In this 12-part innovation management series, we have discussed sustaining innovation and breakthrough/radical innovation, this month we are going to explore disruptive innovation, looking at what it is, examples of it, and why market researchers need to know about it.
What is disruptive innovation?
“Disruption is about doing things differently and making a deliberate choice to try to change an industry.”
Disruptive innovation is when a company creates a completely new product or service by using new technologies to try and solve a less-defined problem. This new product or service can either disrupt an existing market or create a completely new market segment by transforming the way consumers interact with the services or products.
Disruptive innovation can break existing operating models and create the right conditions for the emergence of new ones. Disruption is about doing things differently and making a deliberate choice to try to change an industry.
Examples of disruptive innovation
An example of disruptive innovation is Airbnb. Airbnb disrupted the entire hospitality industry and created a new market segment, by providing a platform where hosts can rent out their unused housing and travellers can stay in local accommodation with household amenities.
Airbnb used existing internet technology. However, they created a new business model where they act as a broker between the two parties and take a commission on each transaction, thereby opening a whole new market segment.
Why market researchers need to know about disruptive innovation
By understanding the process of disruptive innovation, market researchers can gain valuable insights and develop a business plan for their own organisation or on their clients’ behalf.
This can be either to protect an incumbent business from the threat of disruption. For example, by leapfrogging the entrant or by helping the entrant break into the market by understanding consumers and market needs.
Disadvantages of disruptive innovation
- Disruptive innovation produces inferior products or services in the beginning: There are many unknown factors when embarking on disruptive innovation. Initially, disruptive innovation often produces inferior products or services compared to ones that have long existed in the market and may take several improvements.
- High risk: When disruptive innovation first enters the market, it initially caters only to a small number of people. This means there is a high financial risk when entering the market for the first time.
- Hard to break into the market: For example, when buying a new phone, rational consumers often keep buying a brand they’re already familiar with because they rely on the established provider, even though the new entrant might be using more advanced technology.
Advantage of disruptive innovation: It positions the company for the long-term
Despite the disadvantages, when the product receives uptake from the mainstream audience, it is often too late for established companies to pick up on new concepts or technologies. Oftentimes, responding to the new and disruptive competition with the same technologies isn’t enough as the new entrant has had time to develop a business model around the product.
This is known as a first-mover advantage, because the new entrant is more likely to be more successful than its competitors because it was the first to market in a new product category.
An example is Amazon, which created the first online bookstore. By the time the competition reacted, Amazon had achieved significant brand recognition, took its first-mover advantage, and expanded into marketing a range of additional products.
Next month we will talk about how to establish an environment for successful innovation.