Disruptive innovation

Definition

Disruptive innovation refers to a process where a smaller company with fewer resources successfully challenges established businesses. This usually occurs by targeting overlooked segments of the market, providing simpler, cheaper, or more accessible alternatives. Over time, these innovations improve and eventually displace established market leaders, reshaping industries and creating new economic dynamics.

5 Must Know Facts For Your Next Test

1. Disruptive innovations often start at the lower end of the market, appealing to less demanding customers who are overlooked by established players.
2. The term was coined by Clayton Christensen in his 1997 book 'The Innovator's Dilemma,' highlighting how companies can fail by focusing too much on sustaining innovations.
3. Digital technology has accelerated disruptive innovations across various industries, including media, retail, and transportation.
4. Established companies may struggle to respond to disruptive innovations because they are tied to their existing business models and customer expectations.
5. Once disruptive innovations gain traction, they can rapidly evolve and capture significant market share, forcing incumbents to adapt or risk obsolescence.

Review Questions

• How do disruptive innovations challenge established businesses in various industries?
  • Disruptive innovations challenge established businesses by introducing simpler and more affordable products or services that initially cater to less demanding customers. As these innovations improve over time, they start appealing to the mainstream market, ultimately taking away market share from incumbents. This shift forces established companies to reconsider their strategies and adapt to new competitive dynamics or risk losing their position in the market.
• Evaluate the role of digital technology in facilitating disruptive innovations within traditional industries.
  • Digital technology plays a crucial role in facilitating disruptive innovations by enabling new business models that challenge traditional practices. For example, streaming services have disrupted traditional media consumption by offering on-demand content at lower prices. This shift not only changes how consumers access media but also forces established companies to innovate and adapt their business models to survive. As technology continues to evolve, its impact on various sectors becomes increasingly significant in shaping the future of industry landscapes.
• Assess the long-term implications of disruptive innovation on consumer behavior and market dynamics.
  • The long-term implications of disruptive innovation on consumer behavior include increased expectations for convenience, affordability, and accessibility of products and services. As consumers become accustomed to these changes, they may prioritize companies that provide innovative solutions over established brands. This shift can lead to continuous cycles of disruption as companies strive to meet evolving consumer demands, ultimately reshaping market dynamics by fostering an environment where adaptability and innovation become essential for survival.

Related terms

Sustaining Innovation: Sustaining innovation involves improvements to existing products or services that meet the demands of mainstream customers and help established companies maintain their competitive advantage.

Market Disruption: Market disruption happens when new entrants change the competitive landscape, often leading to significant changes in customer behavior and market dynamics.

Value Network: A value network is a system of interrelated organizations and stakeholders that create value together, which can be affected by disruptive innovations as they change how value is delivered to customers.