In my post on Innovation, after defining the term I outlined the basic concepts on how innovation works. If you haven’t read it already, I believe it is worth reading that one first so you have a defined framework before diving into the slightly deepest waters of Disruptive Innovation.
Last years Disruptive Innovation is a trending term in the circles of entrepreneurship and business and for good reason. Some of the most prominent examples of rapid growing companies with profound success, such as Airbnb and TransferWise, are excellent applications of the disruption model.
The latter is a model worth considering for anyone of you that might consider entering the entrepreneurial world by forming your own startup. But it is also a necessary tool for any established leader trying to navigate an established company in a very dynamic business environment. So, let’s start digging into it and understand how disruption works.
Background & Definition
Although disruptive innovation has recently become a popular concept, it is not a bright new one. Disruptive innovation, as a term and a theory, was firstly introduced around two decades ago by the Harvard professor Clayton M. Christensen on his article “Disruptive Technologies: Catching the Wave” (1995) and became popular with his book “The Innovator’s Dilemma”, published in 1997.
Disruptive innovation is the process by which a company introduces a product or service to a market using fewer resources than the established incumbent businesses and manages to successfully challenge them.
While the above definition might seem easy to understand, the model by which this is achieved is quite often misunderstood. The fact that a new product or service “disrupts” a market does not mean that it is subject to the disruptive innovation concept.
Understanding the articulation of the disruption model is fundamental if you want to replicate it, being for example a novice entrepreneur, or if you want to identify it in order to take action and protect yourself, being for example an established incumbent business.
How the disruption model works
So, let’s briefly unravel the lifeline of a business. Once a business successfully breaks through a market and manages to create a stable base of customers, it then tries to build on that – by means of expanding that base and increasing profitability. The way to achieve that is by optimizing the existing features of its current product or service as well as introducing new features – thus, it maintains its current customers, it attracts new ones and usually all that happens while the price is increasing.
Disruptive innovation targets exactly those overlooked features. It actually strips off the product or service of fancy features, thus providing a competitive advantage in terms of accessibility, affordability, simplicity or convenience.
The example of Airbnb & a deeper understanding
Airbnb is a great example that illustrates disruption quite profoundly. While hotels are constantly trying to improve the accommodation experience and consequently make your pockets bleeding, Airbnb is aiming to offer you the basic accommodation requirement – a single bed to sleep. No new fluffy towels every bright new morning but deep relief for your bank account, making affordable trips to places that, for a good number of people, didn’t use to be financially viable otherwise.
Disruption occurs precisely in those low ends of the targeted markets. While incumbent businesses develop their products or services to satisfy their most demanding customers, there is a base in the pyramid left with people for whom the above seems like a burden they cannot carry.
Disruptive companies target exactly that base. In fact, it is quite often that the counter product they offer is a no brainer for the low end customers. The product starts spreading, steadily conquering the base and the company establishes a strong presence there. Then, gradually introduces new features and starts acquiring customers from the incumbent businesses. In fact, by the time this starts to happen, the pace at which the disruptive company grows is so fast that it is effectively impossible for the established business to react in time.
Distilling the essence of disruptive innovation
Disruptive innovation is a process. It is not a brilliant innovative idea that once applied can have an immediate huge impact. It is not an eureka moment that will change the market’s dynamics overnight. It is not a new superior product (or service) that will attack established companies heads-on.
It is more like a virus. Which initially has to be strong enough to endure in an organism before starting transmitting. And it will take a while before causing a significant damage to a species if it ever manages so. I like the virus metaphor, because a virus can potentially extinguish a species but it can also be extinguished before even getting noticed.
This metaphor addresses perfectly another characteristic of disruptive innovation: following a disruptive model does not guarantee success. In fact, disruptions fail more often than they succeed, which is part of the reason why incumbent businesses fail to protect themselves from disruptive companies. The latter are so many that becomes impossible for incumbents to spot which one might be imposing a real threat. And like a virus, if it does manage to evolve beyond a certain threshold then it becomes effectively impossible to find the “cure” in time.
The one thing to keep from this article
In the birth and life of any company, a solid business plan is essential. It is also essential to understand that a business plan is not a model that is crafted once and stays intact for the entire life of a company. Instead, it is rather dynamic. In fact, taking into consideration the ever increasing markets’ volatility, a business plan tends to be more of a variable rather than a constant.
In this context, the disruptive innovation concept, or theory if you prefer, is not a perfect set up, an answer or a solution to any kind of problem. It is just another weapon in your arsenal, whether you are just starting out with an idea and you are trying to build a solid business plan or you are an experienced manager trying to balance in an ever swinging business environment. It is just another framework that belongs, as Donald Sull vividly places it, “in the intellectual toolbox of any leader who wants to understand, and harness, the power of innovation”.
*In Christensen’s theory, disruption can occur not only in low-end markets but in new markets as well. I believe that, by understanding how disruption works in the former, it is easy to translate the same process in the latter, since it is a simpler case where there are no incumbent businesses to impose any kind of threat. A well-known example of this case is Zipcar, which created a new market, that being cars rented by the hour.
**I have avoided to mention the example of Uber at all and that was intentional. It has caused a great debate of whether it falls into the disruptive territory or not and I personally think that it is a very interesting case in itself, so I am planning to dedicate a post on exploring the several innovative aspects of Uber. The above post intended to provide a clear understanding of the disruption principles and model and not enter any kind of debate that would probably cause confusion.