Innovations that undermine the natural balance of resources and values in the market are called disruptive innovations. As a result of these innovations, old products lose their competitiveness and are replaced by new ones.
The term “disruptive innovation” belongs to Clay Christensen. In a book published 20 years ago, “The Innovator’s Dilemma,” he shared the idea that new technologies and products are one of the most vulnerable points for any company.
Brief description of the idea of disruptive innovation
Technologies offer the latest types of products or services already available in the market. Usually, production requires a reduction in profitability, and that is why technological advancements are often a surprise to large market giants. Christensen claims that the management methodology used by well-known companies prevents them from moving away from the usual rhythm of work and doing business creatively.
Disruptive innovations are a real surprise, which is changing the dynamics of market development. Examples of understanding the essence of this technology are:
Textbooks made of paper and affordable electronic books (eBooks) that replaced them;
Carriages and horses were replaced by cars, bicycles and other medium-sized vehicles – convenient and efficient;
A lot of printed encyclopedias and a compiled online publication replaced with a huge amount of information Wikipedia;
Ordinary and electronic money, which in some circles is replaced with virtual currency;
Banking applications on mobile phones, allowing to pay online for almost all goods and services and making cash desks for payment of services less popular.
However, not all products and services that have become competitive in the market in a short time are called disruptive innovations. We apply this term mainly to initially little-known and small companies aiming at an abandoned or poorly popularized segment, try to offer their quality products at a low price. Moreover, the goods they provide must be of high quality, affordable, and effective for most.
Subversive Innovation Model
The model includes progress curves of consumption and technological progress of old and new methods.
The curve of the consumption process is the basis of the model, which is expressed in entering the market and creating a model for future business. The curve shows how consumers are ready for innovation, whether they will understand the reliability and effectiveness of the new product. The constant growth of this line characterizes subversive innovation, and the dynamics should increase every month. It is worth noting that the indicator is affected not only by what properties the innovation itself has, but also by the labor equipment for products, such as business shirts.
The technology progress curve shows how well the firm has ensured the maximum quality indicators of the proposed product. Consumers are not immediately able to understand the achievements; therefore, when entering the market, the consumption progress curve is ahead of it. At the same time, during the correspondence of quality and demand, both lines of the equations intersect.
The bestselling author also identified several stages of disruptive innovation, along which any model moves invariably:
Approval (search for the optimal type of promotion in the market);
Improvement (“fit” to customer requirements, cost reduction and increase in availability);
Attracting new customers (expanding the sales sector of products or services);
Crowding out (replacing the disruptive innovation of old methods, the collapse of previously established companies).
Innovation is impossible without following the five main principles. The introduction of only a few of them threatens the company with ruin at the initial stage. At the same time, the probability of failure is also quite high, even if the principles are followed.
The basic principle is making decisions that are non-standard and risky. Older companies rely on supporting technologies, while disruptive ones seek innovative solutions.
The principle of scaling lies with the fact that disruptive innovation does not look for profitable markets. However, finding new ones or contributing to an emergency. New companies may transfer development responsibility to firms whose scale matches the target audience. The essence of scaling makes it easier for small companies to enter a small market than a large one with established traditions.
The third principle is the lack of classical analysis and planning. The technologies do not have their market, with established norms and rules of the game. Therefore, a standard analysis of the situation and the search for methods to increase sales will not suit them. Discovery-based planning is the only possible situation in which disruptive innovation lasts the longest and has a future. Management, obtaining data, analysis, and building a plan depending on the current situation and the ability of company managers to rebuild depending on the needs of consumers quickly.
The fourth principle states that it is impossible to fully rely on human resources in the framework of a company. The rapidly changing dynamics of development does not allow finding employees who would ideally correspond to the position held.
The fifth and last principle of disruptive innovation is that enterprise managers need to be prepared for the risks and the possibility of business collapse. When the product is too innovative, it simply does not meet the average requirements of the market.
There were several examples when a product was a disaster for the innovator, but after 10-20 years, it quickly went to its niche and replaced existing analogs.
The future of disruptive innovation
An example of the success of innovation-disruptive innovations in the 20th century was the telephones that replaced the telegraph (the steamers that replaced the sailing ships) and e-mail (which became the analog of mail). Nevertheless, the experts see the future of disruptive innovation as vast and promising.
Most of the disruptive innovations concentrate on the development of electronic devices and applications. The coming decades will determine the development of society and business as a whole. The development will lead IT systems to artificial intelligence, delivery by drones, volume printing, office robots, industrial robots, and blockchains. An important role is played by the development of electronic and virtual money systems – the innovative processes in the IT sector. Disruptive innovations of the future are aimed at optimizing industrial processes serving the population and obtaining efficiency with less use of human resources.