Disruptive innovation

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Disruptive innovation_table_infobox_0

Types of InnovationDisruptive innovation_header_cell_0_0_0

In business theory, a disruptive innovation is an innovation that creates a new market and value network and eventually disrupts an existing market and value network, displacing established market-leading firms, products, and alliances. Disruptive innovation_sentence_0

The term was defined and first analyzed by the American scholar Clayton M. Christensen and his collaborators beginning in 1995, and has been called the most influential business idea of the early 21st century. Disruptive innovation_sentence_1

Lingfei Wu, Dashun Wang, and James A. Evans generalized this term to identify disruptive science and technological advances from more than 65 million papers, patents and software products that span the period 1954–2014. Disruptive innovation_sentence_2

Their work was featured as the cover of the February 2019 issue of Nature and was selected as the Altmetric 100 most-discussed work in 2019. Disruptive innovation_sentence_3

Not all innovations are disruptive, even if they are revolutionary. Disruptive innovation_sentence_4

For example, the first automobiles in the late 19th century were not a disruptive innovation, because early automobiles were expensive luxury items that did not disrupt the market for horse-drawn vehicles. Disruptive innovation_sentence_5

The market for transportation essentially remained intact until the debut of the lower-priced Ford Model T in 1908. Disruptive innovation_sentence_6

The mass-produced automobile was a disruptive innovation, because it changed the transportation market, whereas the first thirty years of automobiles did not. Disruptive innovation_sentence_7

Disruptive innovations tend to be produced by outsiders and entrepreneurs in startups, rather than existing market-leading companies. Disruptive innovation_sentence_8

The business environment of market leaders does not allow them to pursue disruptive innovations when they first arise, because they are not profitable enough at first and because their development can take scarce resources away from sustaining innovations (which are needed to compete against current competition). Disruptive innovation_sentence_9

Small teams are more likely to create disruptive innovations than large teams. Disruptive innovation_sentence_10

A disruptive process can take longer to develop than by the conventional approach and the risk associated to it is higher than the other more incremental or evolutionary forms of innovations, but once it is deployed in the market, it achieves a much faster penetration and higher degree of impact on the established markets. Disruptive innovation_sentence_11

Beyond business and economics disruptive innovations can also be considered to disrupt complex systems, including economic and business-related aspects. Disruptive innovation_sentence_12

Through identifying and analyzing systems for possible points of intervention, one can then design changes focused on disruptive interventions. Disruptive innovation_sentence_13

History and usage of the term Disruptive innovation_section_0

The term disruptive technologies was coined by Clayton M. Christensen and introduced in his 1995 article Disruptive Technologies: Catching the Wave, which he cowrote with Joseph Bower. Disruptive innovation_sentence_14

The article is aimed at management executives who make the funding or purchasing decisions in companies, rather than the research community. Disruptive innovation_sentence_15

He describes the term further in his book The Innovator's Dilemma. Disruptive innovation_sentence_16

Innovator's Dilemma explored the cases of the disk drive industry (which, with its rapid generational change, is to the study of business what fruit flies are to the study of genetics, as Christensen was advised in the 1990s) and the excavating equipment industry (where hydraulic actuation slowly displaced cable-actuated movement). Disruptive innovation_sentence_17

In his sequel with Michael E. Raynor, The Innovator's Solution, Christensen replaced the term disruptive technology with disruptive innovation because he recognized that few technologies are intrinsically disruptive or sustaining in character; rather, it is the business model that the technology enables that creates the disruptive impact. Disruptive innovation_sentence_18

However, Christensen's evolution from a technological focus to a business-modelling focus is central to understanding the evolution of business at the market or industry level. Disruptive innovation_sentence_19

Christensen and Mark W. Johnson, who cofounded the management consulting firm Innosight, described the dynamics of "business model innovation" in the 2008 Harvard Business Review article "Reinventing Your Business Model". Disruptive innovation_sentence_20

The concept of disruptive technology continues a long tradition of identifying radical technical change in the study of innovation by economists, and the development of tools for its management at a firm or policy level. Disruptive innovation_sentence_21

According to Christensen, "the term 'disruptive innovation' is misleading when it is used to refer to a product or service at one fixed point, rather than to the evolution of that product or service over time." Disruptive innovation_sentence_22

