What Is Disruptive Innovation?
When Clayton M. Christensen coined the term “disruptive innovation” in a 1995 paper for Harvard Business School, he wasn’t just speaking of breakthrough innovations that make good products better.
Innovations are constantly occurring in every industry, but to be truly disruptive an innovation must entirely transform a product or solution that historically was so complicated only a few people with a lot of money and skills had access to it. A disruptive innovation is often a much simpler, low-grade solution that’s more affordable and accessible to a larger population, which opens it to an entirely new market. This often upturns established industries and overthrows existing market leaders.
Disruptive innovations typically take hold at the bottom of the market, meeting the same needs as high-market solutions in a simple and relatively cheap way. They are usually underrated at first, and tend to be seen as “low-class.” But due to their low costs and other advantages, they move quickly up the market and eventually become more appealing than their sophisticated competitors.
Christensen noticed that big, powerful companies at the peak of their power aren’t asleep at the wheel as they are driven out by disrupters. They’re usually innovating away themselves. But these established companies drive what’s called “sustaining innovations,” which are modifications and improvements on existing services. They make their top-tier products better and better to serve their most sophisticated and demanding customers, which can seem like a smart business move considering that serving the top of the market increases their profit margins the most. They aren’t bothered by disrupters taking hold at the bottom of the market, because it appears too low-tier and low gross margin to warrant attention.
But this oversight creates space for new players to get a foothold at the bottom, eventually creeping their way upmarket to topple the incumbent.
There are several markers that distinguish true disruptive innovators:
- They are low-cost and highly accessible.
- They have lower gross margins than their contemporaries or the incumbent.
- They serve a smaller low-end target market at first, before expanding to a vast market due to their accessibility.
- They’re hard to see coming and aren’t taken seriously. They quietly, slowly “climb the ladder” and can take years or decades to gain traction before they dramatically upend competitors.
In the last five years, usage of the terms “disruptive innovation” and “disruptive technologies” has soared. The concept has truly elbowed its way into the lexicon, appearing in newspapers, books, and debates around the world—but how many of those uses are actually correct?