As the world is evolving rapidly with its technological and industrial advancements, an infinite number of opportunities and choices are bestowed upon those technology-enthusiasts who are eager to create and innovate state-of-the-art systems and machineries. In this era of innovation, the launch of new and innovated products and services are skyrocketing as new solutions can be generated through the existing technologies. Thus, such advancements have developed consequential disruptions to spread across abundance of industries where disruptive innovation plays a vital role in the process.
What is Disruptive Innovation?
“Disruptive innovation” is a process where a product, service or system was initially planted at the bottom of a market – by only having simple, less attractive applications, technology, or business models as its starting point – before rapidly moves up market, and ultimately displaces established competitors or incumbent businesses. Hence, it causes a great impact towards the status quo of the business/industry (Disruptive innovation (a), Disruptive innovation (b), 2020; Twin, 2019; Kylliäinen, 2019).
To put it simply, disruptive innovation is the occurrence of a new player entering an already established market with new technologies and business models (providing a unique and fresh value) that contradicts with the incumbent’s approach. A classic example of disruptive innovation is the Internet where it has revolutionized the way man interacts, commercialize and behave, meanwhile functioning as a medium of many ‘disruptive technologies’.
Disruptive innovation is a term coined by Clayton M. Christensen – Professor of Business Administration at Harvard Business School – in the 1997 through his book “The Innovator’s Dilemma” (Disruptive innovation (b), 2020; Kylliäinen, 2019). According to Christensen, there are two categories of new technology; ‘Sustaining Technology’ (the incremental improvements and modifications of an already existing technology) and ‘Disruptive Technology’ (the displacement/disruption of an existing market or the creation of a completely new market segment) (Twin, 2019; Rouse, 2016).
How Does Disruptive Innovation Occur?
Disruptive innovation occurs when incumbent businesses with already existing and popularized products, services or systems focus on innovating, modifying and improving them to satisfy their customers’ high-class demands which may cause those products, services or systems become too expensive and sophisticated for many other customer segments (Disruptive innovation (b), 2020; Christensen, Raynor, & McDonald, 2015). These incumbents are applying the ‘sustaining innovation’ where they only focus on improving their products/services at the higher tiers of their market in order to achieve higher profitability from their demanding customers who pays more (Disruptive innovation (b), 2020). As a result, they unintentionally open the door at the bottom of the market for disruptive innovation to occur and invite newcomers to introduce new, functional, affordable and accessible products/services to the overlooked customer segments (Disruptive innovation (b), 2020; Christensen, Raynor, & McDonald, 2015).
Before the disruption becomes conspicuously impactful, many incumbents tend to ignore this matter as something negligible and not a threat to their business. They see these newcomers and the new products/services as ‘low-class’ (Christensen, Raynor, & McDonald, 2015). Their indifference, consequently, gave the opportunity for these so-called ‘low-class’ newcomers to quickly move up market thanks to their revolutionary low cost and accessible disruptive technology that gained more popularity and demand from a larger customer population than the incumbents. Evidently, this scenario has happened to a once very well-known business; Blockbuster, who had ignored the rise of Netflix’s new way of video streaming and caused its own downfall (Moore, 2019; Christensen, Raynor, & McDonald, 2015; Kylliäinen, 2019).
What is Disruptive Technology?
Disruptive technology is basically the innovation of how technology – or otherwise the products, services, or systems – disrupts the way an already existing market, businesses or industry operates (Smith, 2020; Moore, 2019). The occurence of disruptive technology does not happen frequently, but it can be long-lasting just like the invention of television – another classic example of disruptive technology – in the 1940s (Smith, 2020). At first, the demands of the high-end markets – or even market itself – may not be satisfied by these technologies, but after gaining more tranction of interest and attention profit-wise, they are able to climb up the ladders and exceed market expectations (Moore, 2019).
Characteristics of Disruptive Innovation/Technology
- Lower gross margins (mostly during its initial stages)
- Smaller target markets
- New technology (product, service, system) and/or business model
- Simpler products and services compared to existing ones
- Higher risks
- Disrupts an already existing market or creates a new market segment in the existing one
Examples of Disruptive Technology
- Netflix – By providing convenient, accessible and affordable online video streaming services to the overlooked customer segments, Netflix has by far surpassed cable and satellite and now is one of the largest subscription providers in America with over 150 million users. As mentioned before, this disruptive technology, upon being underestimated, had caused the former No.1 video rental business; Blockbuster, to throw in the towel in the 2000s.
- Amazon – Through the use of online platform, Amazon has topped the bookselling industry by exceeding the traditional physical bookstores by being able to display its inventory – without even needing to own a physical store in any area – and ship selected books to the customer’s doorstep.
- Personal Computers (PC) – In the beginning of the digital era, mainframe computers or mini computers were at large as it was one of the most expensive technologies at the time and can only be operated by those with skills. However, as time passed, the invention of the Personal Computer (PC) has disrupted its computing predecessors and not to mention, the typewriter. Now, computers are now mass-produced worldwide, more affordable and can be used by anyone.
- Smartphones – Smartphones, with its multiple applications, have become one of the largest disruptive technology today. By being one of the most important necessities, people are deeply relying on its many uses. As a result, it has largely disrupted technologies such as laptops (for internet usage) cell phones, Personal Digital Assistant (PDAs), MP3s, calculators, phonebooks and GPS devices.
By: Aizatul Aisyah Binti Mohd Idris
Date: 13th April 2020 (Monday)
Christensen, C. M., Raynor, M. E., & McDonald, R. (2015, December). What is disruptive innovation? Retrieved from Harvard business review: https://hbr.org/2015/12/what-is-disruptive-innovation
Disruptive innovation. (2020). Retrieved from Christensen institute: https://www.christenseninstitute.org/disruptive-innovations/
Disruptive innovation. (2020). Retrieved from Clayton christensen: http://claytonchristensen.com/key-concepts/
Kylliäinen, J. (2019, November 4). Disruptive innovation – What is it and how does it works . Retrieved from Viima: https://www.viima.com/blog/disruptive-innovation
Rouse, M. (2016, December). What is disruptive technology. Retrieved from WhatIs.com – Tech target: https://whatis.techtarget.com/definition/disruptive-technology
Smith, T. (2020, March 21). Disruptive technology. Retrieved from Investopedia: https://www.investopedia.com/terms/d/disruptive-technology.asp
Twin, A. (2019, August 30). Disruptive innovation. Retrieved from Investopedia: https://www.investopedia.com/terms/d/disruptive-innovation.asp