Disruptive Innovation

Definition

Disruptive innovation refers to a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors. It is a type of innovation that creates new markets and value networks, ultimately disrupting an existing market and value network, displacing established market-leading firms, products, and alliances.

5 Must Know Facts For Your Next Test

1. Disruptive innovations often start by targeting overlooked or underserved segments of the market, eventually moving upmarket to challenge established players.
2. Disruptive innovations are typically simpler, more affordable, and more accessible than existing products or services in the market.
3. Disruptive innovations can create new markets and value networks, leading to the displacement of incumbent firms and the rise of new industry leaders.
4. Successful disruptive innovators often focus on developing solutions that are good enough to meet the needs of a specific customer segment, rather than trying to match the performance of existing market leaders.
5. Established companies can struggle to respond effectively to disruptive innovations, as they are often focused on serving their existing customer base and may be unwilling to cannibalize their existing products or business models.

Review Questions

• Explain how disruptive innovation relates to the organization's external environment and its impact on industries.
  • Disruptive innovation is a key aspect of the organization's external environment, as it can significantly impact the competitive landscape and dynamics within an industry. Disruptive innovations often create new markets and value networks, challenging the dominance of established players and forcing them to adapt or risk being displaced. This can lead to the disruption of entire industries, as new entrants with innovative products or services capture market share and redefine the industry's norms. Understanding the potential for disruptive innovation is crucial for organizations to anticipate and respond to changes in their external environment and maintain their competitiveness.
• Describe how organizations can organize for change in the 21st century to address the challenges posed by disruptive innovation.
  • In the face of disruptive innovation, organizations must be able to adapt and organize for change to remain competitive. This may involve developing a culture of innovation, investing in research and development, and fostering an entrepreneurial mindset within the organization. Successful organizations often create dedicated innovation teams or spin-off units that are empowered to explore and develop disruptive technologies and business models, without being constrained by the organization's existing structures and processes. Additionally, organizations may need to adopt more agile and flexible organizational structures, enabling them to respond quickly to market changes and customer needs driven by disruptive innovations.
• Analyze how the characteristics of successful entrepreneurs, such as their ability to identify and capitalize on disruptive opportunities, contribute to the success of their ventures.
  • Successful entrepreneurs often possess the ability to recognize and capitalize on disruptive innovation opportunities. They are able to identify unmet needs or underserved market segments and develop innovative solutions that challenge the status quo. Entrepreneurs who succeed in disruptive innovation are typically characterized by their willingness to take risks, their adaptability to changing market conditions, and their ability to think creatively and challenge existing assumptions. They are often able to leverage disruptive technologies and business models to create new value propositions that disrupt established industries. By understanding the characteristics of successful entrepreneurs and their approach to disruptive innovation, organizations can better foster an entrepreneurial mindset and create an environment that supports the development of disruptive innovations.

Related terms

Sustaining Innovation: Sustaining innovation refers to innovations that improve an existing product or service, typically catering to the mainstream market's needs. These innovations do not create new markets or value networks, but rather improve on existing ones.

Incremental Innovation: Incremental innovation refers to small, gradual improvements to an existing product or service. These innovations do not fundamentally change the underlying technology or business model, but rather make minor enhancements to meet customer needs.

Disruptive Technology: Disruptive technology is the underlying innovation that enables disruptive innovation. It is a new technology that unexpectedly displaces an established technology, product, or service.