In the late 1990s, the automotive sector began to embrace a perspective of "constructive disruptive technology" by working with the consultant David E. O'Ryan, whereby the use of current off-the-shelf technology was integrated with newer innovation to create what he called "an unfair advantage". Disruptive innovation_sentence_23

The process or technology change as a whole had to be "constructive" in improving the current method of manufacturing, yet disruptively impact the whole of the business case model, resulting in a significant reduction of waste, energy, materials, labor, or legacy costs to the user. Disruptive innovation_sentence_24

In keeping with the insight that what matters economically is the business model, not the technological sophistication itself, Christensen's theory explains why many disruptive innovations are not "advanced technologies", which a default hypothesis would lead one to expect. Disruptive innovation_sentence_25

Rather, they are often novel combinations of existing off-the-shelf components, applied cleverly to a small, fledgling value network. Disruptive innovation_sentence_26

Online news site TechRepublic proposes an end using the term, and similar related terms, suggesting that it is overused jargon as of 2014. Disruptive innovation_sentence_27

What is (isn't) disruptive innovation Disruptive innovation_section_1

Disruptive innovation_unordered_list_0

  • Disruption is a process, not a product or service, that occurs from the fringe to mainstreamDisruptive innovation_item_0_0
  • Originate in low-end (less demanding customers) or new market (where none existed) footholdsDisruptive innovation_item_0_1
  • New firms don't catch on with mainstream customers until quality catches up with their standardsDisruptive innovation_item_0_2
  • Success is not a requirement and some business can be disruptive but failDisruptive innovation_item_0_3
  • New firm's business model differs significantly from incumbentDisruptive innovation_item_0_4

Christensen continues to develop and refine the theory and has accepted that not all examples of disruptive innovation perfectly fit into his theory. Disruptive innovation_sentence_28

For example, he conceded that originating in the low end of the market is not a cause of disruptive innovation, but rather it fosters competitive business models, using Uber as an example. Disruptive innovation_sentence_29

In an interview with Forbes magazine he stated: Disruptive innovation_sentence_30

Theory Disruptive innovation_section_2

The current theoretical understanding of disruptive innovation is different from what might be expected by default, an idea that Clayton M. Christensen called the "technology mudslide hypothesis". Disruptive innovation_sentence_31

This is the simplistic idea that an established firm fails because it doesn't "keep up technologically" with other firms. Disruptive innovation_sentence_32

In this hypothesis, firms are like climbers scrambling upward on crumbling footing, where it takes constant upward-climbing effort just to stay still, and any break from the effort (such as complacency born of profitability) causes a rapid downhill slide. Disruptive innovation_sentence_33

Christensen and colleagues have shown that this simplistic hypothesis is wrong; it doesn't model reality. Disruptive innovation_sentence_34

What they have shown is that good firms are usually aware of the innovations, but their business environment does not allow them to pursue them when they first arise, because they are not profitable enough at first and because their development can take scarce resources away from that of sustaining innovations (which are needed to compete against current competition). Disruptive innovation_sentence_35

In Christensen's terms, a firm's existing value networks place insufficient value on the disruptive innovation to allow its pursuit by that firm. Disruptive innovation_sentence_36

Meanwhile, start-up firms inhabit different value networks, at least until the day that their disruptive innovation is able to invade the older value network. Disruptive innovation_sentence_37

At that time, the established firm in that network can at best only fend off the market share attack with a me-too entry, for which survival (not thriving) is the only reward. Disruptive innovation_sentence_38

In the technology mudslide hypothesis, Christensen differentiated disruptive innovation from sustaining innovation. Disruptive innovation_sentence_39

He explained that the latter's goal is to improve existing product performance. Disruptive innovation_sentence_40

On the other hand, he defines a disruptive innovation as a product or service designed for a new set of customers. Disruptive innovation_sentence_41

Christensen also noted that products considered as disruptive innovations tend to skip stages in the traditional product design and development process to quickly gain market traction and competitive advantage. Disruptive innovation_sentence_42

He argued that disruptive innovations can hurt successful, well-managed companies that are responsive to their customers and have excellent research and development. Disruptive innovation_sentence_43

