Disruptive innovation

Types of Innovation

Sustaining An innovation that does not affect existing markets. Evolutionary An innovation that improves a product in an existing market in ways that customers are expecting. (E.g., fuel injection) Revolutionary (discontinuous, radical) An innovation that is unexpected, but nevertheless does not affect existing markets. (E.g., the automobile) Disruptive An innovation that creates a new market by applying a different set of values, which ultimately (and unexpectedly) overtakes an existing market. (E.g., the lower priced Ford Model T)

A disruptive innovation is an innovation that helps create a new market and value network, and eventually goes on to disrupt an existing market and value network (over a few years or decades), displacing an earlier technology. The term is used in business and technology literature to describe innovations that improve a product or service in ways that the market does not expect, typically first by designing for a different set of consumers in the new market and later by lowering prices in the existing market.

In contrast to disruptive innovation, a sustaining innovation does not create new markets or value networks but rather only evolves existing ones with better value, allowing the firms within to compete against each other's sustaining improvements. Sustaining innovations may be either "discontinuous" (i.e. "transformational" or "revolutionary") or "continuous" (i.e. "evolutionary").

The term "disruptive technology" has been widely used as a synonym of "disruptive innovation", but the latter is now preferred, because market disruption has been found to be a function usually not of technology itself but rather of its changing application. Sustaining innovations are typically innovations in technology, whereas disruptive innovations change entire markets. For example, the automobile was a revolutionary technological innovation, but it was not a disruptive innovation, because early automobiles were expensive luxury items that did not disrupt the market for horse-drawn vehicles. The market for transportation essentially remained intact until the debut of the lower priced Ford Model T in 1908. The mass-produced automobile was a disruptive innovation, because it changed the transportation market. The automobile, by itself, was not.

The current theoretical understanding of disruptive innovation is different from what might be expected by default, an idea that Clayton M. Christensen called the "technology mudslide hypothesis". This is the simplistic idea that an established firm fails because it doesn't "keep up technologically" with other firms. In this hypothesis, firms are like climbers scrambling upward on crumbling footing, where it takes constant upward-climbing effort just to stay still, and any break from the effort (such as complacency born of profitability) causes a rapid downhill slide. Christensen and colleagues have shown that this simplistic hypothesis is wrong; it doesn't model reality. What they have shown is that good firms are usually aware of the innovations, but their business environment does not allow them to pursue them when they first arise, because they are not profitable enough at first and because their development can take scarce resources away from that of sustaining innovations (which are needed to compete against current competition). In Christensen's terms, a firm's existing value networks place insufficient value on the disruptive innovation to allow its pursuit by that firm. Meanwhile, start-up firms inhabit different value networks, at least until the day that their disruptive innovation is able to invade the older value network. At that time, the established firm in that network can at best only fend off the market share attack with a me-too entry, for which survival (not thriving) is the only reward.

The work of Christensen and others during the 2000s has addressed the question of what firms can do to avoid oblivion brought on by technological disruption.

History and usage of the term

The term disruptive technologies was coined by Clayton M. Christensen and introduced in his 1995 article Disruptive Technologies: Catching the Wave, which he co-wrote with Joseph Bower. The article is aimed at managing executives who make the funding/purchasing decisions in companies rather than the research community. He describes the term further in his book The Innovator's Dilemma. Innovator's Dilemma explored the cases of the disk drive industry (which, with its rapid generational change, is to the study of business what fruit flies are to the study of genetics, as Christensen was advised in the 1990s) and the excavating equipment industry (where hydraulic actuation slowly displaced cable-actuated movement). In his sequel with Michael E Raynor, The Innovator's Solution Christensen replaced the term disruptive technology with disruptive innovation because he recognized that few technologies are intrinsically disruptive or sustaining in character; rather, it is the business model that the technology enables that creates the disruptive impact. However, Christensen's evolution from a technological focus to a business modelling focus is central to understanding the evolution of business at the market or industry level. Christensen and Mark W. Johnson described the dynamics of "business model innovation" in the 2008 Harvard Business Review article "Reinventing Your Business Model". The concept of disruptive technology continues a long tradition of the identification of radical technical change in the study of innovation by economists, and the development of tools for its management at a firm or policy level.

