What is it?

Dedicated to the memory of Prof. Clayton Christensen of Harvard Business School, whom I never met but his writings made profound impact on me as a student and as a professional.

If you are part of the business world and especially technology ecosystem there is no way you would have missed the word disruption. Many years ago, it would have been unthinkable that anyone with an idea can build a great product or a service, pull over customers and then disrupt established companies that had been around for over many years within a span of few months. This has led to a phenomenon where multiple companies and products have come out of now where and created history in their respective industries by attaining overnight success.

There are many examples of disruption, like that of Netflix, which is disrupting entertainment industry like never seen. This dramatic change happened so fast that first it put rental shops like Blockbuster out of business and now it’s making cable companies outdated as we move into mid of 2020.

What is disruption?

Disruptive innovation or disruption as commonly called was coined by Clayton Christensen way back in the 1995 to describe the way in which new entrants in a market can disrupt established businesses. In the inventor’s own language: “Disruption” describes a process whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses. Specifically, as incumbents focus on improving their products and services for their most demanding (and usually most profitable) customers, they exceed the needs of some segments and ignore the needs of others.

Entrants that prove disruptive begin by successfully targeting those overlooked segments, gaining a foothold by delivering more-suitable functionality—frequently at a lower price. Incumbents, chasing higher profitability in more-demanding segments, tend not to respond vigorously. Entrants then move upmarket, delivering the performance that incumbents’ mainstream customers require, while preserving the advantages that drove their early success. When mainstream customers start adopting the entrants’ offerings in volume, disruption has occurred.

Where does it originate?

Disruptive innovations start in two type of markets. The first is established markets where there are major players and a well-defined customer segment. The second is new markets, where there are no players and no consumers!

In existing markets, as major players mature, they focus more on the segments which delivers them maximum profits. There is never ending quest to provide them the best of services and products. However, as this process unfolds over a period there are customers in other segments which get neglected or their demands are not fully met by the major players as the focus is somewhere else. These customers tend to stick with the major player as long as no alternative is in sight. This is where the disrupters strike. The disrupters focus on the neglected customer segment first and provide them a working product or service that at least meets their expectations.

The cell phone cameras have disrupted the camera and photography market is testimony to this. The earliest cell phone cameras were crude but for many people for whom using a camera was difficult found it very convenient as it was in palm of their hand and could be used as is. This opened an entirely new market and cell phone cameras kept on improving making inroads into other segments that were using cameras for photography.

Exhibit 1

In the case of new-market, disrupters create a market where none existed. Put simply, they find a way to turn no consumers into consumers. For example, low cost airlines like South West enabled people from the bottom of the ladder to fly. These people were never airline passengers and they did not even think of flying anytime. But the way South West disrupted the airline industry it created market where none existed before. From this relatively modest beginning, South West made in roads and gradually built a major position in travel and airline market.

Why disruption happens?

What we learn from the above examples and the theory of disruptive innovation is that disruption is a purely customer-driven phenomenon. Many of the disrupters or fast-growing start-ups such as Netflix, Airbnb, and many others don’t have access to sophisticated or better innovative technologies than the other players in their respective industries. What they do have is an ability to build and deliver faster and more accurately exactly what customers want. This is precisely the reason that disruption is happening at such a fast pace and established companies are losing market share. Technologies are the enablers and the ones that stick around are those the consumers choose to adopt.

To be continued..

References

The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail ,By Clayton M. Christensen

What is disruptive innovation, HBR Dec 2015,By Clayton M. Christensen, Michael Raynor and Rory McDonald

Debating Disruptive Innovation, MIT Sloan Management Review, Juan Pablo Vázquez Sampere, Martin J. Bienenstock, and Ezra W. Zuckerman

Digital Disruptive Innovation,Edited By: Joe Tidd (University of Sussex, UK)