Disruptive Innovation: the theory explained

Article by: Ben Janse

Last update: October 24, 2023

Disruptive Innovation: This article explains the concept of disruptive innovation in a practical way, as explained by Clayton M. Christensen. The article contains the definition of this term, information about its origin and practical examples of innovations that were very disruptive in history. You will also find an overview of the phases that innovations go through before they become dominant in the market. Enjoy reading!

What is Disruptive Innovation?

Every once in a while a new technology is introduced that turns the world upside down and completely transforms the way we work, live and do business.

This phenomenon is also known as disruptive innovation. The term was coined by Harvard Business School professor Clayton Christensen. He published his research in the book ‘The Innovator’s Dilemma’ in 1997. Next to disruptive innovation, there are also other types of innovation.

Definition of Disruptive Innovation

The term disruptive innovation refers to a process in which a new technology or product becomes available in the market and disrupts the entire market. This disruption is because the new product offers value that no other product or technology has. This is often accompanied by lower costs and greater convenience for the user.

These disruptive innovations often start at the bottom of the market and work their way up. While moving upmarket, they outperform established incumbents and create new markets.

Professor Clayton Christensen’s research proved that established companies often fail to see the value of these disruptive innovations because they are too focused on their own customers and market share.

They mainly allocate their resources to existing products and services, rather than investing in new technologies that can cannibalize their own business model.

The term disruptive innovation (or disruptive technologies) has grown enormously in popularity. Some companies have focused exclusively on developing disruptive innovations since the introduction of the book. The result was a global increase in innovations and a growing need for companies to focus on innovation and development.

Disruptive innovation therefore has a major impact on the way businesses organize their day-to-day activities. From logistics to the pharmaceutical industry and marketing, it is likely that many more innovations will be introduced in the future that will cause market disruptions.

Theory of disruptive innovation (disruption theory)

The theory of disruptive innovation, also known as the disruption theory, was introduced by the same Clayton Christensen.

This theory states that new technologies can disrupt markets and industries by first underperforming and then improving.

The same goes for quality and pricing. By improving afterwards, they can still conquer the market.

According to this theory, many companies struggle to respond to disruptive innovations because they focus on the status quo. Disruptive innovations, the theory goes, first attract other consumers.

This theory has been applied to various industries and technologies, including computers, smartphones, and renewable energy. It has also been used to explain why organizations like Kodak and Blockbuster have failed in their strategy.

Critique of the disruption theory

Although the theory is accepted by many, there is also a lot of criticism. One of those criticisms is that the theory does not consider complex market dynamics and assumes that all innovations show a similar pattern.

Critics argue that some organizations do respond successfully to disruptive innovations and that the disruptive party itself loses to the new competitors.

Another criticism is that the theory does not consider external factors, such as government interference in the form of laws and regulations and social and cultural factors that can hinder innovation.

Examples of disruptive innovations in the past

There are many examples of innovations that disrupted the entire market in the past. Below are some well-known examples.

PCs (personal computer) were introduced in the 1980s. This disrupted the entire computer industry, which had previously focused on large fixed computers. The same goes for the later introduced floppy disk, or disk drive industry.
Online streaming services have completely transformed traditional television. Customers gained access to ad-free, on-demand content that they could watch at any time for a fixed price.
Renewable energy has transformed the traditional energy market by competing with traditional fossil fuels.
Artificial intelligence is disrupting various markets, from accounting to marketing and from the healthcare industry to the military industry: AI can collect and analyze data in a way that cannot be matched by people.

Low-end disruptive innovation

Low-end disruption occurs when a new entrant to a market introduces a product or service that is cheaper and of lower quality than established players in the market.

This innovation may not seem appealing to existing customers at first, but improves in quality over time and eventually takes over a large portion of the market.

New market disruptive innovation

This form of innovation ensures that a whole new market is created. Often it concerns a product or service that satisfies a need that has not been met before and created a new market. A new market can be small at first, but sometimes grows into a mainstream market.

Breakthrough innovation

A breakthrough happens when a new technology completely changes the way something is done. Breakthroughs are often disruptive and can disrupt an entire market or industry.

