What Is Disruptive Innovation and How Does It Work? (With Example)
By Indeed Editorial Team
Published 26 April 2022
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
Innovation encompasses new industry breakthroughs or ideas that can affect present trends. Disruptive innovation occurs when a new product performs exceedingly well and eventually outperforms rival items in the market. Understanding disruptive innovation may be beneficial if you work in highly competitive industries, since comprehending how it works can help you leverage it to your advantage. In this article, we discuss disruptive innovation and how it works, outline the essential components for successful innovation and provide examples of disruptive innovation.
What is disruptive innovation and how does it work?
Disruptive innovation happens when a new product enters a market and swiftly gains popularity, displacing rival goods and enterprises in the process. Most firms offer disruptively innovative items at a low cost and on a broad scale. This helps the product quickly establish a customer base, which can then grow substantially bigger as more customers become aware of the product's features and advantages. Such a strategy can be especially advantageous to new firms seeking growth in already lucrative sectors.
Novel technologies and the application of innovative tools in the company aim to assist corporations in remaining competitive or at the very least maintaining the status quo. Disruptive technologies and disruptive innovations are typically more challenging to plan for and may be damaging to firms that do not pay adequate attention to them. As it might be difficult to invest in a disruptive breakthrough, partnering with an investor to focus on how firms can adapt to disruptive technology rather than developing the technology itself might be a good choice.
What is the significance of disruptive innovation?
Disruptive innovation is the process through which a corporation earns new revenues through new business models, new products and new services. Disruptive innovation is significant for a variety of reasons. One rationale is that it may aid emerging markets in developing inventive solutions that make items that can be difficult to obtain or use more accessible to their audience.
Disruptive innovation is essential since it can detect forthcoming market shifts that may affect the creation of future products by displaying distinct areas of need or interest that customers have depending on the things they buy. Additionally, disruptive innovation is critical as it may help both businesses and consumers by introducing new items with higher quality and lower prices than existing products in the same market. Taking part in disruptive innovation allows businesses to stay relevant and remain competitive.
What are the prerequisites for disruptive innovation?
The following are the essential factors for disruptive innovation to occur and be effective:
Technology and new products that can enhance how people carry out a particular activity or process are examples of enabling technology. Enabling technology in disruptive innovation is the element of a new product that allows a firm to sell it at a cheap cost and make it available to many consumers. The velocity at which disruptive innovation may emerge depends on how rapid the development, testing and enhancement of the underlying enabling technology is. It typically halts when it has reached the highest possible quality, while staying affordable and easy to use.
Essentially, the rate of market disruption is dependent on the rate of technology production and improvement but the speed of the disruption is not always a criterion used to assess its success. Even enabling technologies that take a long time to join the market can result in successful disruptive innovation. They can still develop effective new items that can surge in the market once they're available to consumers.
A novel business concept
An innovative business model is a type of business plan that focuses on reaching new clients or customers that do not generally spend huge sums of money at a firm by offering unique items. Incumbents typically don't embrace this model due to the initial low-profit margins. This creates a gap for the disruptor to deliver simple, cost-effective alternatives.
Some creative business strategies take time to generate a profit for a firm, since they frequently introduce new items at low pricing to attract new customers immediately. Nonetheless, profit margins may always rise under an inventive company model as more customers discover a product, buy it, and suggest it to their peers. While increasing profits is a benefit of the creative business strategy, in the long run, its primary purpose is generally to provide new items that are accessible and inexpensive to consumers.
Value network coherence
The formation of a cohesive value network occurs when all business partners of a corporation benefit from disruptive innovation. This can include upstream partners or activities that prepare for manufacturing, such as distributors, suppliers or vendors. It also involves downstream partners or attempts to create and disseminate a new product to the general public, such as marketing and sales teams. Disruptive innovation can be effective when all stakeholders engaged in an invention can commit to the new business model and benefit from the outcome.
Difference between disruptive innovation and sustaining innovation
Disruptive innovation is essentially innovation that simplifies and lowers the cost of products and services in unfavourable or underserved areas. Established businesses commonly attempt to develop their product offering for their profitable client base, while mostly disregarding the needs and aspirations of underserved sectors. This lack of attention provides an opportunity for smaller enterprises or new entrants to target the underserved audience with simpler, more economical products.
In contrast, sustaining innovation entails improving current goods and services for existing customers, depending on consumer or market expectations. Sustaining innovation does not seek undiscovered or underserved markets. Instead, it aims to stay relevant and competitive. Sustainable technologies typically allow a company to enhance its operations over time progressively.
Examples of disruptive innovation
These are some instances of disruptive innovation:
Example 1: Online shopping
The emergence of e-commerce in retail is one example of disruptive innovation. Online shopping makes use of technology to give clients a centralised site from which they may purchase things from firms located anywhere in the world and have them delivered to their homes. This qualifies as disruptive innovation since it reduces the need for in-person retail. As e-commerce grows in popularity, online merchants may outperform their brick-and-mortar competitors by making it simpler for customers to purchase using technology and the internet.
Example 2: Streaming services
Streaming services are another good example of disruptive innovation. Customers who use streaming services pay a monthly or annual subscription to access libraries of films and television series on internet platforms. Customers can also access a library of material from practically anywhere. This is an example of disruptive innovation since streaming services perform essentially the same function as video and DVD rental companies but are more accessible and inexpensive. Streaming services reduce the need for clients to personally visit a video or DVD rental outlet and pay for each film lease separately.
Example 3: Smartphones
The rise of smartphones in the technology industry is an example of effective disruptive innovation. The advent of smartphones qualifies as one since many people use smartphones for computing tasks like surfing the internet and streaming movies or television shows instead of the conventional laptop or desktop computer. Because of technological advancements, mobile phones now have miniature processors, semiconductors and software that supports these capabilities.
Smartphone developers aimed at a large market of mobile customers who own cellular devices but find it cumbersome to use laptop computers when surfing the web. Smartphones are compact, readily storable, accessible and relatively inexpensive compared to laptop computers. As such, mobile phones displace the market's former leaders, such as laptop and desktop computers, since phones are easier to use, more travel-friendly and frequently cost less than a computer.
Main takeaways from innovative disruption
Below are some important key points regarding innovative disruption:
Disruptive innovation refers to new ideas and technology that make pricey or complicated products and services more accessible and inexpensive to a larger market.
In contrast to "disruptive technology", which refers to the technology itself, disruptive innovation refers to the application of technology that disturbs a system.
Disruptive innovation needs enabling technologies, a novel business strategy and a unified value network to be effective.
Sustaining innovation involves developing to improve existing products and services for customers.
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