These companies tend to ignore the markets most susceptible to disruptive innovations, because the markets have very tight profit margins and are too small to provide a good growth rate to an established (sizable) firm. Disruptive innovation_sentence_44

Thus, disruptive technology provides an example of an instance when the common business-world advice to "focus on the customer" (or "stay close to the customer", or "listen to the customer") can be strategically counterproductive. Disruptive innovation_sentence_45

While Christensen argued that disruptive innovations can hurt successful, well-managed companies, O'Ryan countered that "constructive" integration of existing, new, and forward-thinking innovation could improve the economic benefits of these same well-managed companies, once decision-making management understood the systemic benefits as a whole. Disruptive innovation_sentence_46

Christensen distinguishes between "low-end disruption", which targets customers who do not need the full performance valued by customers at the high end of the market, and "new-market disruption", which targets customers who have needs that were previously unserved by existing incumbents. Disruptive innovation_sentence_47

"Low-end disruption" occurs when the rate at which products improve exceeds the rate at which customers can adopt the new performance. Disruptive innovation_sentence_48

Therefore, at some point the performance of the product overshoots the needs of certain customer segments. Disruptive innovation_sentence_49

At this point, a disruptive technology may enter the market and provide a product that has lower performance than the incumbent but that exceeds the requirements of certain segments, thereby gaining a foothold in the market. Disruptive innovation_sentence_50

In low-end disruption, the disruptor is focused initially on serving the least profitable customer, who is happy with a good enough product. Disruptive innovation_sentence_51

This type of customer is not willing to pay premium for enhancements in product functionality. Disruptive innovation_sentence_52

Once the disruptor has gained a foothold in this customer segment, it seeks to improve its profit margin. Disruptive innovation_sentence_53

To get higher profit margins, the disruptor needs to enter the segment where the customer is willing to pay a little more for higher quality. Disruptive innovation_sentence_54

To ensure this quality in its product, the disruptor needs to innovate. Disruptive innovation_sentence_55

The incumbent will not do much to retain its share in a not-so-profitable segment, and will move up-market and focus on its more attractive customers. Disruptive innovation_sentence_56

After a number of such encounters, the incumbent is squeezed into smaller markets than it was previously serving. Disruptive innovation_sentence_57

And then, finally, the disruptive technology meets the demands of the most profitable segment and drives the established company out of the market. Disruptive innovation_sentence_58

"New market disruption" occurs when a product fits a new or emerging market segment that is not being served by existing incumbents in the industry. Disruptive innovation_sentence_59

Some scholars note that the creation of a new market is a defining feature of disruptive innovation, particularly in the way it tend to improve products or services differently in comparison to normal market drivers. Disruptive innovation_sentence_60

It initially caters to a niche market and proceeds on defining the industry over time once it is able to penetrate the market or induce consumers to defect from the existing market into the new market it created. Disruptive innovation_sentence_61

The extrapolation of the theory to all aspects of life has been challenged, as has the methodology of relying on selected case studies as the principal form of evidence. Disruptive innovation_sentence_62

Jill Lepore points out that some companies identified by the theory as victims of disruption a decade or more ago, rather than being defunct, remain dominant in their industries today (including Seagate Technology, U.S. Disruptive innovation_sentence_63 Steel, and Bucyrus). Disruptive innovation_sentence_64

Lepore questions whether the theory has been oversold and misapplied, as if it were able to explain everything in every sphere of life, including not just business but education and public institutions. Disruptive innovation_sentence_65

Disruptive technology Disruptive innovation_section_3

In 2009, Milan Zeleny described high technology as disruptive technology and raised the question of what is being disrupted. Disruptive innovation_sentence_66

The answer, according to Zeleny, is the support network of high technology. Disruptive innovation_sentence_67

For example, introducing electric cars disrupts the support network for gasoline cars (network of gas and service stations). Disruptive innovation_sentence_68

Such disruption is fully expected and therefore effectively resisted by support net owners. Disruptive innovation_sentence_69

In the long run, high (disruptive) technology bypasses, upgrades, or replaces the outdated support network. Disruptive innovation_sentence_70

Questioning the concept of a disruptive technology, Haxell (2012) questions how such technologies get named and framed, pointing out that this is a positioned and retrospective act. Disruptive innovation_sentence_71

