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I recently started reading Clayton Christensen's excellent new book, The Innovator's Solution. Even though I'm only a few chapters into it, I've already had had my assumptions of what constitutes disruptive innovation shaken by Christensen's compelling writing.
I naturally assumed that disruptive innovations involve a radically new business model (such as Amazon.com or Dell Computer's) or a radically new product idea that offers customers an exciting new package of features, benefits or advantages.
According to Christensen, a much more common form of disruption is this: Disruptive innovators don't try to go head-to-head with entrenched competitors, because that is usually a losing game. Instead, they enter the low end of the market, which is typically underserved by larger, entrenched competitors, and may be ripe for technical or business model innovation.
For the disruptor, this market segment represents an attractive opportunity with significant profit margins, while the larger, entrenched competitors are only too happy to abandon the bottom end of the market, which for them is unprofitable. Instead, they move upmarket, where the most profitable customer segments are.
If these large, entrenched competitors are incremental innovators -- committed to a strategy of introducing new and improved products on a regular basis -- at some point the growing complexity of their products finally outstrips the ability of their core customer to absorb or utilize these features. This process continues to drive these established competitors upmarket to the most demanding and profitable customer segments who can appreciate the extensive, improved and increasingly expensive feature set of these high-end products.
Once the disruptive innovator has a foothold on the low end of the market, they steadily moving up market; entrenched competitors abandoning these lower tiers of the market, which are becoming commoditized and unprofitable for them.
Eventually, the products of the disruptive innovator move upmarket until they are positioned to meet the needs of the majority of existing customers. At this point, the battle is over. Christensen provides numerous examples to prove this theory of disruptive innovation, which appears to apply to both high- and low-tech industries. |
