2.1 Clayton Christensen's theory of disruptive innovation

Clayton Christensen's theory of disruptive innovation explains how new products or services can upend established markets. It describes how simple, affordable offerings can evolve to meet mainstream needs, eventually displacing industry leaders.

Disruptive innovations often start in overlooked market segments, offering different benefits than traditional products. They follow a predictable pattern of improvement, creating new markets and value networks. Examples include personal computers, smartphones, and e-commerce platforms.

Disruptive Innovation

Concept and Key Characteristics

Top images from around the web for Concept and Key Characteristics

• 

  Cracks In The Foundation Of Disruptive Innovation -e-Literate View original

  Is this image relevant?

• 

  Innovación Disruptiva (Christensen) – juandon. Innovación y conocimiento View original

  Is this image relevant?

• 

  Bits or pieces?: What is right and wrong with Christensen's Disruptive Innovation? View original

  Is this image relevant?

• 

  Cracks In The Foundation Of Disruptive Innovation -e-Literate View original

  Is this image relevant?

• 

  Innovación Disruptiva (Christensen) – juandon. Innovación y conocimiento View original

  Is this image relevant?

1 of 3

Top images from around the web for Concept and Key Characteristics

• 

  Cracks In The Foundation Of Disruptive Innovation -e-Literate View original

  Is this image relevant?

• 

  Innovación Disruptiva (Christensen) – juandon. Innovación y conocimiento View original

  Is this image relevant?

• 

  Bits or pieces?: What is right and wrong with Christensen's Disruptive Innovation? View original

  Is this image relevant?

• 

  Cracks In The Foundation Of Disruptive Innovation -e-Literate View original

  Is this image relevant?

• 

  Innovación Disruptiva (Christensen) – juandon. Innovación y conocimiento View original

  Is this image relevant?

1 of 3

• Disruptive innovation theory developed by Clayton Christensen explains how products or services initially take root in simple applications at market bottom and move upmarket, eventually displacing established competitors
• Lower gross margins, smaller target markets, and simpler products characterize disruptive innovations compared to traditional performance metrics
• Start in low-end or new-market footholds (areas unattractive or overlooked by industry incumbents)
• Offer different features and benefits prioritizing affordability, simplicity, convenience, or accessibility
• Driven by enabling technologies or innovative business models serving underserved or unserved customer segments
• Follow predictable pattern improving over time to meet more demanding customer needs, often surpassing established products in mainstream markets
• Create new markets and value networks unlike sustaining innovations

Examples and Applications

• Personal computers disrupted mainframe and minicomputer markets
• Smartphones disrupted traditional mobile phone industry
• Online streaming services (Netflix) disrupted video rental and cable TV markets
• Low-cost airlines (Southwest) disrupted traditional airline industry
• Digital photography disrupted film photography market
• E-commerce platforms (Amazon) disrupted traditional retail industry
• Electric vehicles disrupting internal combustion engine automobile market

Disruption vs Sustaining Innovation

Process of Disruption

• New entrants target overlooked segments, gaining foothold by delivering suitable functionality at lower price
• Disruptive innovations improve and attract mainstream customers, moving upmarket and gaining market share
• Process typically slower than sustaining innovation, allowing incumbents time to respond
• Often difficult for incumbents to recognize or address effectively due to organizational inertia and focus on existing high-value customers
• Leads to creation of new markets and value networks
• Sacrifices performance in "traditional" attributes but offers new features valued by subset of customers

Sustaining Innovation Characteristics

• Improve performance of established products along dimensions valued by mainstream customers
• Can be incremental or radical but do not create new markets or value networks
• Focus on improving products for incumbent's existing customers
• Reinforce existing markets and value networks
• Typically easier for incumbents to recognize and respond to effectively
• Often driven by customer demand and competitive pressures within existing market

Impact of Disruptive Innovation

Market and Industry Effects

• Reconfigures industry structures and redefines market boundaries
• Creates new customer segments and shifts power dynamics within industry value chains
• Alters basis of competition in established markets
• Impacts extend beyond individual firms, affecting entire ecosystems and complementary industries
• Can lead to devaluation of incumbents' core competencies
• Emergence of new capabilities and resources as sources of competitive advantage

Impact on Incumbent Firms

• Incumbents struggle to respond effectively due to organizational rigidities and resource allocation processes
• Loss of market share, decreased profitability, and potential business failure or obsolescence for established firms
• Market leaders generally good at responding to sustaining innovations but often fail to address disruptive innovations
• Core competencies of incumbents may become obsolete or less valuable
• Challenges existing business models and value propositions

Challenges and Opportunities for Disruption

Challenges for Incumbents

• Innovator's dilemma choosing between sustaining innovations for existing customers or pursuing potentially disruptive innovations
• Overcoming organizational inertia and reallocating resources from sustaining to potentially disruptive projects
• Managing expectations of existing customers and shareholders while pursuing disruptive opportunities
• Developing new capabilities and competencies required for disruptive innovations
• Balancing short-term performance with long-term survival and growth

Strategies and Opportunities

• Create autonomous units to explore disruptive opportunities (IBM's PC division)
• Pursue strategic partnerships or acquisitions to access disruptive technologies (Facebook acquiring WhatsApp)
• Engage in corporate venturing to invest in potentially disruptive startups (Intel Capital)
• Develop ambidextrous organizational structures to pursue both sustaining and disruptive innovations simultaneously
• Build dynamic capabilities to sense, seize, and reconfigure resources in response to disruptive changes
• Adopt different metrics, processes, and cultural norms for disruptive innovation initiatives
• Explore adjacent markets or redefine existing business models to capture value from disruptive trends