We constantly hear about disruptive startups and the most disruptive ideas there are. What is disruptive innovation?
Clayton Christensen introduced the ‘disruptive innovation’ theory in 1995 in an article defining it as a product or service designed for a new set of customers. The theory was aimed at well managed companies and managing executives who overlooked researching the community. Clayton believed that disruptive innovation companies could hurt successful companies by focusing on the customer and tapping into a market the successful companies had ignored.
Clayton distinguished between ‘low-end disruption’ that targets customers who do not need the full performance that high-end customers would look for, and ‘new-market disruption’, which targets a previously unserved customer base.
A classic example of ‘low-end disruption’ is the personal computer. Prior to personal computers, minicomputers and mainframes were the dominant products in the computing industry that required engineering experience to operate. In the late 1970s Apple began selling computers as a toy for children. Their products were not good enough to compete with the minicomputers, however, since the mass could not afford or know how to use the expensive minicomputers, they did not care since the inferior Apple computers were much better than their alternative. Gradually, Apple improved their innovation, and within a few years their computers were able to do the work of the much more expensive minicomputers. Apple created a huge new market making personal computers attainable to the mass and ultimately eliminated the existing industry.
An example of ‘new-market disruption’ is when Ford introduced Model T in 1908 changing the transportation market. The introduction of automobiles prior to the Ford Model T were expensive and a luxury item that did not disrupt the horse-drawn vehicles market. Through Ford’s innovative production method, he was able to mass-produce automobiles which inevitably replaced horse-drawn vehicles.
A product does not have to eliminate industries but it can improve an existing market or adopt new business models. For instance, Netflix adapted by changing their business model which was sending out rental DVDs by post to streaming on-demand video to its customers. Most disruptive innovations find their customers at the bottom of the market with unpolished products that incumbents often fail to recognize as a threat. The disruptive innovation companies tend to refine their products and start stealing customers or reshaping industries, as Skype did with long distance calls and Craiglist did with classified ads.
The more technology advances and global knowledge is shared, we may witness several new disruptive innovations pop up. We might see 3D printing evolve further and disrupt manufacturing industries, or Amazon deliver to your door using drones, or anything else for that matter!