Disruptive business models

A business model that is disruptive, disrupts an entire industry model. An example of this is the shared economy.

The process of innovations

It is not a matter of months before a new development takes over an entire market. Below you will find information about the different phases of disruptive innovations.

Phase 1: introduction

Disruptive innovations start the way any company starts: with registration of the company or brand with an authority. The product is then developed and admitted to the market.

Phase 2: early adoption in niche

First, the small markets, niche markets, will adopt the products. These adopters help validate the product and brand. That means they prove its value to other consumers.

Phase 3: improvements and cost reduction

The third phase involves improving the innovation and reducing the costs associated with its production. The early cell phone is a good example of this. The first models were expensive and had few features. Today, entry-level models are cheaper and offer more options than ever before.

Phase 4: expansion

After improving products, it is ready to be admitted to the major markets. Mainstream distributors start distributing the product and the company begins to compete on a large scale, moving upmarket.

Phase 5: disruption of existing markets

During the fifth phase, the innovation disrupts existing markets and sales increase. Even in this phase, the product is still under development, but it already has the potential to take over an entire market.

Phase 6: dominance

During the final phase, a time of dominance begins. The innovation is so successful that it has become the standard in the market. For example, Netflix was the most dominant streaming service out there for a long time.

Response strategy to disruptive innovations

There are several ways companies can respond to companies entering the market with disruptive innovations.

“Disrupt Yourself”

One of the strategies is to disrupt one’s own business before another company does. This strategy includes identifying potential disruptive innovations and proactively developing them in the form of new products, services or business models.

Partners

Another strategy is to partner with the company bringing a disruptive innovation to market to ensure there is no need to compete. This includes investing in a startup, or developing a joint venture to enter a new market.

Focus on consumer need

A third strategy is to respond to changing customer needs and develop innovations that are aimed at this change. One of the ways in which this is done is by analyzing consumer data.

Experiment and iterate

The fourth strategy is responding to disruptive innovations by experimenting with new products and services. Existing products are also improved: iteration. It doesn’t often result in a disruptive innovation, but it is possible.

Innovations of the future

It is assumed that the rate of innovation continues to increase as time passes. Advances in technology, improved access to information and knowledge play a major role in this.

The growth of global markets also contributes to a higher speed of innovation. This trend is expected to continue in the future.

Many industries today are dealing with innovations that are focused on artificial intelligence (AI), machine learning, blockchains and biotechnology.

It is important to note that innovation does not look the same in all sectors. Some sectors and regions of the world may experience more innovation than others, depending on factors such as investments, talent and the aforementioned laws and regulations.

Innovation can also slowdown in some sectors, like the pharmaceutical industry, because of rising costs and opposing legislation.

It’s Your Turn

What do you think? Do you recognize the explanation about disruptive innovation? What examples of disruptive innovations can you share? Do you think disruptive innovations will occur more quickly in the future? Or do you think the speed of innovation is actually decreasing? What effect can the growing world population have on this phenomenon?

Share your experience and knowledge in the comments box below.

More information

Christensen, C., Raynor, M. E., & McDonald, R. (2013). Disruptive innovation. Brighton, MA, USA: Harvard Business Review.
King, A. A., & Baatartogtokh, B. (2015). How useful is the theory of disruptive innovation?. MIT Sloan management review, 57(1), 77.
Markides, C. (2006). Disruptive innovation: In need of better theory. Journal of product innovation management, 23(1), 19-25.
Schmidt, G. M., & Druehl, C. T. (2008). When is a disruptive innovation disruptive?. Journal of product innovation management, 25(4), 347-369.

How to cite this article:
Janse, B. (2023). Disruptive Innovation. Retrieved [insert date] from Toolshero: https://www.toolshero.com/innovation/disruptive-innovation/

Original publication date: 06/22/2023 | Last update: 10/24/2023

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Article by:

Ben Janse

Ben Janse is a young professional working at ToolsHero as Content Manager. He is also an International Business student at Rotterdam Business School where he focusses on analyzing and developing management models. Thanks to his theoretical and practical knowledge, he knows how to distinguish main- and side issues and to make the essence of each article clearly visible.