The weakening or disappearance of Kodak, RCA, RIM, or Nokia, and the rise of Apple, Sony, Nichia, or Tesla is intriguing indeed. Similarly, the loss of American and European dominance to many critical inventions to Japan is also enthralling. Disruptive Innovation is at the core of all these transformations. Disruptive innovation means interrupting the existing state of affairs by offering better alternatives. To repeat Kodak moment, it infuses disruption to products, jobs, firms, and also countries. It avoids head-on competition through cost-cutting, imitation, low-cost labor advantage, and incremental advancement. Instead, innovators leverage discontinuity by pursuing Reinvention out of disruptive technology cores to create new waves.
Due to primitive emergence, it creates a Dilemma in the decision of incumbent firms’ managers—whether to allocate resources from profit-making mature products to loss incurring nascent ones. Consequentially, once-dominant firms disappear, frail new entrants grow up as a powerful force, and inventions migrate across the boundaries of firms and industries—making inventors importers. In shedding light on disruptive innovation, this article briefs on its 12 vital attributes.
Background:
Prof. Clayton Christenson got intrigued by the weakening or disappearance of high-performing firms. He also got curious with the observation that high performance was at the core of their disappointing fate. Hence, he started dissecting cases in detecting reoccurring patterns, giving birth to disruptive innovation theory. However, before him, Prof. Schumpeter shared a similar observation with his phenomenon of creative destruction. Apart from them, in ancient philosophical writings, Carl Marks noticed reoccurring observations pertaining to human beings’ inherent urge to pursue ideas for recreation—destroying existing means of Getting jobs done.
The profit-making incentive also intensifies the exploitation of this innate creative ability of human beings in improving the quality of living standards. Hence, the Market Economy adopted the principles of freedom of competition to profit from ideas for recreation. Therefore, the rise of new waves out of reinvention, taking the shape of disruptive innovation, has been at the core of Capitalism to offer us increasing Wealth from depleting resources.
Schumpeter’s creative destruction:
In “Capitalism, Socialism, and Democracy,” Schumpeter argues about the evolution of capitalism. More importantly, instead of a linear process of adding more inventions and innovations, this evolution takes place by replacing existing products, jobs, and firms—giving birth to creative destruction. Primarily, it happens due to the reinvention of existing products. Being better alternatives, these reinvented products cause destruction to the demand of existing ones.
For example, automobiles emerged as better alternatives to horse wagons, causing destructive effects. It destroyed the products, jobs, and firms associated with horse wagons. But the society became better off by getting rid of horse-related pollution and having faster as well as more comfortable means of transportation. It happens to be that this process keeps progressing in pursuing the next better alternative. Hence, innovators are after electric vehicles, which will likely cause destruction to internal combustion engines and jobs as well as firms engaged in producing them. Hence, he described it as the process of industrial mutation. It “incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.”
Clayton Christensen disruptive innovation:
Despite coining the term “creative destruction” and referring to incessant industrial mutation, Prof. Schumpeter did not elaborate on how it takes place. Hence, Christensen investigated it further. He observed that the process of creative destruction begins the journey in an embryonic form. It starts from below as an inferior or primitive alternative. Hence, invariably, incumbent customers and producers of mature, superior products overlook and ignore them. For example, in the early 1980s, the digital camera emerged as a highly inferior alternative to film ones. But due to continued advancement, these inferior products grow up as better alternatives. Hence, at the point of inflection, rapid demand shifts from mature products to alternatives—often giving no time to incumbent firms to switch. As a result, along with mature products, jobs, and firms in making them suffer from destruction.
More importantly, Christensen observed that management’s decision-making error in switching to the next wave is the underlying cause of suffering from destruction by once-dominant firms. To highlight this effect of creative destruction, he termed it disruptive innovation. For example, Kodak got the first patent for digital cameras but suffered from the destructive effect of the rise of digital cameras. It’s due to management decision errors—as it caused a dilemma about whether to switch to infant alternatives or to keep pursuing profitable incumbent mature products.
Innovators’ dilemma:
In retrospect, all creative waves start the journey with the emergence of alternatives or substitutes in primitive form. For example, cell phone in the 1970s was far inferior to land phone. Similarly, electric vehicles are still inferior to gasoline automobiles. Hence, invariably, high-paying customers for mature products show no interest in those inferior alternatives. Therefore, producers in offering them start the journey at a loss. Such a reality causes a decision-making dilemma to innovators—whether to switch to loss-making inferior substitute or to keep advancing existing products in meeting the demand of highly profitable market segments. But the new wave keeps growing due to the progression in quality and reduction in cost. Unfortunately, the dilemma of managers of profit-making incumbent firms leads to being too late to switch to the new wave.
