Disruptive Innovation

Definition

Disruptive innovation refers to a process where a smaller company with fewer resources successfully challenges established businesses. This often involves the introduction of a product or service that initially caters to a niche market but eventually displaces established competitors. In the context of sharing economy and collaborative consumption, disruptive innovation can redefine traditional business models, creating opportunities for new platforms that emphasize access over ownership.

5 Must Know Facts For Your Next Test

1. Disruptive innovation can lower barriers to entry in markets, allowing startups to enter industries dominated by larger companies.
2. It often starts by targeting overlooked segments of the market, offering simpler, cheaper, or more convenient solutions.
3. Examples include ride-sharing services like Uber and home-sharing platforms like Airbnb, which transformed transportation and hospitality industries.
4. Disruptive innovations not only change consumer behavior but also force traditional businesses to adapt or risk losing market share.
5. The rise of technology has accelerated the pace of disruptive innovation, enabling rapid growth and scalability for new entrants in various sectors.

Review Questions

• How does disruptive innovation differ from sustaining innovation, and what implications does this have for established businesses?
  • Disruptive innovation differs from sustaining innovation in that it targets less profitable segments of the market initially, while sustaining innovation focuses on improving existing products for established customers. For established businesses, this means that they may overlook disruptive innovations as they concentrate on their core markets. This oversight can lead to a loss of market share as these disruptors eventually improve their offerings and appeal to mainstream consumers.
• What role does technology play in facilitating disruptive innovation within the sharing economy?
  • Technology plays a crucial role in facilitating disruptive innovation within the sharing economy by enabling efficient connections between users and providers. Digital platforms allow for seamless transactions, real-time communication, and easy access to shared resources. This technological infrastructure empowers individuals to monetize underutilized assets, thus challenging traditional business models that rely on ownership rather than access.
• Evaluate the long-term effects of disruptive innovation on consumer behavior and industry standards in the context of collaborative consumption.
  • The long-term effects of disruptive innovation on consumer behavior include a shift towards valuing access over ownership, leading to increased participation in collaborative consumption models. This change alters industry standards as businesses must adapt to accommodate consumer preferences for shared services and experiences rather than traditional ownership models. Over time, this evolution can result in new regulatory frameworks and competitive dynamics that reshape entire industries, pushing both consumers and businesses toward more sustainable practices.

Related terms

Shared Economy: An economic model in which individuals share access to goods and services, often facilitated by a third-party platform.

Peer-to-Peer (P2P) Model: A decentralized platform that allows individuals to connect and transact directly with one another without intermediaries.

Business Model Innovation: The process of creating, delivering, and capturing value in new ways that often involve changes in how a business operates.