Disruptive innovation refers to a type of innovation in which the niche market or forgotten part of the market is targeted, and a completely new market is created. Disruptive innovation usually leads to fundamental differentiation from competing businesses and creates new branches in the market with a different approach.
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What conditions bring about opportunities for disruptive innovation?
- Creation of a new market or identifying an intact market with unfulfilled needs
- Lack of resources
- Low operating productivity of the main developed businesses in this market
Major companies, which are older and more traditional in the market, usually focus on improving their products or services in order to increase the company’s profitability. This process is normally accompanied by an increase in the quality of the product and the ignoring other market segments (with different needs).
This creates the right environment for disruptive innovation that targets neglected market segments. In this way, a suitable environment is created for a company to respond to the needs of those customers, and products and services are eventually introduced to the market, which are very different from the offers of the main companies operating in that market. This disruption is the beginning of the incremental loss of market share from the main players of that market, which occurs due to their inability to respond to different and changing needs of the market.
One of the most well-known companies in the field of innovation is Netflix. The company that now runs the largest online video streaming business. With its presence in the market, Netflix created a huge change in the video releasing industry and led to the closure of all businesses with the style of sending DVDs, renting movies, etc. As an outsider, Netflix was able to see the drawbacks of using DVD.
This method, which was considered a change in the world of digital data storage recently, had major problems such as non-compliance with copyright, time delays in sending and responding to customer needs, etc. As a result, Netflix created a different business that could meet the same needs at much lower costs in a simpler, more secure, and broader manner to turn even the most disloyal customers into its regular customers.
Low-End Disruption & New-Market Disruption
Disruption in the market floor means change in services and products that target customers at the bottom of market pyramid. This section of each market is usually made up of those who can afford to pay the average cost of services and products. For this reason, when there is a change in the products and services related to this part of the market, the market notices fundamental changes. In fact, in this case, disruptive innovation takes less risk and selects a part of customers with lower income and lower profitability.
This type of innovation is exactly the opposite of disruptive innovation in higher market levels. In this case, the competition is aimed at quality products belonging to the higher classes of the population pyramid of customers. In both cases, however, the innovation is done to get closer to customer satisfaction.
A disruptive innovation in the mobile phone industry
BlackBerry gradually gained more market share in mobile phones from 1984 to 2007. BlackBerry was constantly offering innovative and new products with different services, but the possible changes in this field almost ended and a new era of data network connection began. BlackBerry adapted to these changes and used new technologies in its new products. BlackBerry responded quickly and effectively until 2007, the year that Apple introduced its iPhone smartphone and claimed that this product will revolutionize mobile phones.
Re-inventing services and products was an interesting strategy that Apple used to lead to a general redefinition of the mobile market. By changing the market, Apple created a favorable environment to compete with major companies in the mobile industry. Compared to BlackBerry, Apple had better adaptability to fluctuating and ever-changing market conditions, which led to Apple’s rapid dominance of the market. Shortly after Apple entered the market, the company became known as a leader in innovation and technology. Some see this as the result of taking the first step in the market faster. A company that takes the first step in introducing a product or technology sooner is ahead of its competitors; thus, it has more opportunities to identify and respond to potential future situations that could lead to that company’s success in future competitions; a domino effect that eventually leads to more market share and kicking out a number of competitors.
Finally, after a bit of competition, BlackBerry, like Nokia, was wiped out of the competition. The main reason was the redefinition of the market and products by Apple, which happened with the help of innovation in smartphones. A redefinition that forced competitors to align with a new path and lag behind Apple, or not to align with Apple and exit the competition.
Sustaining innovation or disruptive innovation
Developed and mature businesses in most industries maintain only a degree of innovation so that they can sell their products in the marketplace and remain competitive. In most market industries of the world today, no company will be able to maintain its position without innovation and creativity. For this reason, sometimes the only way to innovate is to challenge your previous products or competitors and add new features or make small changes. At this level, the company only strives to sustaining innovation.
The next level of innovation is disruptive innovation. Innovations that dramatically change an industry or product/service and create new categories of products or needs or markets. For example, Motorola clamshell cell phones, which were the first generation of folding cell phones, made many changes to the design of mobile phones. This development was a great success for Motorola, which changed the company’s image. Many companies later used similar designs, and many customers were willing to buy this new design. Of course, this success did not last long because the main reason for the customer’s desire for this phone was its design, which was soon imitated by other companies.
Typically, companies are looking for long-lasting disruptive innovations. The success of an innovation usually has little to do with the type and quality of the idea, rather it depends on how the idea is presented. By customizing and targeting innovations, the organization can create a potential opportunity for transformation and high profitability and even outperforming its competitors in the future. In general, each company should proceed with its innovation in accordance with the goals it pursues in several separate categories. Innovations aimed at transformation, innovative ideas for the fundamental improvement of products and services, and finally innovations that are presented solely to sustain the innovation process. The company can maintain its position in the market for a long time, which can maintain a balance between the three mentioned issues.
Categorizing types of innovation is a simple and understandable way to better understand the form and direction of innovation in any company. For example, a company may voluntarily and consciously reduce disruptive innovations and focus primarily on breakthrough innovations in order to provide more advanced products or higher quality services.
Successful examples of disruptive innovation include block-chain technology, which is now used by many companies and even governments. Spotify is now using the block-chain to improve its payment algorithm, and a country like Russia has developed its own cryptocurrency, Cryptorouble. Even many startups now use ICO instead of IPO.