In the late 90’s, the automotive sector began to embrace a perspective of “constructive disruptive technology” by working with a consultant David E. O’Ryan, whereby the use of current off the shelf technology was integrated with newer innovation to create what he called “an unfair advantage”. The process or technology change as a whole had to be “constructive” in improving the current method of manufacturing yet disruptively impact the whole of the business case model resulting in a significant reduction of waste, energy, materials, labor or legacy costs to the user.

In keeping with the insight that what matters economically is the business model, not the technological sophistication itself, Christensen's theory explains why many disruptive innovations are not "advanced technologies", which the technology mudslide hypothesis would lead one to expect. Rather, they are often novel combinations of existing off-the-shelf components, applied cleverly to a small, fledgling value network.

The theory

Christensen defines a disruptive innovation as a product or service designed for a new set of customers.

"Generally, disruptive innovations were technologically straightforward, consisting of off-the-shelf components put together in a product architecture that was often simpler than prior approaches. They offered less of what customers in established markets wanted and so could rarely be initially employed there. They offered a different package of attributes valued only in emerging markets remote from, and unimportant to, the mainstream."

Christensen argues that disruptive innovations can hurt successful, well managed companies that are responsive to their customers and have excellent research and development. These companies tend to ignore the markets most susceptible to disruptive innovations, because the markets have very tight profit margins and are too small to provide a good growth rate to an established (sizable) firm. Thus disruptive technology provides an example of when the common business-world advice to "focus on the customer" ("stay close to the customer", "listen to the customer") can sometimes be strategically counterproductive.

While Christensen argued that disruptive innovations can hurt successful, well managed companies, O’Ryan countered that “constructive” integration of existing, new, and forward thinking innovation could improve the economic benefits of these same well managed companies, once decision making management understood the systemic benefits as a whole.

How low-end disruption occurs over time.

Christensen distinguishes between "low-end disruption" which targets customers who do not need the full performance valued by customers at the high end of the market and "new-market disruption" which targets customers who have needs that were previously unserved by existing incumbents.

"Low-end disruption" occurs when the rate at which products improve exceeds the rate at which customers can adopt the new performance. Therefore, at some point the performance of the product overshoots the needs of certain customer segments. At this point, a disruptive technology may enter the market and provide a product which has lower performance than the incumbent but which exceeds the requirements of certain segments, thereby gaining a foothold in the market.

In low-end disruption, the disruptor is focused initially on serving the least profitable customer, who is happy with a good enough product. This type of customer is not willing to pay premium for enhancements in product functionality. Once the disruptor has gained a foothold in this customer segment, it seeks to improve its profit margin. To get higher profit margins, the disruptor needs to enter the segment where the customer is willing to pay a little more for higher quality. To ensure this quality in its product, the disruptor needs to innovate. The incumbent will not do much to retain its share in a not so profitable segment, and will move up-market and focus on its more attractive customers. After a number of such encounters, the incumbent is squeezed into smaller markets than it was previously serving. And then finally the disruptive technology meets the demands of the most profitable segment and drives the established company out of the market.

"New market disruption" occurs when a product fits a new or emerging market segment that is not being served by existing incumbents in the industry.

