system is an example of incremental innovation.

On the other hand, disruptive innovation refers to a radical change or a new way of doing things. New or emerging companies often lead this innovation. For example, the smartphone is a great example since it has changed how people communicate and displaced traditional landlines.

Forms of disruptive innovation

The most common types ovation include:

1. Low-end disruption: IT occurs when a new entrant into a market introduces a product or service that is not as good as the established players but is cheaper. This appeals to customers who are looking for a bargain and are willing to sacrifice some quality for a lower price.
2. New-market disruption: It occurs when a new entrant into a market introduces a product or service that is not currently being offered by the established players. This can create an entirely new market and provide the new entrant with a competitive advantage.
3. Business model disruption: It occurs when a new entrant into a market introduces a new business model that is fundamentally different from the established players. This can lead to a significant advantage for the new entrant and the displacement of the existing players.

Amazing examples

Disruptive innovation has happened in many industries. In the tech space, companies like Airbnb have turned the worlds of hospitality upside down, revolutionizing traditional models and leading in a new era of projects and shared economy. Blockchain technology is changing the way financial transactions take place and information is stored.

In fashion, designer labels like Vetements have shaken the status quo by offering darkly humorous takes on subculture-inspired streetwear that is taking the industry by storm. Other companies include Warby Parker in eye care, Glossier in beauty products, MeUndies in lingerie, Dollar Shave Club and Harry’s in toiletries, Away in travel luggage, Mark & Graham in monogrammable items, plus countless others that they are making their way. Disruption is becoming commonplace, and these disruptive companies have set an impressive bar for innovation.

Some other great examples

1. Netflix: Netflix disrupted the traditional video rental market by introducing a subscription-based model that allowed customers to stream movies and TV shows online. This new business model was fundamentally different from the existing rental stores and eventually led to the decline of Blockbuster and other rental stores.
2. Uber: Uber disrupted the taxi industry by introducing a mobile app that allowed customers to easily hail and pay for rides. This new business model was more convenient and cost-effective than traditional taxi services and eventually led to the decline of the established players in the market.
3. Amazon: Amazon disrupted the retail industry by introducing a platform that allowed customers to easily buy products online. This new business model was more convenient and cost-effective than traditional brick-and-mortar stores and eventually led to the decline of many established retailers.
4. Tesla: Tesla disrupted the automotive industry by introducing electric vehicles that were more environmentally friendly and technologically advanced than traditional gasoline-powered cars. This new product was not initially as good as traditional cars in terms of range and charging infrastructure, but it eventually surpassed them and gained a significant market share.

Books

In addition to the five books he has authored, Antonio has contributed to seven other business books.

If a company want to pursue innovation

Companies open to new ideas and willing to take calculated risks are more likely to gain distinct advantages over their competitors. Innovations require a willingness to invest in technologies, constantly changing business models and the implementation of new processes. Companies must have a culture of innovation that encourages employees to experiment with different approaches outside of existing industry standards. They need to build flexible teams that can help adapt to disruptive innovation through experimentation and risk-taking, expand their collaborations with other organizations to take advantage of disruptive ideas, and incentivize employees to pursue new innovations.

Investing in a business strategy can considerably seize potential opportunities and make the most of your resources. However, this approach also carries certain risks that should not be overlooked. Business strategies are often based on assumptions that may not be true or take into account other factors that can significantly impact the success or failure of the strategy. In addition, it is essential to assess whether the strategy is achievable within the established deadlines; otherwise, it could cost more than initially expected. There is no guarantee of success with any strategy, so due diligence should always be exercised before putting it into practice.

Conclusion

Disruptive innovation has been a force of change in organizations across a wide range of industries. Some great examples include Netflix, Uber, Amazon, and Tesla. These companies were able to introduce new products or business models that were not initially as good as the established players but eventually surpassed them due to their lower cost, convenience, or other advantages.

On the other hand, it requires long-term commitment and substantial resources, which can create a considerable financial burden if not managed properly. Therefore, companies must take a thoughtful approach to determine if their goals are achievable and the costs are justified. By successfully engaging in disruptive innovation, companies can significantly expand their potential for success and drive greater returns for their shareholders.