What is 'Disruptive Innovation'? Pushing past the jargon
Companies from Tesla to SurveyMonkey flash the word ‘disruptive’ around. They appear to say it with great pride, but what do they mean? Is being a disruptive company just about upsetting the major players in an industry’s market? We thought we’d share what disruptive innovation is and what it isn’t.
We owe the coining of this arguably over-used phrase to Harvard Business School professor Clayton Christensen who offered this new word to the world in 1995. More often than not, we hear the phrase incorrectly applied to a product that’s merely a new technological improvement of something already on the market.
For example, Porche produced a self-loving 2017 documentary entitled, ‘Decades of Disruption’, but did these sleek cars ‘disrupt’ the auto industry? No. Each car was simply an improved version of the last one produced.
So, what is disruptive innovation?
Per Christensen’s theory, a disruptive innovation makes a product or service more affordable and available to a larger population. More often than not, the product’s origins are quite humble, beginning at the low-end of the market or targeting non-consumers who didn’t previously exist in the current market. The following are key indicators of disruptive innovation:
Typically low-cost production
Initially given little attention by main competitors in the market
Gradual rise in quality eventually allows for a takeover of the market
Harvard Business Review has a nice video on the topic for you visual learners. Additionally, we find it helpful to contrast the idea of disruptive innovation with that of sustaining innovation: the improvement of an existing product.
Pseudo Disruptive: Let’s reclaim false examples
Disruptive is more than a buzzword, it is a theory to be learned and then properly applied. Can you guess why the company below is not true a disruptor, but a sustaining innovator?
While the activity of Uber could be described as “causing trouble and therefore stopping something from continuing as usual” for the taxi industry, this would only be employing The Cambridge Dictionary’s definition of ‘disruptive’ and not Christensen’s definition.
Firstly, the inception of Uber did not begin with low-quality offerings, but instead simply provided a more convenient taxi system. Secondly, the ride-sharing company initially targeted people who already use taxi services, not those overlooked by the taxi industry. Nothing new there, just a cheaper taxi.
While it’s true, many of us who couldn’t afford a taxi can now afford a ride with Uber, we weren’t a new market foothold sought out by the company. Lastly, the company has moved more downstream, opposite of disruptive theory’s statement that the company moves upward, seeking richer and fancier clients.
Disruptive innovation examples
A favorite example is Netflix, a company whose initial business model was providing DVD for rent or purchase via mail. At one point, the company even offered the major video rental company at the time, Blockbuster, the opportunity to acquire Netflix, but the offer was declined. Today Blockbuster has only 1 store left in the US while Netflix posts its market cap of $4.5 billion.
The turning point: Netflix cleverly tapped into subscription-based streaming service where it now has over 139 million paid subscribers across the globe and produces its own content in-house. Even Blockbuster briefly flirted with mailing DVDs to customers, yet the digital disruption of Netflix's streaming services had already taken that sphere of retail by storm.
3D printing has been a major player for years in transforming the way things are designed across a variety of industries, but it remains a constant factor for job automation in the future. Chinese construction company WinSun can print 10 houses a day, the UN printed custom pipe parts for sanitation infrastructure in response to an earthquake in Nepal and the Oscar-winning Black Panther’s costumes incorporated 3D printing technology.
And for those of you in fear of losing your job to the younger, more tech-savvy generation, the ThingMaker 3D Printer will fill your soul with dread. This 3D printer is specifically for children, allowing them to upload design files to the associated app to print physical parts for toys, further evolving their minds to adopt this technology.
AI, the simulation of intelligent behavior in computers, is considered by many to be the most disruptive technology out there. Already chatbots, driverless cars, the vacuum Roomba 980 are among us, improving our everyday lives.
While it is often touted a job-thief, optimists believe that AI will actually prove to strengthen industries and preserve jobs over time. Let’s consider that as urbanization increases, there will be a need for farmers to work in food production, and AI can not only provide the required harvesters, but companies will be able to monitor crop and soil health utilizing AI algorithms to process drone-captured data.
Wikipedia. This ever-evolving online and miraculously free online encyclopedia put Encyclopedia Britannica out of print after 244 years of circulation. Digital disruption at its finest. No more thumbing through multiple pages across several massive hardcover volumes, but with a mere search in the search bar, you can pull up information about ‘disruptive innovation’ on Wikipedia in under 5 seconds.
How to be a disruptor?
Recognize the risk
Going in against existing competitors is very much a David vs Goliath battle. Clayton Christensen himself states that only 6% of sustaining newcomers successfully make it as they have many odds stacked against them.
Existing competitors often have more resources to compete against the young company, and if threatened, can apply them to create a better product, offer lower prices or even acquire the potential disruptor and move on with business.
However, according to research by Capgemini, 74% of current marketplace companies don’t respond to a disruptor until its second year in the marketplace. Timing is important, and it is something a new company can utilize to make a name for itself.
Break the mold
A disruptor by definition is different. Most of the successful disruptors operate on a business model that’s untraditional to the market. From the Freemium to the On-Demand model, there are many different types of business models that you can structure your business around.
Disruptors problem-solve by looking at things with a new perspective. Think different target groups, different processes, and different products.
Robinhood, a stock trading app that allows users to buy and sell cryptocurrencies without any added trading fees, lets the everyday millennial get involved in the stock market. The brand found a new-market: middle to lower class millennials who wish to play the stock market.
Constant innovation
If the product you’re placing on the market really is groundbreaking and the first of its kind, big pat on the back. But the race doesn’t end there. Being the first one to invent doesn’t mean you win the market.
Longevity in the marketplace requires constant requestioning of you, your product and your business model’s processes. Make sure you surround yourself with people who push you to stay out of your comfort zone and ahead of the competition.
At SumUp, we believe we’re pretty disruptive ourselves. We aim to be the first global card payments acceptance service, and we’re getting closer to our goal every day.
