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Innovation&: Disruptive Innovation

Updated: Oct 11, 2023

Disruptive Innovation

Picture: Technologies in disruptive business models often have inferior quality from the perspective of established providers.

Disruptive innovation is a special type of innovation that forces established companies to face new competitors. These new providers often initially offer products with lower quality (yes, most disruptive innovations were of lower quality at the beginning), but they are highly accessible and affordable for the general public. This allows them to attract "non- or low-use" customers who were not willing to engage with products from established companies before.

Are established companies blind?

Unfortunately, many established companies overlook the danger posed by disruptive innovations. They see the technologies emerging, often experiment with them themselves, witness new providers entering the market, but do not take their new offerings seriously. Existing providers focus on what they do well – optimizing their profits with ever-improving products through incremental (sustaining) innovation, concentrating on seemingly higher margins. Interestingly, established providers often use more technically complex and innovative technologies for incremental innovation. Disruptive start-ups usually start with simpler technologies and are often ridiculed by established companies.

Disruptive innovation creates jobs, efficiency innovations destroy them.
- Clayton Christensen

Only markets with high margins are good enough?

Existing market players try to defend their existing high-priced markets as market leaders against other traditional competitors with ever "better" products. However, when the quality of products from all providers keeps improving, the added value for normal and low-price customer segments becomes overrated or no longer beneficial. The start of the disruptive impact of new market entrants with new business models goes unnoticed. The large market of customers who demand low prices, where the current product seems too expensive and overdesigned, will embrace new products that solve their problems more simply and affordably. Often, these new products offer greater convenience too. The new business models redefine industry paradigms. Long-term contracts become "come and go whenever you want," purchasing becomes "use it as long as you want," waiting becomes "we deliver anytime within max x minutes," our assortment becomes "we have it thanks to our partners in our shop," minimum order quantities become "yes, order as many as you need," etc. It is essential to understand that it's not the technologies of the new providers per se that are innovative (most of them are generally available technologies), but the business models behind them that have the disruptive effect.

Is watching and waiting a solution?

It's crucial for established companies to be aware of the danger, recognize it, and not rely solely on their established product innovations but also seek new innovative ways to delight their customers or "not yet customers." This means first dealing with these customer personas, understanding their problems, engaging with new technologies for problem-solving, and thus learning and gaining experience in new markets. A careful analysis of the (non)-market environment is also crucial to detect the threat of disruptive innovations early on and define an innovation strategy instead of thoughtlessly hopping on every technological trend. The innovation resources should be used appropriately, primarily to gain experience with the new business models enabled by the technologies. Innovation, especially disruptive innovation, is nowadays an essential concept to be successful and remain competitive.

Intrapreneurship and disruptive innovation

Companies that want long-term success must also focus part of their innovation resources on innovation bets in new markets arising from the disruptive nature. It is not enough to see the world through the industry's lens "from within" and approach existing markets with new products through incremental or co-innovation with partners. Companies must also think about new customer segments and markets with new products. Especially in this area, the risk is naturally higher, and the risk aversion of established companies is also greater. Therefore, this field is often left to start-ups since "start-up entrepreneurship" (intrapreneurship) is poorly or not present in established firms. Particularly, new technologies that have disappeared in the "valley of death" are disregarded due to the focus on hype technologies (Gartner Hype Cycle, technology radar) and later resurface in the form of start-ups that have established themselves after the valley of death. In the end, as an entrepreneur of a company, the question to answer is, "how do I manage to disrupt my own business model before someone else does?"


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