Disruptive innovation

Definition

Disruptive innovation refers to a process where a smaller company with fewer resources successfully challenges established businesses by targeting overlooked segments of the market. This type of innovation often starts at the bottom of the market and gradually moves up, displacing established competitors along the way. It emphasizes the importance of fostering an environment where new ideas can emerge and transform existing industries.

5 Must Know Facts For Your Next Test

1. Disruptive innovations often begin by serving a niche market before expanding to capture mainstream customers.
2. This type of innovation can lead to the decline of established companies that fail to adapt to changing market conditions.
3. Fostering a culture of innovation within organizations is crucial for identifying and supporting disruptive innovations.
4. Examples of disruptive innovation include digital photography disrupting film photography and streaming services disrupting traditional cable television.
5. Successful disruptive innovations often involve technology that is initially seen as inferior but eventually outperforms established solutions in terms of cost or convenience.

Review Questions

• How does disruptive innovation differ from sustaining innovation, and what implications does this have for companies trying to foster creativity?
  • Disruptive innovation focuses on creating new markets by addressing needs of customers who are overlooked by existing products, while sustaining innovation aims to improve established products for existing customers. This distinction is crucial for companies aiming to foster creativity because it highlights the need to support both types of innovation. Organizations must encourage radical thinking and exploration of niche markets for disruptive innovations while also investing in enhancements for their current offerings to remain competitive.
• What role does an innovation ecosystem play in promoting disruptive innovation within industries?
  • An innovation ecosystem fosters collaboration among various stakeholders such as startups, large corporations, universities, and research institutions. This environment encourages knowledge sharing, resource allocation, and experimentation, which are vital for the emergence of disruptive innovations. By creating connections between these entities, the ecosystem enables faster identification of market gaps and supports initiatives that challenge established businesses, ultimately driving transformation within industries.
• Evaluate the potential consequences for established companies when they ignore signals of disruptive innovation in their markets.
  • When established companies ignore signals of disruptive innovation, they risk losing market share and relevance as new entrants capture the attention of previously underserved customers. This oversight can lead to financial decline, loss of competitive edge, and even business failure. Companies that fail to recognize shifts in consumer behavior or technological advancements often find themselves unable to adapt quickly enough, resulting in a stark inability to respond to emerging threats and an overall diminishing market position.

Related terms

Sustaining innovation: Innovation that improves the performance of established products or services in a way that existing customers value.

Market disruption: A significant change in an industry that alters competitive dynamics, often due to innovative technologies or business models.

Innovation ecosystem: A network of organizations and individuals that work together to foster innovation and creativity, including startups, corporations, universities, and research institutions.