Disruptive Innovation: In Need of Better
Theory (Markides, 2006)
What is the main point authors want to get across?
Olga Jemeljanova
Joona Kanerva
Niko Kuki
Mikko Nummela
12.1.2016
Group 10
Outline
• Disruptive innovation
• Three distinctive types of disruptive innovations
– Technological innovation
– Business model innovation
– Radical product innovation
• Conclusion
Disruptive innovation
• “Disruptive innovation, a term of art coined by Clayton
Christensen, describes a process by which a product or
service takes root initially in simple applications at the
bottom of a market and then relentlessly moves up
market, eventually displacing established competitors.”
(Christensen, 2016)
Disruptive innovation
• Originally coined by Christensen (1997) describing
technological innovation
• Disruptive innovations create different kinds of markets,
pose radically different challenges for established firms,
and have radically different implications for managers
• Use widened by Christensen and others to include
products and business models
• Current usage is too wide as only shared characteristic is
disruption to incumbents
Three types of disruptive innovations
• Three types of disruptive innovations
– Technological innovation
– Business-model innovation
– Radical product innovation
• These three distinct disruption types can be identified by
– How they arise
– Competitive effects
– Required response from incumbents
Technological innovation
• Technological innovation (Christensen, 1997)
– New technologies come to surpass seemingly superior
technologies in a market
• Disruptive technological innovations eventually grow to
dominate the market (Christensen & Raynor, 2003)
• Entrants tend to replace incumbents (Danneels, 2004)
– Only way to respond: accept and find ways to exploit
• Established companies can exploit only with separate
units (Christensen & Raynor, 2003)
Business-model innovation (BMI)
• Discovery of a fundamentally different business model in
an existing business
• The new business model must enlarge the existing
economic pie
– either by attracting new customers into the market
– or by encouraging existing customers to consume more
• Business model innovators do not discover new
products or services
BMI competitive effects
• Business-model innovations usually require different key
success factors and different combination of tailored
activities on the part of the firm
• Usually new activities are incompatible with a company’s
old set of activities
• This is a dilemma for established firms: these new
ways of competing conflict with existing ways
BMI vs. technological innovation
• Disruptive technological innovations eventually grow to
dominate the market (Christensen & Raynor, 2003)
• The available literature on business-model innovation
does not support such an extreme position
– Usually in the case of a business-model innovation the new way
of competing in the business grows to a certain percent of the
market but fails to completely overtake the traditional way
of competing
BMI vs. disruptive innovation ”wisdoms”
1. New business models are not necessarily superior to
the ones established companies employ
–
–
Most of the business-model innovations don’t make economic
sense for established firms
Established firms have alternatives: investing its limited
resources in adjacent markets or taking its existing business
model internationally
2. Best way for an established company to adopt and to
exploit such innovations isn’t necessarily through a
separate business unit
3. Incumbents response for disruptive innovation does not
necessarily mean that they have to adopt it
Radical product innovation (RPI)
• Creating new-to-the-world products
• Prevail consumer habits and behaviours
• Undermine the competences and complementary assets
on which existing competitors have built their success
• New technology results RPI: markets emerging
–
–
–
–
Hordes of new entrants before the new market starts growing
Highest levels of product variety and rate of innovation
Later shakeout signalling the beginning of growth in the industry
Fluid market structure for most of the early years
Achievement of RPI
• Perfect entry time: right before the dominant design
emerges
• Series of actions to grow the mass market from a niche
• Shifting the basis of competition from technical
performance to quality and price
• Performance level good enough or even surpasses
customer needs
• No product overengineering
RPI vs. technological innovation
1. Technological innovation
–
–
New entrants, start-ups
R&D to improve the product further or/and add to its
functionality
2. Radical product innovation
– Established companies
– Scaling a niche market into a mass market
Achievement of RPI is fundamentally different from
business-model and technological innovations
Conclusion
• Not all disruptive innovations are the same
– Technological, business-model and radical product
innovations should be treated as distinct phenomena
– May follow a similar process to invade existing markets and may
have equally disruptive effects on incumbent firms
– Produce different kinds of markets and have different
managerial implications
• It is only when the topic of disruptive innovation is
broken down into these finer categories that progress
can be made
References
• Markides, C. (2006). Disruptive Innovation: In Need of
Better Theory, Journal of Product Innovation
Management. 2006, 23, pp.19–25.
• Clayton Christensen. (2016). Key Concepts: Disruptive
Innovation. Available from:
http://www.claytonchristensen.com/key-concepts/.
[Accessed on 11 January 2016].