For disruption to happen, a company has to target an overlooked customer base, provide a right fit of product or service
Innovation, which is advancement over an existing product or idea, is a prerequisite for continuous improvement. But a disruptive innovation shakes up an industry once in a while. Disruptive innovation in business is not a new concept. It took birth in 1995 when it was proposed by one of the world’s leading thinkers on innovation Christensen along with his co-authors.
However, over the years, this concept has been misunderstood. It has generally been misapplied to a situation where the industry norms are shaken up and existing players stirred. And here’s where the catch is. Originally, Christensen ideated the concept of disruption, more like a David and Goliath situation– a smaller company with fewer resources successfully challenging an established business.
Established businesses in their effort to retain their existing majority target customer base, focus mainly on improving their present products or services and largely ignore other market segments. New entrants that sense this gap provide products or services lucrative to the overlooked segments.
While the established businesses do not pay heed to these new entrants, they slowly make inroads into upmarket, providing the same products or services to the majority customers whilst retaining their earlier advantage–lower prices. Once these mainstream customers embrace the new products or services, in large quantities, one can say disruption has occurred.
According to Christensen, potential for disruptive innovations arise because established businesses ignore both low-end and new markets. In an attempt to be more profitable, established businesses concentrate on providing mainstream customers with high quality products and services and commit resources in upgrading, enhancing and perfecting their existing products and services, all the while ignoring the low-end market. Sensing this opportunity, new entrants foray into this gap by using a low-cost business model. A low-end disruptor snatches the market share in this segment and pushes the established businesses upmarket. Additionally, disruption can occur by creating new markets where none existed, by developing new products for consumers, at a lower price and an acceptable quality. Arrival of personal computers, and later smartphones are perfect examples of new-market disruption.
The first computers, known as mainframes, were huge and very expensive. With costs as high as $2 million and size as big as to fill an entire room, computing technology was out of bounds for the common man. With the invention of the personal computer, a small and affordable piece of machine, a new market segment of individuals was created.
Over the years, with continuous improvement in its capabilities, a humble personal computer made the mainframe computers virtually obsolete. The next step in new market disruption is the emergence of smartphones, which are creating disruptions at two levels. One, the ability to use the internet in a phone at a fraction of cost of a personal computer is making usage of personal computers less necessary. Two, smartphone photograph taking capabilities are set to disrupt the digital photography industry.
However, over the years, the above concept has been misused by many who have not given a serious thought about the notion itself. Internationally, Uber has been touted as a disruption. It uses mobile applications to connect consumers who need rides with drivers who are willing to provide them. Founded in 2009, the company has enjoyed fantastic growth and is still expanding. It has reported tremendous financial success, with funding rounds and soaring valuation. No doubt, Uber has transformed the business of transportation.
But has it brought about disruption? For disruption to happen, a company has to target an overlooked customer base, provide a right fit of product or service, usually at a lower cost. Uber connected the end users, i.e., customers used to taking cab services, to service providers. So, Uber did not fulfil any of the two conditions to become a disrupter – firstly, it did not bring the market segment that did not use cab services into its fold; and secondly, cab and taxi services were definitely not a new market. Finally, there is no threat to the car industry from Uber.
A well-known quote prevalent in Silicon Valley “disrupt or be disrupted” says it all. All businesses are continuously looking for opportunities to become disruptors with new innovative ideas, products or business models. But only a few are able to become disruptors. Disruptive innovation transforms complex and expensive products or services into simple and reasonable options. Although very time-consuming and enormously risky, creating disruption shakes up the existing established products and services by pushing the boundaries of any industry.
(The author is an educator)