CASE:DISRUPTIVE INNOVATION SUMMARY Disruptive innovation is the process in which a smaller company, usually with fewer resources, is able to challenge an established business (often called an “incumbent”) by entering at the bottom of the market and continuing to move up-market. This process usually happens over a number of steps Incumbent businesses innovate and develop their products or services in order to appeal to their most demanding and/or profitable customers, ignoring the needs of those downmarket.Entrants target this ignored market segment and gain attraction by meeting their needs at a reduced cost compared to what is offered by the incumbent.Incumbents don’t respond to the new entrant, continuing to focus on their more profitable segments.Entrants eventually move upmarket by offering solutions that appeal to the incumbent’s “mainstream” customers.Once the new entrant has begun to attract the incumbent business’s mainstream customers en masse, disruption has occurred. Disruptive innovation is not the process of improving or enhancing products for the same target group; rather, it involves the technologies used to make them easy to use and available to the larger, non-targeted market. An example of disruptive innovation is the introduction of digital music downloads, which have, by far, replaced compact discs (CDs). When disruptive innovation first enters the market, it initially caters only to a small and typically not very profitable customer segment, while established organizations are focused on serving more demanding, high-end customers.Because the more demanding customer segment is the one with higher profits, established companies usually choose to focus on serving the more profitable customer segment. Once the disruptive innovation enters the mainstream, the established companies typically pick up on the new concept or technology to respond to the competition. At that point, however, it’s often too late. Responding to the new competition solely with new technology often isn’t enough as the market entrant has had a lot of time to refine the offering and business model.In addition, product development takes time and requires multiple iterations, which makes catching up quite unlikely, even with the additional resources the incumbent has at its disposal. PROBLEM STATEMENTS • Building disruptive innovation is challenging for large organizations is because these companies depend on customers and investors for resources. • Creating disruptive innovation involves bigger risks and incumbents don’t necessarily have a plan for failure. In other words, they aren’t used to considering their initial efforts at commercializing a disruptive technology as learning opportunities.Instead, they want to maintain their share prices and focus on the most profitable customer segments. • Executives in general may be overconfident in their ability to respond to disruption.Most leaders were said to underestimate the sources of future competition and instead of considering new market entrants a threat, the biggest competition was seen to come from existing players in the market. POSSIBLE SOLUTIONS 1. Listen to your customers and observe the industry trends Being too confident about your abilities to transform and overlooking others’ potential to succeed is a sure way to get blindsided in the ongoing process of innovation.Thus, keeping an eye on the new entrants in the market and understanding what they’re doing differently compared to the established ones is something worth paying attention to.Although these new entrants might be targeting a different customer segments at the moment, you don't want to miss potential growth opportunities by only focusing on what's working at the moment for your current customer. 2. Focus on business model innovation Although technology enables a lot and is often at the core of disruptive innovation, you don’t always have to use revolutionary technology to make a change.Business model innovation can be used to change how your company delivers value to the customers or captures it from the market.A concrete tool for business model innovation is The Business Model Canvas– a template by that can be used to describe, design, challenge and pivot your business model. It works in conjunction with other strategic management and execution tools and processes and is best for designing and validating a scalable business model within the market. 3. Don't count on breaking through right away Disruptive innovation should be approached in an iterative manner and with patience. Market disruption doesn’t happen overnight and even the greatest growth opportunities are often discovered through smaller, incremental improvements.As the aforementioned examples show, none of the businesses were successful from the get-go, but had to go through several phases in order to finally reach the mainstream and to sustain their position in the market.In the process of uncovering more disruptive opportunities, moving ahead early and getting excited about small gains is the key. You’re likely to face a number of obstacles along your way, which is why it’s important not to get discouraged if (and when) things fail, but to think of your disruptive efforts as learning opportunities. While patience is important, you should still have a clear picture of what can be achieved and what you want to achieve. One way to make sure you're on the right track is to create a concrete roadmap to guide you to the desired direction. REASONING I conclude that • “The key to disruptive innovation is the ability to break the existing operating model and create the right conditions for the emergence of a new one.Disruption is about doing things differently and making a deliberate choice to try to change the general notions in the industry. You need to create new type of value and commit to it even if it's not the most profitable solution in the short term.” • “Disruptive technology is more than an innovation in today's economy. It's a chance to outperform the existing completion and get better. Accepting disruption empowers the business establishments to overcome the potential risks and to stay afloat in the competitive environment” • “you can't defend an attacked market segment forever with intensive marketing campaigns, aggressive sales strategies or low prices. If the new, innovative alternative offers a higher benefit from the customer's point of view, cannibalization will sooner or later become reality.”
