Disruptive Innovation

Disruptive Innovations

Dr. Andrew James
BMAN79142

March 7th, 2016

9792683

Introduction

Disruption can be described as an occurrence that interrupts a system, process, or an event from functioning in its traditional manner. This same theory applies to disruptive innovations. However, not every change in an industry’s environment should be attributed to disruptive innovations. Although there may be a significant change in the competitive landscape of the corresponding industry, it is the response to the innovation that truly determines if it is disruptive. This is because different types of innovations require different strategic approaches (Christensen et al. 2015). Furthermore, there are two main entities within the ideal of disruptive innovations. They are the incumbents and new entrants of the industry. The basis of this report will provide a clear understanding of what defines a disruptive innovation, as well as the impact it has on the parties involved.

What is a disruptive innovation?

Harvard Business Professor Clay Christensen was the first to establish the ideal of what truly is a disruptive innovation, and subsequently what technologies possess the ability to be disruptive. He identifies disruptive innovations as those that introduce very different attributes from those that are valued by the mainstream customer (Christensen et al. 1995). For it to be a legitimate disruptive innovation, it must originate from one of two specific markets. Christensen describes these as low-end footholds, and new-market footholds (Christensen et al. 2015). What in fact makes these environments prosperous for disruptive innovations is that they are often over looked by incumbent firms. The low-end foothold is created when the incumbent only focuses on their most profitable and demanding customer segment, often overshooting the performance needs of their lower end consumer. This creates an opportunity for new entrants to provide a new product that is “good enough” for the lower end consumer (Christensen et al. 2015). Comparatively, the new-market foothold emerges when a disruptive innovation is able to turn non-customers into customers, essentially creating a whole new market that did not previously exist. Although these two markets are different, there remains a consistent theme that allows them to be defined as disrupters. From the onset, innovations in either one of these markets may not be considered disrupters, and sometimes are considered inferior products. This plays into why incumbents ignore them, and fail to see the potential these innovations possess (Christensen et al. 2015). However, over-time the quality of the disruptive innovations improve; and subsequently will be adopted by mainstream customers, as either they look to benefit from the now lower cost, or to develop a completely new need altogether. What must be learned from this is that disruptive innovation does not occur at one point in time, but rather it is a process that is dependent on a variety of variables, including the industry as well as technological advancements that may accelerate the process in creating new demands.

Netflix vs. Blockbuster
An excellent example of this exact process is seen in the creation and growth of Netflix and subsequent demise of Blockbuster.  Netflix was originally launched in 1997, and provided consumers with movie titles using posted mail as a medium. This service was initially only appealing to a small niche of customers, and did not appeal to Blockbusters core customers that rented movies on impulse. Having the movies mail delivered a few days after the initial order did not meet the demands of the mainstream consumer. However, there were eventually technological advancements in the form of online video streaming which provided Netflix with the means to put all their content online. This allowed them to provide consumers with thousands of titles on-demand at prices that were significantly lower than the alternative of renting individual movies from the rental store. This offering from Netflix was now much more appealing to the mainstream core customers of Blockbuster.  Consequently, Netflix quickly began to capture market share, and the profits from Blockbuster. What truly distinguishes this case as a disruptive innovation is the response it received from incumbents in the industry as well as other similar new entrants. Netflix shifted the entire competitive landscape as it had a profound impact on the dominant business model and the strategy of the entire industry. Not only were companies forced to move away from the brick-and-mortar shops, they now were expected to offer subscription-based services as opposed to one-off rentals.