Misuse the term disruptive at your peril

The term disruption comes up constantly in the world of innovation but often in the wrong context.  Most people think of it as a big, breakthrough technology that will become the next big thing.  Most of the time it isn’t that at all. It usually starts out as something very unremarkable but has the ability to unseat market leaders over time.  It is because of its humble beginnings that a disruptive technology or business model is so dangerous.  By the time you recognize them it is too late to respond.  That is why it is also important to have a solid grasp of the concept.

The term was made famous by Clay Christensen in Innovator’s Dilemma and expanded by him and his colleagues in several works since.  A disruptive innovation is most often cheaper and of lower functionality than incumbent products.  They are aimed at the low end of the market who can’t afford the existing solution or don’t have the ability to use it.  The market leaders don’t pay much attention to the product or the market segment since they are focussed on building increasingly better versions of the product sold to the high end of the market.  But two things end up happening over time.  The increasing features of the existing products begin to exceed the ability of the market to absorb them and the product becomes more expensive and complex to use.  Secondly the disruptive product has improved over time so that it is now good enough for the mainstream market and usually at a lower cost.  The disruptor often has a lower cost structure than the incumbents and can make profits at lower margins.  It is almost impossible to companies used to high profit margins to lower their cost structure.

An established company with existing products aimed at existing customers could come up with a breakthrough on that product line.  But that breakthrough is not disruptive.  It is a sustaining innovation since its impact is to make the existing product better.  Companies should be looking for ways to improve their key products keeping their most profitable customers happy.  But they also need to set up a separate group with its own funding to find the disruptive opportunities.  Those that don’t often find themselves being blind sided by true disruptive products or business models.

Published by Vince Bulbrook

Vince has spent over twenty five years working with entrepreneurs providing financial and strategic advice. Much of this advice has centered on business model design and product development. Issues such as determining how to invest product development resources, pricing options, features, distribution and client requests all come in to play. For much of the past fifteen years Vince has operated a business providing CFO and strategy services to small businesses. In this period he spent three years in the product development group of a software company that had a $26-million development budget. Along with overseeing the development of a product he also worked with senior management and the other product teams to determine how to manage the product portfolio. He has advised clients in software, entertainment, digital media, publishing, retail and distribution on product pricing, feature selection, distribution strategy. Prior to founding the advisory business Vince worked with Price Waterhouse and Ernst and Young. Vince graduated from the Ivey School of Business with an HBA and is a Chartered Accountant.

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