This is a word which has had many different definitions given by Thought Leaders and has been used in various contexts. It is associated with successful startups. It is associated with existing market leaders bringing out new products or services. Anything successful in the market is now seen as disruptive in nature.
This has led to different understandings of what the concept stands for and what the theory entails. This created confusion especially in academic circles as to the usage of the word and how further strategies suggested by academics and researchers become useless when most of the users of this word do not know the correct definition.
What is Disruptive Innovation?
To understand what is Disruptive Innovation, one first needs to be clear on the definition of Disruption, a word which has been thrown around,, way too much recently.
Disruption means disturbance or problems which interrupts an event, activity or process. Its basically a negative word and not a welcome change as most of the industry thought leaders have made it out to be. A disruptive traffic signal causes accidents, a disruptive construction worker brings down buildings etc
Now here is a definition of Disruptive Innovation by the man who coined the term, Clayton M Christenson
“It transforms a product that was historically so expensive and complicated that only a few people with a lot of resources had access to it. Disruptive Innovation makes it more accessible and affordable to a much larger population.”
Disruptive Innovation is a process where the organisation or start-up caters to an over-served market with a simpler, cheaper form of the product. These are low margin, mass products targeted at the low end of the market relevant to the industry, the players operate in.
The disruptor through a simpler or cheaper product, service, business model, technological innovation etc takes over the low end of the margin and moves upstream. By the time the establishes players in the market realise what happened, the disruptor now has a significant share of the market and is now capable of directly competing with the market leaders.
Essential conditions which qualifies a venture as a Disruptive Innovation
Disruptors start in a niche in the market which is the low end, very little profit making section of the market which market leaders are not focused on.
An innovation in the business model which makes the otherwise, low profit or even loss making section of the market, profitable.
Enabling technology which helps you scale the new business model and increase your potential customer base to the more profitable section of the market, thus competing directly with the market leaders for their core customer base.
You can also check out this video explaining Disruptive Innovation by Harvard Business Review
Market leaders or established players, however follow a different technique of innovation.
This is an existing market leader who is focused on retaining and improving their offerings to the largest and most profitable section of their customer base. It is a constant battle to provide your customer with the best in the market services. Thus over-serving the customer with new or improved services on a constant basis. Eg When Maruti cannibalised its own product, Maruti 800 with Maruti Alto or when iPhones replaced iPods.
How can someone become a disruptive innovative thinker?
- Look for markets where there are barriers or constraints which inhibits consumption. It could be skills, money or it just takes too long.
- Find problems or frustrations which your customers face.
- Now you solve the problem by participating in the innovation game and solving that problem through a simpler and cheaper technique.
Do you always have to satisfy a need or create a need?
As every marketing person out there knows, its sometimes and sometimes downright impossible to figure out what your audience likes or wants. The audience or potential customer base themselves do not know what they want.
There are millions of examples our there which explain this phenomena. See your own smartphone for instance. It has n number of functions which you thought you never needed and now, you cannot live without them.
How do you analyse the market to search for disruption opportunities?
- Find customers who are consuming less or nothing at all and the market leaders are not focused on them
- Focus groups and interviews to understand the customer requirements better.
- Observing customer behaviour and analyse the date
- Distribute samples or trial versions of your product, incentivise feedback and optimise your product or service.
- Another way would be to involve your potential customers while the product is still being built so as to customise it according to market requirements
- Extensive Quantitative and Qualitative market research on your target market to understand your potential or future client/customer better.
Disruption can affect anyone, anywhere!
Smartphones are currently seen as disruptive to the PC industry. They were focused on the low end of the market. Now Smartphones are seen as alternatives to PC’s. But there were other industries which were disrupted by Smartphones. Flashlights marketsize dropped with the launch of Nokia 1100. The low end watch market was affected by smartphones as well. And now with bundling of services with e-commerce players, banking, mobile wallets, every product in the market has a significant affect on completely un-related industries.
There are various strategies which can be employed to stay relevant to the majority share of your customers. One of them, Extendible Core means improving or increasing your product or service focus without making huge capital investments. Like Flipkart moving into a new vertical like Fashion or SME’s Focus on what you are very good at, your key USP and focus on that and either diversify or super specialise your offerings.
How to move from Sustaining Innovation model to Disruption Innovation Model
- Start by a small investment. This could be a single employee or a team under less work pressure who can focus their efforts on finding these niche’s and figuring out solutions for these niche’s.
- This small investment could be done in various ways. Either invest it internally in existing employees or use company resources to invest in start-ups and create your own ecosystem. Eg Tata’s doing this, Mahindra is doing the same and many established market leaders are taking the same path.
- Constantly analyse the results of this experimentation and study it.
- Generate insights from those and fine tune your strategy. One can modify existing practises, learn from the disruptors or buy/acquire them.
For existing incumbents, huge investments are not required. However there needs to be a focus or a team dedicated to catering to other subsections of existing customers or explore new markets, understanding new requirements from these customers and figuring out how to meet those demands.
There can be many disadvantages of using certain words and attributing theories to events without giving it some proper thought. Mi-understanding a theory and than accordingly changing your strategies and tactics either as a start-up or as an incumbent. I hope that now you better understand the concept that is Disruptive Innovation or market disruption and can now use it correctly.