Disruptive innovation 101 for business owners

The term “disruption” or “disruptive innovation” is something you would hear at times in the business world. The adventurous are attracted to it, while the cautious may try to avoid it. There are those who created disruptive innovation without them foreseeing that their idea, product or service would create a disruption to the status quo. But what is disruptive innovation?

American scholar Clayton Christensen came up with the theory and coined the name “disruptive innovation”. Now, it is used widely in the business sphere, especially with fast movements in markets and new ideas that break conventions and set trends.

What is “disruptive innovation”?

Disruptive innovation has the following attributes, particularly in its early stages: simpler products and services that may not seem desirable solutions as to the existing ones, smaller target markets, and lower gross margins. In other words, it provides simplicity, accessibility and convenience to more people, especially those belonging to the lower end of the market.

It is an innovation in business wherein it creates a new market and value that unsettles the established industry players, which is considered as the mainstream. According to Christensen, “It transforms a product that historically was so expensive and complicated that only a few people with a lot of money and a lot of skill had access to it. A disruptive innovation makes it so much more affordable and accessible that a much larger population have access to it.”

To create a disruptive innovation is a huge risk. But it may have big rewards if it becomes a success.

What it’s not

Disruptive innovation does not refer only to a breakthrough that makes good products a lot better. Rather, it refers more to the business model wherein the technology disturbs the market. It is different from sustaining innovation, which improves a product but does not affect the existing market.

It does not refer to a particular fixed point because disruption is a process. Products and services evolve, as well as business models and markets. The attributes cited above are some of the factors to consider one as a disruptive innovation.

Examples of Disruptive Innovation

  • Wikipedia. Gone are the days when you have to buy sets of hard-bound encyclopaedias at a high cost, wherein their information could become obsolete over time. Now, information is at the tip of your fingers, and they are available for free. Plus, they are updated and verified constantly.
  • Smartphones and tablets. From mainframes to minicomputers to personal computers, computing hardware has become smaller and smaller, making it more portable and accessible to lower-end markets. Similarly, from telegraph to telephones, communication has become faster and more available to a larger populace. Smartphones and tablets have merged computing, documentation and communication into one. Now, its applications are changing the game in the world of communication, business, education and entertainment.
  • Airbnb. Hotels and inns used to be the main source of accommodation before. When it comes to selecting places to stay, quality seemed to be proportional to cost, providing limited options to those who prefer comfort and budget. Airbnb changed that as it allows private individuals to rent out their homes, apartments or rooms at affordable prices, creating a dent on the hospitality industry.
  • Netflix. Movie streaming, instead of collecting or renting piles of film discs, is now becoming a household norm. Netflix is changing the landscape of the home entertainment scene. From video tapes to DVDs, more and more people subscribe to Netflix or streaming apps and watch a wide array of movies on their smartphones, tablets, computers, and even on televisions, at a very low price.
  • Skype. Communicating across countries used to be expensive and difficult. Skype transformed that and paved the way to chatting, calling and video calling, at no or very low cost. It also allows file sharing to its users.
  • Amazon. Shopping has become more convenient without you leaving the comforts of your home. Amazon started with books and grew to various items. Now, it offers almost anything from A to Z. It also opened the market to individual sellers and emerging brands, allowing more producers to bring their goods to consumers while providing more choices for customers.
  • Virgin. When it comes to air travel, Virgin has redefined it as not just a mode of transport but an experience in itself. Virgin keeps on changing the business landscape of the airline industry, even extending itself to entertainment, providing a revolutionary customer experience that continues to improve and develop.

A few years from now, we’ll never know how we’ll do things and what the trend would be. Businesses continue to come up with new ideas and methods that change people’s lives. More importantly, because of disruptive innovation, it allows small players to enter the game and change the rules. In the end, consumers end up as winners as they get more choices that are good value for their money.

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