Examples of disruptive innovations

Innovation	Disrupted market	Notes
8 inch floppy disk drive	14 inch floppy disk drive	The floppy disk drive market has had unusually large changes in market share over the past fifty years. According to Clayton M. Christensen's research, the cause of this instability was a repeating pattern of disruptive innovations. For example, in 1981, the old 8 inch drives (used in mini computers) were "vastly superior" to the new 5.25 inch drives (used in desktop computers). However, 8 inch drives were not affordable for the new desktop machines. The simple 5.25 inch drive, assembled from technologically inferior "off-the-shelf" components, was an "innovation" only in the sense that it was new. However, as this market grew and the drives improved, the companies that manufactured them eventually triumphed while many of the existing manufacturers of eight inch drives fell behind.
5.25 inch floppy disk drive	8 inch floppy disk drive
3.5 inch floppy disk drive	5.25 inch floppy disk drive
Bernoulli drive and Zip drive	3.5 inch floppy disk drive
CDs and USB flash drives	Bernoulli drive and Zip drive
Pocket calculator	3.5 Standard Calculator	Worse computing performance and portable
Downloadable Digital media	CDs, DVDs	In the 1990s, the music industry phased out the single, leaving consumers with no means to purchase individual songs. This market was initially filled by illegal peer-to-peer file sharing technologies, and then by online retailers such as the iTunes Store and Amazon.com. This low end disruption eventually undermined the sales of physical, high-cost CDs.
Cloud computing	USB flash drives	While downloadable Digital media displaced CDs and DVDs as a medium for entertainment media, cloud computing displaces the need for local physical media to store digital data in general.[citation needed]
Hydraulic excavators	Cable-operated excavators	Hydraulic excavators were clearly innovative at the time of introduction but they gain widespread use only decades after. However, cable-operated excavators are still used in some cases, mainly for large excavations.
Mini steel mills	Vertically integrated steel mills	By using mostly locally available scrap and power sources these mills can be cost effective even though not large.
Minicomputers	Mainframes	Minicomputers were originally presented as an inexpensive alternative to mainframes and mainframe manufacturers did not consider them a serious threat in their market. Eventually, the market for minicomputers became much larger than the market for mainframes. Similarly, the market for main frames and mini-computers was seriously disrupted by personal computers. Although they were not at all competitive at the time of their introduction in the 1970s, by the mid 1980s they had improved exponentially and could compete directly with the more expensive machines.[citation needed]
Personal computers	Minicomputers, Workstations. Word processors, Lisp machines
Smartphones	Personal computers	Smartphones and tablets can be used everywhere. The computational power of high end smartphones is similar to the performance of personal computer, but requires smaller footprint and power compared to a personal computer, at the same time a smartphone does not need to be attached to a wireline IP network.
Email	Postal mail	E-mail has replaced postal mail because it can be sent from one place to another place in few milliseconds, without wasting paper and spending money for postage stamps.
Desktop publishing	Traditional publishing	Early desktop-publishing systems could not match high-end professional systems in either features or quality. Nevertheless, they lowered the cost of entry to the publishing business, and economies of scale eventually enabled them to match, and then surpass, the functionality of the older dedicated publishing systems.[citation needed]
Computer printers	Offset printing	Offset printing has a high overhead cost, but very low unit cost compared to computer printers, and superior quality. But as printers, especially laser printers, have improved in speed and quality, they have become increasingly useful for creating documents in limited issues.[citation needed]
Digital photography	Chemical photography	Early digital cameras suffered from low picture quality and resolution and long shutter lag. Quality and resolution are no longer major issues and shutter lag is much less than it used to be. The convenience of small memory cards and portable hard drives that hold hundreds or thousands of pictures, as well as the lack of the need to develop these pictures, also helped. Digital cameras have a high power consumption (but several lightweight battery packs can provide enough power for thousands of pictures). Cameras for classic photography are stand-alone devices. In the same manner, high-resolution digital video recording has replaced film stock, except for high-budget motion pictures.[citation needed]
High speed CMOS video sensors	Photographic film	When first introduced, high speed CMOS sensors were less sensitive, had lower resolution, and cameras based on them had less duration (record time). The advantage of rapid setup time, editing in the camera, and nearly-instantaneous review quickly eliminated 16 mm high speed film systems. CMOS-based cameras also require less power (single phase 110 V AC and a few amps for CMOS, vs. 240 V single- or three-phase at 20-50 A for film cameras). Continuing advances have overtaken 35 mm film and are challenging 70 mm film applications.[citation needed]
Steamboats	Sailing ships	The first steamships were deployed on inland waters where sailing ships were less effective, instead of on the higher profit margin seagoing routes. Hence steamships originally only competed in traditional shipping lines' "worst" markets.[citation needed]
Telephones	Telegraphy	When Western Union infamously declined to purchase Alexander Graham Bell's telephone patents for $100,000, their highest-profit market was long-distance telegraphy. Telephones were only useful for very local calls. Short-distance telegraphy barely existed as a market segment, which explains Western Union's decision.[citation needed]
