r e s o u r c e s

what is disruptive innovation?

Our research and consultancy shows that disruptive breakthrough products (both tangible products and intangible services) appear in three major forms:

1. Low-end disruptions.
2. New-market disruptions.
3. Next generation breakthroughs.

Note: these categories are not mutually exclusive; an innovation can begin in one category and migrate to another during its exploitation path.

The focus of this introduction is on the first two types: low-end and new-market disruption:

The notion of ‘low-end disruption’ was pioneered by Harvard Business School’s Clayton Christensen. This form of disruptive innovation is based on commonly recurring observations made in countless industries (see Figure 1):
* The performance demanded by customers within an existing market can be mapped onto a normal distribution curve, from low-demanding to high-demanding customers (see the green curve at the right-hand side of Figure 1).
* Average customers make up the mainstream market, and over time all customers either demand or are able to absorb improved performance (line ‘A’ in Figure 1).
* It is the customers’ ability to absorb and demand more performance that creates a major drive for product performance improvement (line ‘B’ in Figure 1).
* Competitive pressures in the market place will often force the performance improvement provided to take a different trajectory to that of performance improvement demanded or that can be absorbed by the customers. For instance, this can occur when management teams ‘fall in love’ with their technology and ‘technology myopia’ sets in, or simply when there is a desire to beat the competition.
* When performance provided exceeds performance demanded (points ‘O’ and ‘D’ in Figure 1), we can say that the market is in a state of performance-oversupply.
* The feature of performance-oversupply literally creates a vacuum into which simpler, more convenient customer offerings are drawn. Thus, new technologies and products that were only performance-competitive in low-end niches with low-demanding customers may migrate upwards into the mainstream market (note that line ‘C’ in Figure 1 represents a new low-end product offering that gradually moves into the ‘mainstream market’ with a disruptive effect).
* The prevalence of performance oversupply in the market can provide low-end innovators with a vehicle to new customers at the low-end of the mainstream market. These customers would have previously viewed such products as substandard, however, when the alternative is a product that significantly oversupplies their needs, the low-end offering can establish a foothold.
* This process enables new low-end entrants to significantly grow revenues, enabling them to improve their product. Eventually they can offer established mainstream markets new performance attributes that are now more relevant than those offered by the traditional market leaders – e.g. low costs or convenience.

Figure 1: The process of low-end disruption

Managers can also deliver ‘new-market disruptions’, which have the following features (Figure 2):
*‘Non-consumers’ instead of low-end customers are the target. By addressing a niche of people who currently do not consume the traditional product, organisations can create a new niche market.
* New markets can be established by creating a simple, convenient product that allows a new market niche to do things that they would not have other wise been able to do.
* The growth of such new markets is often ignored by established companies. They are considered too small, not-profitable, and the technologies used are often considered too different and are therefore viewed as substandard compared to the existing company focus.
* Much like the low-end disruptions described above, the incremental improvements of the new-market product allows the new niche market to grow.
* Eventually, customers who face performance-oversupply in established markets or who value the convenience of the new-market product are tempted to switch to the new product.
* Quite often by the time traditional market leaders begin to notice their customer defection to new markets, its too late - market disruption has set in.
* Once market disruption sets in, the attributes offered by the new product and the new entrants permanently reshape the traditional market place.
Note: it is common for new-market innovations to migrate to the low-end disruptive approach.

Figure 2: The process of new-market disruption

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