The term ‘disruptive innovation’ was coined by Clayton Christensen, which refers to a process in which a product/ service starts at the bottom of a market, slowly moving its way up the ladder, and ultimately ousting its competition and becoming the market leader.
The theory proposed by the Harvard Professor states that an innovation can drive new trends in an existing market with its cost-effectiveness, convenience, simplicity, and accessibility, where status quo and high prices are the main constants.
In the initial stages, disruptive innovation is launched at the bottom of the market, which may seem unattractive monetarily to the market leaders, but the product can potentially revolutionize the market.
Here are some real life examples of disruptive innovation:
* Personal computers being disruptive to mainframe and mini computers
* Mini mills being disruptive to integrated steel mills
* Retail medical clinics being disruptive to traditional doctor’s clinics
* Discount retailers were being to department stores
* Mobile phones being disruptive to landline phones
* Community college being disruptive to four-year universities
Most brands we know today are all disruptive technologies, e.g. Google, Craigslist, Ebay, Uber, Twitter, iTunes, and Skype, to name a few.
Companies have a tendency to innovate at a faster rate in comparison to the needs of the customers, ending up producing products/ services in excess to the current needs of their target market.
Companies follow the sustaining innovation model, which keeps them with the high tiers of the market since it works in most cases. For maximizing profitability, companies target their most expensive market and charge prices relevant to that market for capitalizing on the market share as well as keeping ahead of the competitors.
In the process, companies open their doors to disruptive innovation starting at the bottom of the barrel. Disruptive innovation initiates a new tier market attracting completely new brand of consumers availing the process previously available to top tier customers.
The hallmarks of a disruptive business are:
* Low Profits Margins
* Minor Target Markets
Since low-tier markets are prone to low profit margins in the beginning, most companies lose interest in them, creating void for the disruptive competitors to fill in.
Many times, companies are stuck by the innovator’s dilemma where they have a business decision to take: choose between the sustaining the present market or to venture into untapped markets by researching in new technologies and implementing new business models.
For instance, IBM ventured into manufacturing personal computers while maintaining their mainframe computer sales. On the other hand, Netflix was more aggressive in this regard since it put an end to the rental service it previously provided moving towards streaming on demand for its established audience.
Emerging Disruptive Technologies
Automotive manufacturing giants are researching self-driving cars since 2010. Toyota has released its Mirai car, a hydrogen fuel cell driven car which releases water. It will be on sale on the market this year.
This is the new hearing aid developed by the medical research industry. It is invisible to the naked eye. It operates on Apple with an Android version coming soon.
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