Automobiles	Rail transport	At the beginning of the 20th century, rail (including streetcars) was the fastest and most cost-efficient means of land transportation for goods and passengers in industrialized countries. The first cars, buses and trucks were used for local transportation in suburban areas, where they often replaced streetcars and industrial tracks. As highways expanded, medium- and later long-distance transports were relocated to road traffic, and some railways closed down. As rail traffic has a lower ton-kilometer cost, but a higher investment and operating cost than road traffic, rail is still preferred for large-scale bulk cargo (such as minerals).
Private jet	Supersonic transport	The Concorde aircraft has so far been the only supersonic airliner in extensive commercial traffic. However, it catered to a small customer segment, which could later afford small private sub-sonic jets. The loss of speed was compensated by flexibility and a more direct routing (i.e. no need to go through a hub). Supersonic flight is also banned above inhabited land, due to sonic booms. The Concorde service was withdrawn in 2003.
Plastic	Metal, wood, glass etc.	Bakelite and other early plastics had very limited use - their main advantages were electric insulation and low cost. New forms had advantages such as transparency, elasticity and combustibility. In the early 21st century, plastics can be used for nearly all household items previously made of metal, wood and glass.[citation needed]
Light-emitting diodes	Light bulbs	A LED is significantly smaller and less power-consuming than a light bulb. The first optical LEDs were weak, and only useful as indicator lights. Later models could be used for indoor lighting, and now several cities are switching to LED street lights. Incandescent light bulbs are being phased out in many countries.
Digital synthesizer	Electronic organ and piano	Synthesizers were initially low-cost, low-weight alternatives to electronic organs and acoustic pianos. Today's synthesizers feature many automated functions and have replaced them for home and hobby users.[citation needed]
LCD	CRT	The first liquid crystal displays (LCD) were monochromatic and had low resolution. They were used in watches and other handheld devices, but during the early 2000s these (and other planar technologies) largely replaced the dominant cathode ray tube (CRT) technology for computer displays and television sets, although CRT technologies have improved with advances like true-flat panels and digital controls only recently.[citation needed]
Digital calculator	Mechanical calculator	Facit AB used to dominate the European market for calculators, but did not adapt digital technology, and failed to compete with digital competitors.
Ultrasound	Radiography (X-ray imaging)	Ultrasound technology is disruptive relative to X-ray imaging. Ultrasound was a new-market disruption. None of the X-ray companies participated in ultrasound until they acquired major ultrasound equipment companies.
Massively Open Online Courses (MOOCs), Blended Learning, and Tightly structured, career-focused learning.	Higher Education	Notes: Higher Education is an industry that has experienced massive price and cost increases in recent decades. Tuition and fees at U.S. public and private colleges have risen by an average of 439 percent after allowing for inflation (from 1982 through 2007). This challenge has mandated a new definition of quality from the perspective of students – so that their choice for higher education is valuable, efficient, and practical. There are a number of disruptive innovations that are providing students with alternatives to the traditional University approach, including: Massive Open Online Courses (MOOCs): Internet-based teaching programs designed to handle thousands of students simultaneously, in part using the tactics of social-networking websites. MOOCs had exploded into the academic consciousness in summer 2011, when a free artificial-intelligence course offered by Stanford University in California attracted 160,000 students from around the world — 23,000 of whom finished it. Blended Learning: Blended learning is a form of education in which student learns at least in part through online delivery of content and instruction. During the last decade, the National Center for Academic Transformation has worked with hundreds of public universities to redesign individual courses around a ‘blended model’ of education that takes greater advantage of technology. The average cost reduction from blended learning in higher education has been 39 percent, with some course costs reduced as much as 75 percent. Tightly structured, career-focused learning: noted political and cultural commentator David Brooks recently predicted that the future of universities is in practical knowledge. Noted education entrepreneurs such as Howard A. Tullman are building colleges with this very aim in mind. These colleges, like Tribeca Flashpoint Media Arts Academy and Kendall College, are training students in high-value skills and technologies through hands-on, team and project based, real world assignments. These types of colleges have a unique education goal, what Tony Wagner, the Harvard education specialist, describes as making every graduate “innovation ready,” or ready to add value to whatever they do. This type of career-focused learning is also disruptive in that it does not focus on degree attainment as the sole measure of success. According to Clayton Christensen, “Degrees are a proxy for skill attainment, but they are far from a perfect one, as seen in the amount of retraining that employers do as well as the current unemployment figures. Real outcomes and real mastery—as often shown in work portfolios for example—are more important.”
Wikipedia	Traditional encyclopedias	Traditionally edited general encyclopedias have been displaced by Wikipedia, the free, non-profit, community-edited online encyclopedia. Former market leader Encyclopædia Britannica ended print production after 244 years in 2012. Britannica's price of over $1000, its physical size of dozens of volumes, its weight of over 100 pounds, and its update cycles lasting a year or longer were all annulled by Wikipedia. Microsoft's Encarta, a 1993 entry into professionally edited digital encyclopedias, was once a major rival to Britannica but was discontinued in 2009. Wikipedia's lack of price, unlimited size and instant updates are the primary challenges for profitable competition in the consumer market.