Technology, being a form of social relationship, always evolves. Disruptive innovation_sentence_72

No technology remains fixed. Disruptive innovation_sentence_73

Technology starts, develops, persists, mutates, stagnates, and declines, just like living organisms. Disruptive innovation_sentence_74

The evolutionary life cycle occurs in the use and development of any technology. Disruptive innovation_sentence_75

A new high-technology core emerges and challenges existing technology support nets (TSNs), which are thus forced to coevolve with it. Disruptive innovation_sentence_76

New versions of the core are designed and fitted into an increasingly appropriate TSN, with smaller and smaller high-technology effects. Disruptive innovation_sentence_77

High technology becomes regular technology, with more efficient versions fitting the same support net. Disruptive innovation_sentence_78

Finally, even the efficiency gains diminish, emphasis shifts to product tertiary attributes (appearance, style), and technology becomes TSN-preserving appropriate technology. Disruptive innovation_sentence_79

This technological equilibrium state becomes established and fixated, resisting being interrupted by a technological mutation; then new high technology appears and the cycle is repeated. Disruptive innovation_sentence_80

Regarding this evolving process of technology, Christensen said: Disruptive innovation_sentence_81

The World Bank's 2019 World Development Report on The Changing Nature of Work examines how technology shapes the relative demand for certain skills in labor markets and expands the reach of firms - robotics and digital technologies, for example, enable firms to automate, replacing labor with machines to become more efficient, and innovate, expanding the number of tasks and products. Disruptive innovation_sentence_82

explained the process of how disruptive technology, through its requisite support net, dramatically transforms a certain industry. Disruptive innovation_sentence_83

For example, the automobile was high technology with respect to the horse carriage; however, it evolved into technology and finally into appropriate technology with a stable, unchanging TSN. Disruptive innovation_sentence_84

The main high-technology advance in the offing is some form of electric car—whether the energy source is the sun, hydrogen, water, air pressure, or traditional charging outlet. Disruptive innovation_sentence_85

Electric cars preceded the gasoline automobile by many decades and are now returning to replace the traditional gasoline automobile. Disruptive innovation_sentence_86

The printing press was a development that changed the way that information was stored, transmitted, and replicated. Disruptive innovation_sentence_87

This allowed empowered authors but it also promoted censorship and information overload in writing technology. Disruptive innovation_sentence_88

Milan Zeleny described the above phenomenon. Disruptive innovation_sentence_89

He also wrote that: Disruptive innovation_sentence_90

Social media could be considered a disruptive innovation within sports. Disruptive innovation_sentence_91

More specifically, the way that news in sports circulates nowadays versus the pre-internet era where sports news was mainly on T.V., radio, and newspapers. Disruptive innovation_sentence_92

Social media has created a new market for sports that was not around before in the sense that players and fans have instant access to information related to sports. Disruptive innovation_sentence_93

High-technology effects Disruptive innovation_section_4

High technology is a technology core that changes the very architecture (structure and organization) of the components of the technology support net. Disruptive innovation_sentence_94

High technology therefore transforms the qualitative nature of the TSN's tasks and their relations, as well as their requisite physical, energy, and information flows. Disruptive innovation_sentence_95

It also affects the skills required, the roles played, and the styles of management and coordination—the organizational culture itself. Disruptive innovation_sentence_96

This kind of technology core is different from regular technology core, which preserves the qualitative nature of flows and the structure of the support and only allows users to perform the same tasks in the same way, but faster, more reliably, in larger quantities, or more efficiently. Disruptive innovation_sentence_97

It is also different from appropriate technology core, which preserves the TSN itself with the purpose of technology implementation and allows users to do the same thing in the same way at comparable levels of efficiency, instead of improving the efficiency of performance. Disruptive innovation_sentence_98

As for the difference between high technology and low technology, Milan Zeleny once said: Disruptive innovation_sentence_99

However, not all modern technologies are high technologies. Disruptive innovation_sentence_100

They have to be used as such, function as such, and be embedded in their requisite TSNs. Disruptive innovation_sentence_101

They have to empower the individual because only through the individual can they empower knowledge. Disruptive innovation_sentence_102

Not all information technologies have integrative effects. Disruptive innovation_sentence_103

