DisruptiveInnovation.Org - Key Concepts

Disruptive Innovation

The theory of disruptive innovation describes the process by which technology enables new entrants to provide goods and services that are less expensive and more accessible, and eventually replace—or “disrupt”—well-established competitors. A successful disruptive innovation contains three ingredients: 1. Enabling technology -- an invention or innovation that makes a product more affordable and accessible to a wider population. 2. Innovative business model -- a business model that targets nonconsumers (new customers who previously did not buy products or services in a given market) or low-end consumers (the least profitable customers). This is most easily accomplished by new entrants, as they are not locked into existing models. 3. Coherent value network -- a value network in which upstream and downstream suppliers, partners, distributors, and customers are each better off when the disruptive technology prospers. Coined in the early 1990s by Harvard Business School professor Clayton Christensen, the term has become virtually ubiquitous from Wall Street to Silicon Valley. Consequently, it’s also one of the most misunderstood and misapplied terms in the business lexicon. It’s important to note that disruptive innovations are not breakthrough technologies that make good products better; rather they are innovations that make products and services more accessible and affordable, thereby making them available to a larger population. A classic example of a disruptive innovation is the personal computer. In the 1980s, “minicomputers” ruled the computing industry. They were expensive, complicated, and—contrary to their name—stood six feet tall and weighed 1500 lbs. While minicomputer companies enjoyed market dominance, a relatively unknown company named Apple Inc. began selling rudimentary computers as a children’s toy. Their product was clearly inferior to the existing computing options, but to people who couldn’t afford or operate a minicomputer, the device was better than the alternative: nothing at all. Within a few years, Apple’s product improved enough to become competitive with industry giants—but in a drastically more convenient and affordable package. And thus Apple successfully created a new market and ultimately disrupted the computing industry.