Disruptive innovation is one of the most exciting developments to enter the mainstream of strategic management in the past 20 years.
The process of disruption introduces radical change in products, services and business processes that results in meeting unfulfilled customer needs in a way that creates and sustains profitable growth for an organisation. Disruption usually involves an innovation that challenges the established market structure and performance norms.
Disruptive innovation does not always involve major advances in technology. Too often we observe how successful companies innovate their products and processes faster than customers can utilise them. These innovations can become so sophisticated, expensive or complicated that they are accessible to a decreasing population of customers. Though prices and margins increase, longer-term profitable growth gets harder to achieve and sustain.
This is where “disruptive innovation” makes its impact. First we need to distinguish between “sustaining innovation” and “disruptive innovation”.
Sustaining innovation and disruptive innovation
A sustaining innovation enables an organisation to do something better. A disruptive innovation enables an organisation to do something different.
Sustaining innovation is better than no innovation. In this we make a cheaper laptop, a faster circuit board, or a more comfortable airline seat. However, major improvements in performance are brought about by disruption of an established business model. It gives rise to a different way of doing business. Some examples of disruption are given here.
Cellular telephones disrupted fixed-line telephonesPersonal computers disrupted mini/mainframe computersDiscount retailers disrupted department storesRetail medical centres displaced traditional doctor’s offices
Start here by asking yourself the following questions. In my organisation how much new value is generated by sustaining innovation and how much by disruptive innovation? In my organisation what percentage of projects are concerned with doing things better and what percentage are concerned with doing things different?
Understanding disruptive innovation
Disruptive innovation is not always about technological advancement. In fact, as seen in the earlier examples, simple technologies can disrupt more advanced technologies. Business is often disrupted by organisations entering a business at a lower level than the supposed “technological leader”. Many disruptions occur at lower levels of the market where customers have more straightforward needs and less money to spend and then, when established, the disruptors move up the market and displace the existing players. This is what Dell did to IBM and Samsung did to Nokia. Most often we find disruption in enabling people with lower skill levels to do what previously could be done only by highly trained and expensive specialists. Much medical diagnostic work – previously the activity of expensive doctors – can now be carried out effectively by nursing staff familiar with the outputs of the types of on-line diagnostic software that have disrupted the traditional model of medical practice with high-quality outputs at lower cost.
Innovation is becoming increasingly significant in strategic management. Quite simply, we have to achieve the same degree of progress in innovation that we achieved for quality management in the 1980s and business process design in the 1990s. Our challenge is to understand the strategic potential of disruptive innovation; its risks and rewards; its organisational impact; and, perhaps most important, its contribution to creating tomorrow’s organisation out of today’s organisation.
You are invited to enroll for this exciting new course, which will be launched in 2017. We look forward to seeing you and sharing ideas and experience in addressing the major strategic issues involved in managing disruptive innovation for improved profit performance.