Some information systems are still designed to improve the traditional hierarchy of command and thus preserve and entrench the existing TSN. Disruptive innovation_sentence_104

The administrative model of management, for instance, further aggravates the division of task and labor, further specializes knowledge, separates management from workers, and concentrates information and knowledge in centers. Disruptive innovation_sentence_105

As knowledge surpasses capital, labor, and raw materials as the dominant economic resource, technologies are also starting to reflect this shift. Disruptive innovation_sentence_106

Technologies are rapidly shifting from centralized hierarchies to distributed networks. Disruptive innovation_sentence_107

Nowadays knowledge does not reside in a super-mind, super-book, or super-database, but in a complex relational pattern of networks brought forth to coordinate human action. Disruptive innovation_sentence_108

Internal auditor response Disruptive innovation_section_5

Internal audit plays a critical role maintaining effective control mitigating emerging risks. Disruptive innovation_sentence_109

Businesses will increase risk or bypass opportunity if auditors do not address disruption-related risks. Disruptive innovation_sentence_110

Alles has discussed that Big Data is a disruptive innovation that auditors must incorporate in practice. Disruptive innovation_sentence_111

A 2019 study, Internal Auditors' Response to Disruptive Innovation, reports on the evolution of internal audit to react to changes. Disruptive innovation_sentence_112

Disruptions examined include data analytics, agile processes, cloud computing, robotic process automation, continuous auditing, regulatory change, and artificial intelligence. Disruptive innovation_sentence_113

A proactive approach to disruptive innovation Disruptive innovation_section_6

A proactive approach to addressing the challenge posited by disruptive innovations has been debated by scholars. Disruptive innovation_sentence_114

Petzold criticized the lack of acknowledgment of underlying process of the change to study the disruptive innovation over time from a process view and complexify the concept to support the understanding of its unfolding and advance its manageability. Disruptive innovation_sentence_115

Keeping in view the multidimensional nature of disruptive innovation a measurement framework has been developed by Guo to enable a systemic assessment of disruptive potential of innovations, providing insights for the decisions in product/service launch and resource allocation. Disruptive innovation_sentence_116

Middle managers play an important role in long term sustainability of any firm and thus have been studied to have a proactive role in exploitation of the disruptive innovation process. Disruptive innovation_sentence_117

Example of disruption Disruptive innovation_section_7

In the practical world, the popularization of personal computers illustrates how knowledge contributes to the ongoing technology innovation. Disruptive innovation_sentence_118

The original centralized concept (one computer, many persons) is a knowledge-defying idea of the prehistory of computing, and its inadequacies and failures have become clearly apparent. Disruptive innovation_sentence_119

The era of personal computing brought powerful computers "on every desk" (one person, one computer). Disruptive innovation_sentence_120

This short transitional period was necessary for getting used to the new computing environment, but was inadequate from the vantage point of producing knowledge. Disruptive innovation_sentence_121

Adequate knowledge creation and management come mainly from networking and distributed computing (one person, many computers). Disruptive innovation_sentence_122

Each person's computer must form an access point to the entire computing landscape or ecology through the Internet of other computers, databases, and mainframes, as well as production, distribution, and retailing facilities, and the like. Disruptive innovation_sentence_123

For the first time, technology empowers individuals rather than external hierarchies. Disruptive innovation_sentence_124

It transfers influence and power where it optimally belongs: at the loci of the useful knowledge. Disruptive innovation_sentence_125

Even though hierarchies and bureaucracies do not innovate, free and empowered individuals do; knowledge, innovation, spontaneity, and self-reliance are becoming increasingly valued and promoted. Disruptive innovation_sentence_126

Amazon Alexa, Airbnb are some other examples of disruption. Disruptive innovation_sentence_127

Uber is not an example of disruption because it did not originate in a low-end or new market footholds. Disruptive innovation_sentence_128

One of the conditions for the business to be considered disruptive according to Clayton M. Christensen is that the business should originate on a) low-end or b) new-market footholds. Disruptive innovation_sentence_129

Instead, Uber was launched in San Francisco, a large urban city with an established taxi service and did not target low-end customers or created a new market (from the consumer perspective). Disruptive innovation_sentence_130

