Dealing with Disruptive Innovation
Not many executives expect their markets or industries to be disrupted, nor do many spend much time preparing for it to occur. Let’s face it, everyone wants to believe their businesses are stable and won’t be disrupted.
The time to prepare for disruption is now and those businesses that do so will have a significant advantage over their peers and competitors who don’t.
What is disruptive innovation?
Clayton Christensen coined the term in his 1997 book The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail. He showed that time and again almost every organization that had been displaced from their industries and markets could see the disruption coming, but did nothing until it was too late.
One reason these organizations were disrupted was that they were doing what good companies were supposed to do, focus on their most profitable customers and on the investments where profits were the best. Their resource allocation process focused on maximizing profits and “sustaining innovations", which usually involved designing better and better mousetraps for their best customers and best markets.
Typically, these companies were blindsided by “disruptive innovations” that were usually cheaper and easier to use versions of existing products that targeted low-end or entirely new customers. In defense these established companies too often chose to go up-market and add new features and cost, rather than take on the new competitor at the low-end. In many cases the disruptive innovation steals market share, improves the product in the eyes of customers and displaces the existing product.
Types of innovation
There are two basic options when companies seek new growth-oriented businesses:
- Take markets away from incumbents with sustaining innovations
- Take on competitors with disruptive innovations that either create new markets or target the incumbent’s worst customers
There are only two real types of disruptive innovation:
- Creating a new market by targeting non-customers
- Competing at the low-end of an established market
More articles from AllBusiness.com:
- 5 Steps to Disrupt Markets
- Protect Your Company from the Threat of Disruptive Technologies
- 6 Unforeseen Factors That Could Disrupt Your Supply Chain—And How to Protect Yourself
- Disruption, Apple-Style
How disruptive innovation works
As the performance of products demanded by customers in an existing market increases over time, so does the performance of the product from the manufacturer or sellers of the products. When the performance improvement of the product has a different trajectory than the performance demanded by customers, and the performance provided exceeds what is demanded, new opportunities are created for disruptive innovation.
These typically are new technologies that were only remotely competitive in the past, usually in niche markets, that now may penetrate new markets and existing customers because they meet their needs better and at a lower price. This situation provides the disruptive competitor with a vehicle to new customers, who might have viewed their products as substandard in the past.
RELATED: What Is Disruptive Innovation and Why Is It So Important?
About the Author
Charlie Alter specializes in business growth, innovation, and coaching. Follow Charlie on Twitter.
