Disruptive innovation

Definition

Disruptive innovation refers to a process where a smaller company with fewer resources is able to successfully challenge established businesses. This often occurs by targeting overlooked segments of the market, creating new markets, or improving products and services in ways that are more accessible and affordable for consumers. Disruptive innovation can lead to significant changes in industries, forcing existing companies to adapt or risk losing their market position.

5 Must Know Facts For Your Next Test

1. Disruptive innovation typically starts at the lower end of the market, where established companies overlook potential customers due to their focus on higher-end segments.
2. Famous examples of disruptive innovation include the rise of personal computers over mainframe computers and streaming services overtaking traditional cable television.
3. This type of innovation can cause well-established companies to lose their market share if they do not adapt to the new competitive landscape.
4. Disruptive innovations are often characterized by lower costs and increased convenience, making them attractive options for price-sensitive consumers.
5. The impact of disruptive innovation can reshape entire industries, leading to the emergence of new business models and changing consumer behaviors.

Review Questions

• How does disruptive innovation differ from sustaining innovation, and what implications does this have for established businesses?
  • Disruptive innovation contrasts with sustaining innovation in that it targets lower-end or underserved market segments rather than improving existing products for high-end consumers. For established businesses, this distinction is crucial because failing to recognize disruptive threats can lead to loss of market share and relevance. While sustaining innovations help companies maintain their competitive edge, disruptive innovations challenge them to rethink their strategies and adapt to changing consumer needs.
• Evaluate the role of disruptive innovation in shaping the current landscape of platform and ecosystem organizations.
  • Disruptive innovation has significantly influenced platform and ecosystem organizations by enabling new entrants to create alternative solutions that challenge traditional business models. For example, platforms like Airbnb and Uber have disrupted the hospitality and transportation industries by offering more accessible and cost-effective alternatives. As a result, established firms must evolve within these ecosystems or risk being outpaced by agile startups that leverage disruptive innovations to capture consumer attention and loyalty.
• Analyze how an organization can strategically respond to disruptive innovations within its industry to maintain competitive advantage.
  • To maintain competitive advantage in the face of disruptive innovations, organizations should adopt a proactive approach by investing in research and development that explores emerging technologies and market trends. This involves fostering a culture of agility that allows teams to pivot quickly when necessary. Additionally, companies can benefit from collaboration with startups through partnerships or acquisitions that integrate disruptive innovations into their existing offerings. By embracing change rather than resisting it, organizations can adapt their strategies effectively and continue thriving in an evolving marketplace.

Related terms

Sustaining Innovation: Improvements made by established companies to enhance their existing products and services, usually targeting higher-end customers.

Market Penetration: A strategy used by companies to increase their share in existing markets by selling more products or lowering prices.

Business Model Innovation: The process of creating, delivering, and capturing value in a way that differs significantly from established practices, often leading to new revenue streams.