In contrast, UberSELECT, an option that provides luxurious cars such as limousine at a discounted price, is an example of disruption innovation because it originates from low-end customers segment - customers who would not have entered the traditional luxurious market. Disruptive innovation_sentence_131

Examples Disruptive innovation_section_8

Potential opportunities Disruptive innovation_section_9

Disruptive innovation_table_general_1

IdeaDisruptive innovation_header_cell_1_0_0 ValueDisruptive innovation_header_cell_1_0_1 ScopeDisruptive innovation_header_cell_1_0_2
Digital TransformationDisruptive innovation_cell_1_1_0 $100 TrillionDisruptive innovation_cell_1_1_1 GlobalDisruptive innovation_cell_1_1_2
Asteroid MiningDisruptive innovation_cell_1_2_0 $100 TrillionDisruptive innovation_cell_1_2_1 GlobalDisruptive innovation_cell_1_2_2
Open bordersDisruptive innovation_cell_1_3_0 $78 TrillionDisruptive innovation_cell_1_3_1 GlobalDisruptive innovation_cell_1_3_2
Disruptive TechnologiesDisruptive innovation_cell_1_4_0 $14- $33 trillionDisruptive innovation_cell_1_4_1 GlobalDisruptive innovation_cell_1_4_2
E-CommerceDisruptive innovation_cell_1_5_0 $22 TrillionDisruptive innovation_cell_1_5_1 Developing CountriesDisruptive innovation_cell_1_5_2
Wealth ManagementDisruptive innovation_cell_1_6_0 $22 TrillionDisruptive innovation_cell_1_6_1 GlobalDisruptive innovation_cell_1_6_2
Smart City TechDisruptive innovation_cell_1_7_0 $20 TrillionDisruptive innovation_cell_1_7_1 GlobalDisruptive innovation_cell_1_7_2
Artificial IntelligenceDisruptive innovation_cell_1_8_0 $15.7 trillionDisruptive innovation_cell_1_8_1 GlobalDisruptive innovation_cell_1_8_2
Climate Change MitigationDisruptive innovation_cell_1_9_0 $7 TrillionDisruptive innovation_cell_1_9_1 GlobalDisruptive innovation_cell_1_9_2
Advancing Women's EqualityDisruptive innovation_cell_1_10_0 $12 TrillionDisruptive innovation_cell_1_10_1 GlobalDisruptive innovation_cell_1_10_2
Free TradeDisruptive innovation_cell_1_11_0 $11 TrillionDisruptive innovation_cell_1_11_1 GlobalDisruptive innovation_cell_1_11_2
Circular EconomyDisruptive innovation_cell_1_12_0 $4.5 TrillionDisruptive innovation_cell_1_12_1 GlobalDisruptive innovation_cell_1_12_2
Closing Gender pay GapDisruptive innovation_cell_1_13_0 $2 TrillionDisruptive innovation_cell_1_13_1 OECDDisruptive innovation_cell_1_13_2
Longer Working LivesDisruptive innovation_cell_1_14_0 $2 TrillionDisruptive innovation_cell_1_14_1 OECDDisruptive innovation_cell_1_14_2
Empower Young WorkforceDisruptive innovation_cell_1_15_0 $1.2 TrillionDisruptive innovation_cell_1_15_1 OECDDisruptive innovation_cell_1_15_2
Car SharingDisruptive innovation_cell_1_16_0 $1 TrillionDisruptive innovation_cell_1_16_1 GlobalDisruptive innovation_cell_1_16_2

Potential threats Disruptive innovation_section_10

Disruptive innovation_table_general_2

ThreatDisruptive innovation_header_cell_2_0_0 At RiskDisruptive innovation_header_cell_2_0_1 ScopeDisruptive innovation_header_cell_2_0_2
Drug resistant infectionsDisruptive innovation_cell_2_1_0 $100 TrillionDisruptive innovation_cell_2_1_1 GlobalDisruptive innovation_cell_2_1_2
Traffic CongestionDisruptive innovation_cell_2_2_0 $2.8 TrillionDisruptive innovation_cell_2_2_1 USDisruptive innovation_cell_2_2_2

See also Disruptive innovation_section_11

Credits to the contents of this page go to the authors of the corresponding Wikipedia page: en.wikipedia.org/wiki/Disruptive innovation.