entreSociety

Building an entrepreneurial society

Archive for the tag “Disruptive technology”

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.

What kind of innovation is it? Increasing the chances of success.

There is a step we need to consider before we make a final decision on the product and the target customers.  We need to determine if the product will be a sustaining or a disruptive innovation.  I will once again use the concepts developed by Clay Christensen.  In future posts I will integrate concepts from multiple sources and my experience.  However the distinction between sustaining and disruptive innovations is the major breakthrough Christensen developed in his work and there is no other predictive theory that captures it as well.

A sustaining innovation is one that “targets demanding, high end customers with better performance than what was previously available.”  In this instance a company is adding features and functionality to an existing product that is being sold to its existing customers.  The jobs to be done for these customers are already being addressed.

Disruptive innovations are “simpler, more convenient, and less expensive products that appeal to new or less demanding customers.”  That is, customers whose jobs to be done are not currently being addressed by existing products in the marketplace.

The important things to note here is that the incumbents never lose in a sustaining innovation fight and almost never win a disruptive innovation fight.  In fact, the incumbents will often abandon a lower value market to a new entrant with a disruptive product so they can focus on their higher value customers.  If your job to be done is an improvement to an existing product that is serving an established customer base it is a sustaining innovation and you will fail.  You need to ensure that your product is a disruptive innovation.

There are two groups of disruptive innovations.  The first is low end disruption where a cheaper and less functional product is offered to a set of customers that don’t need the functionality of the existing product and will be happy to pay a lower price.  You need to determine if you are able to offer this product at a cost where you can make a profit.  Over time the disruptive product will improve its functionality until it will be attractive even for the incumbent’s customers.  However the disrupting company will be able to meet the needs of this market at a lower cost structure.  The incumbent will not have the ability to lower its cost base and will lose the customer base.

New market disruption is the second type of disruptive innovation.  This type of disruption targets customers that targets people that do not use any product or service for their job to do because they do not have the expertise to use the existing products in the market or cannot afford the cost.  They may also avoid the existing offerings if they are not convenient to use.

A disruption may also be a combination of the low and new market variety.  Low end customers of an existing product may move to the less expensive or complex product and a new group of customers will be brought into the market.

In the previous post we determined that the starting point was to find a customer job to done that we could address with a product or service.  In this post we qualify that selection by ensuring that the product or service is a disruptive innovation and does not try to take on an existing competitor in their area of dominance.  From there we can identify the initial customer and design the launch product.

Post Navigation