Not every innovation or novel idea is disruptive. Professor Clayton Christensen of Harvard Business School—the man responsible for the framework behind “disruptive innovation”— describes disruption as a situation when a company—often with fewer resources—successfully challenges market leaders with more resources in a unique way.
Christensen recently made a plea to the business community to not misapply the concept, as it makes it more difficult to identify disruptive opportunities in our own industries.
So how does disruption really happen?
Established companies tend to focus their resources on their most profitable customers, often neglecting those that are less profitable and less demanding.
New, disruptive entrants find a way to satisfy the ignored group of customers, by serving them at much lower price points. Established companies ignore these minor segments because they represent such a small percentage of their profits.
However, disruption occurs when these new players continuously improve their product and service offerings. They begin to appeal to mainstream customers by offering superior quality at a much lower price.
disruption occurs when these new players continuously improve their product and service offerings. They begin to appeal to mainstream customers by offering superior quality at a much lower price.
Some familiar examples of disruptive innovators include:
At its outset, YouTube was simply a free and convenient tool for regular people to post and share personal videos online. Today “viral videos” have become the holy grail of marketers and content producers around the world, while YouTube rakes in billions in online advertising every year.
Originally a free peer-to-peer voice calling platform developed by Estonian hackers, Skype has become a household name (even a commonly used verb) in online voice and video communication, and was recently acquired by Microsoft for over US$8 billion.
Skype today is a market leader and readily competes with long-established players in the VOIP and telecommunications industry.
A company doesn’t have to be a start-up to be disruptive.
But start-ups have the advantage of being able to radically change the cost structure of a business, a key component of true disruption.
Youtube let content producers distribute media for free online, where traditional video channels had extremely high barriers to entry.
Skype’s peer-to-peer technology circumvented the traditional phone networks and drastically lowered the cost to make international calls, snatching market share from global telecom providers.
Apple – the outlier
Apple is an example of an established company that was able to completely disrupt the software industry. The 2007 introduction of the “App store” ushered in a new era of cheap software:
Smaller developers could potentially reach a huge market with virtually no distribution costs, and app users could easily find new (and affordable) software to meet their needs.
This radical transformation of the software industry has forced many other tech giants to follow Apple’s lead, and has redefined the way consumers think about software in the 21st century.
The takeaway – three keys to remember about disruptive innovation:
- Disruption is a process. It is not an event.
- Disruptors often begin by building a new business model.
- Not every disruptive path leads to success. Like every other form of innovation, disruptive innovation comes with its own risks.
For further reading on disruption, try these resources:
HBR: “What is Disruptive Innovation?” (https://goo.gl/PwMsnF)
Clayton Christensen’s “The Innovator’s Dilemma” (http://amzn.to/1YAwzRv)
By William Zyzo (2016). William is the Advisor of the Advance Learning Lab at AmCham in Taipei. He is also the Managing Director of Z&A Knowledge Solutions, a firm specializing in providing performance solutions to executives and senior managers in multinational corporations in Taiwan, Hong Kong, South Korea, Singapore, and China. You can reach him at [email protected]