See also

• Blue Ocean Strategy
• Creative destruction
• Killer application
• Leapfrogging
• List of emerging technologies
• Obsolescence
• Paradigm shift
• Technology strategy

References

• Anthony, Scott D.; Johnson, Mark W.; Sinfield, Joseph V.; Altman, Elizabeth J. (2008). Innovator's Guide to Growth - Putting Disruptive Innovation to Work. Harvard Business School Press. ISBN 978-1-59139-846-2. 
• How to Identify and Build Disruptive New Businesses, MIT Sloan Management Review Spring 2002
• Christensen, Clayton M. (1997), The innovator's dilemma: when new technologies cause great firms to fail, Boston, Massachusetts, USA: Harvard Business School Press, ISBN 978-0-87584-585-2. 
• Christensen, Clayton M. & Overdorf, Michael. (2000). "Meeting the Challenge of Disruptive Change" Harvard Business Review, March–April 2000.
• Christensen, Clayton M., Bohmer, Richard, & Kenagy, John. (2000). "Will Disruptive Innovations Cure Health Care?" Harvard Business Review, September 2000.
• Christensen, Clayton M. (2003). The innovator's solution : creating and sustaining successful growth. Harvard Business Press. ISBN 978-1-57851-852-4. 
• Christensen, Clayton M.; Anthony, Scott D.; Roth, Erik A. (2004). Seeing What's Next. Harvard Business School Press. ISBN 978-1-59139-185-2. 
• Christensen, Clayton M., Baumann, Heiner, Ruggles, Rudy, & Sadtler, Thomas M. (2006). "Disruptive Innovation for Social Change" Harvard Business Review, December 2006.
• Mountain, Darryl R., Could New Technologies Cause Great Law Firms to Fail?
• Mountain, Darryl R. (2006). Disrupting conventional law firm business models using document assembly, International Journal of Law and Information Technology 2006; doi:10.1093/ijlit/eal019
• Tushman, M.L. & Anderson, P. (1986). Technological Discontinuities and Organizational Environments. Administrative Science Quarterly 31: 439-465.
• Eric Chaniot (2007). "The Red Pill of Technology Innovation" Red Pill, October 2007.

Further reading

• Danneels, Erwin (2004). "Disruptive Technology Reconsidered: A Critique and Research Agenda". Journal of Product Innovation Management 21 (4): 246–258. 
• Danneels, Erwin (2006). "From the Guest Editor: Dialogue on The Effects of Disruptive Technology on Firms and Industries". Journal of Product Innovation Management 23 (1): 2–4. 

External links

• Peer-reviewed chapter on Disruptive Innovation by Clayton Christensen with public commentaries by notable designers like Donald Norman
• The Myth of Disruptive Technologies. Note that Dvorák's definition of disruptive technology describes the low cost disruption model, above. He reveals the overuse of the term and shows how many disruptive technologies are not truly disruptive.
• "The Disruptive Potential of Game Technologies: Lessons Learned from its Impact on the Military Simulation Industry", by Roger Smith in Research Technology Management (September/October 2006)
• Disruptive Innovation Theory
• Bibliography of Christensen’s "Theory of Disruptive Innovation" as it relates to higher education
• Disruptive Technology Portfolio by InformationWeek and Credit Suisse
• [1] Diffusion of Innovations, Strategy and Innovations The D.S.I Framework by Francisco Rodrigues Gomes Academia.edu share research