Disruptive Innovation: Technology, Whereas Disruptive Innovations Change Entire Markets. For Example

Disruptive Innovation
A disruptive innovation is an innovation that helps create a new market and value
network, and eventually disrupts an existing market and value network (over a few
years or decades), displacing an earlier technology. The term is used in business
and technology literature to describe innovations that improve a product or
service in ways that the market does not expect, typically first by designing for a
different set of consumers in a new market and later by lowering prices in the
existing market.
In contrast to disruptive innovation, a sustaining innovation does not create
new markets or value networks but rather only evolves existing ones with better
value, allowing the firms within to compete against each other's sustaining
improvements. Sustaining innovations may be either "discontinuous" (i.e.
"transformational" or "revolutionary") or "continuous" (i.e. "evolutionary").
The term "disruptive technology" has been widely used as a synonym of
"disruptive innovation", but the latter is now preferred, because market disruption
has been found to be a function usually not of technology itself but rather of its
changing application. Sustaining innovations are typically innovations in
technology, whereas disruptive innovations change entire markets. For example,
the automobile was a revolutionary technological innovation, but it was not a
disruptive innovation, because early automobiles were expensive luxury items
that did not disrupt the market for horse-drawn vehicles. The market for
transportation essentially remained intact until the debut of the lower priced Ford
Model T in 1908.The mass-produced automobile was a disruptive innovation,
because it changed the transportation market. The automobile, by itself, was not.
The term disruptive technologies was coined by Clayton M. Christensen and
introduced in his 1995 article Disruptive Technologies: Catching the Wave, which
he co-wrote with Joseph Bower. The article is aimed at managing executives who
make the funding/purchasing decisions in companies rather than the research
community. He describes the term further in his book The Innovator's Dilemma.
Innovator's Dilemma explored the cases of the disk drive industry (which, with its
rapid generational change, is to the study of business what fruit flies are to the
study of genetics, as Christensen was advised in the 1990s[6]) and the excavating
equipment industry (where hydraulic actuation slowly displaced cable-actuated
movement). In his sequel with Michael E Raynor, The Innovator's Solution,
Christensen replaced the term disruptive technology with disruptive innovation
because he recognized that few technologies are intrinsically disruptive or
sustaining in character; rather, it is the business model that the technology
enables that creates the disruptive impact. However, Christensen's evolution from
a technological focus to a business modeling focus is central to understanding the
evolution of business at the market or industry level. Christensen and Mark W.
Johnson, who co-founded the management consulting firm Innosight, described the
dynamics of "business model innovation" in the 2008 Harvard Business Review article
"Reinventing Your Business Model". The concept of disruptive technology
continues a long tradition of the identification of radical technical change in the
study of innovation by economists, and the development of tools for its

management at a firm or policy level.
In the late 1990s, the automotive sector began to embrace a perspective of
"constructive disruptive technology" by working with a consultant David E.
ORyan, whereby the use of current off-the-shelf technology was integrated with
newer innovation to create what he called "an unfair advantage". The process or
technology change as a whole had to be "constructive" in improving the current
method of manufacturing, yet disruptively impact the whole of the business case
model, resulting in a significant reduction of waste, energy, materials, labor or
legacy costs to the user.
In keeping with the insight that what matters economically is the business model,
not the technological sophistication itself, Christensen's theory explains why many
disruptive innovations are not "advanced technologies", which the technology
mudslide hypothesis would lead one to expect. Rather, they are often novel
combinations of existing off-the-shelf components, applied cleverly to a small,
fledgling value network.
Christensen defines a disruptive innovation as a product or service designed for a

new set of customers.
"Generally, disruptive innovations were technologically straightforward,
consisting of off-the-shelf components put together in a product
architecture that was often simpler than prior approaches. They offered
less of what customers in established markets wanted and so could
rarely be initially employed there. They offered a different package of
attributes valued only in emerging markets remote from, and
unimportant to, the mainstream."
Christensen distinguishes between "low-end disruption" which targets customers
who do not need the full performance valued by customers at the high end of the
market and "new-market disruption" which targets customers who have needs
that were previously un-served by existing incumbents.
"Low-end disruption" occurs when the rate at which products improve exceeds the
rate at which customers can adopt the new performance. Therefore, at some point
the performance of the product overshoots the needs of certain customer
segments. At this point, a disruptive technology may enter the market and
provide a product which has lower performance than the incumbent but which
exceeds the requirements of certain segments, thereby gaining a foothold in the
market.
In low-end disruption, the disruptor is focused initially on serving the least
profitable customer, who is happy with a good enough product. This type of
customer is not willing to pay premium for enhancements in product functionality.
Once the disruptor has gained a foothold in this customer segment, it seeks to
improve its profit margin. To get higher profit margins, the disruptor needs to
enter the segment where the customer is willing to pay a little more for higher
quality. To ensure this quality in its product, the disruptor needs to innovate. The
incumbent will not do much to retain its share in a not so profitable segment, and
will move up-market and focus on its more attractive customers. After a number
of such encounters, the incumbent is squeezed into smaller markets than it was
previously serving. And then finally the disruptive technology meets the demands
of the most profitable segment and drives the established company out of the
market. "New market disruption" occurs when a product fits a new or emerging
market segment that is not being served by existing incumbents in the industry.
In practical world, the popularization of personal computers illustrates how the

knowledge contributes to the ongoing technology innovation. The original
centralized concept (one computer, many persons) is a knowledge-defying idea of
the computing prehistory and its inadequacies and failures have become clearly
apparent. The era of personal computing brought powerful computers on every
desk (one person, one computer). This short and transitional period was
necessary for getting used to the new computing environment, but was
inadequate from the knowledge-producing vantage point. Adequate knowledge
creation and management come mainly from networking and distributed
computing: one person, many computers. Each persons computer must form an
access to the entire computing landscape or ecology through the Internet of other
computers, databases, mainframes, as well as production, distribution and
retailing facilities, etc. For the first time our technology empowers individuals
rather than external hierarchies. It transfers influence and power where it
optimally belongs: at the locus of control of the useful knowledge. Even though
hierarchies and bureaucracies do not innovate, free and empowered individuals

do; knowledge, innovation, spontaneity and self-reliance are becoming
increasingly valued and promoted.
Refer to Excel file on examples of Disruptive Innovations

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Disruptive Innovation

study of innovation by economists, and the development of tools for its

Christensen defines a disruptive innovation as a product or service designed for a

In practical world, the popularization of personal computers illustrates how the

hierarchies and bureaucracies do not innovate, free and empowered individuals

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