Reinvention for disruptive innovation:
The underpinning of disruptive innovation or creative destruction is the reinvention of existing products. For example, an LED light bulb is a reinvention of CFL or incandescent bulbs. Irrespective of the greatness, all inventions have been evolving. This evolution takes place through two primary means—incremental advancement and reinvention. Unlike incremental advancement, reinvention does not offer a better alternative at the beginning. Reinvented products like digital cameras, LED light bulbs or electric vehicles begin the journey as an inferior alternative. But if the underlying technology core is highly amenable to progression, in the course of time, reinvented products emerge as a better alternative—creating the effect of creative destruction and disruptive innovation.
Fraught with pervasive uncertainties:
Invariably, the journey of disruptive innovation is fraught with pervasive uncertainties. Underlying causes are (i) technology, (ii) consumer preferences, (iii) competition, (iv) infrastructure, (v) externality, and (vi) public policies and regulations. These uncertainties also cause decision-making dilemmas worse. For example, despite the remarkable performance of the digital camera, electronic image sensor technology emerged as 8×8 highly noisy technology. Similarly, uncertainty in the development of fueling or recharging infrastructure has been affecting the decision in pursuing battery as well as fuel cell-based electric vehicle reinvention. For dealing with uncertainties, we need a disciplined approach.
Disruptive innovation examples:
There have numerous disruptive innovation examples. In the journey of evolution, many great products have already produced several disruptive innovation examples. For example, the evolution of light sources has given birth to multiple disruptive innovation examples. The incandescent light bulb caused disruption to oil lamps, hurricanes, and arc lamps. On the other hand, the LED light bulb is a disruptive innovation example as it caused disruption to CFL and incandescent light bulbs making jobs, firms, and industries. Similarly, Electronic Television caused disruption to John’s Bared mechanical Television. Besides, the multi-touch-based smartphone has caused disruption to keyboard-centric smartphones and their makers like Nikia and RIM. In retrospect, the history of the evolution of inventions is marked by a series of disruptive innovations.
Disruptive technology:
Newly invented technologies having a high degree of amenability of progression are Disruptive technologies. These technologies fuel reinvention. In the early stage of the life cycle, products invented out of them show up in a primitive form—creating a decision-making dilemma. However, due to the amenability of progression, the advancement of disruptive technologies leads to quality improvement and cost reduction of reinvented products. For example, the rise of the digital camera as disruptive innovation is due to the invention and growth of charge-coupled devices. Some of the prominent disruptive technologies are Transistor, Light-emitting diode (LED), batteries, wireless communication, LCD display, flash memory, microcontroller, and many more.
Disruptive strategy and business model:
Disruptive strategy begins in a humble form. Often, it remains undetected in the RADAR of dominant firms, producing profitable products out of mature technology core. And the disruptive business model begins the journey of selling inferior products at a low price, incurring a loss. Instead of targeting customers of high-performing mature products, the disruptive strategy targets those consumers who cannot use high-quality mature products to get their jobs done. For example, a film camera could not meet the need for space imaging. Similarly, American college students could not use cabinet top radio to enjoy music with their friends in neighborhood hangouts. Similarly, the military could not use the land phone in War fields. Hence, disruptive innovation strategy starts the penetration or offensive from non-consumption or peripheral market segments.
As opposed to just keep giving subsidies, the disruptive strategy focuses on advancing core technologies and redesigning reinventions in making the successive versions better and cheaper. Consequentially, reinvented products keep progressing into the core of the highly profitable market segment of mature products. It also keeps expanding the peripheral market segments. Hence, disruptive strategy succeeds in turning humble penetration at the periphery in taking over the existing market and expanding it further. In retrospect, Japan offers valuable examples.
Disruption in business: examples
As explained, the evolution of every great product is the outcome of a series of reinventions creating instances of disruption in businesses. Therefore, there are numerous such examples. For example, Nokia and RIM experienced disruptions in their businesses due to the rise of the iPhone. They laid off thousands of high-performing employees, closed factories, and sold remains. Similarly, Kodak filed bankruptcy, and TV inventing company RCA closed down the TV set-making business.
Blue ocean through disruptive innovation:
Blue ocean has been a business strategy concept. This is about to open up a new market space and create demand while facing little competition. Disruptive innovation out of reinvention around emerging technology core is one of the effective strategies. However, the journey begins at a loss. But it gives the pathway to create a new market with the option of taking over the market of incumbent mature products. It also offers the opportunity of monopolizing it by having a lead in the technology advancement race. Furthermore, disruptive innovation creates a blue ocean business opportunity by causing destruction to dominant firms.
Evolution and migration due to disruptive innovation:
Disruptive innovation causes destruction to dominant firms and the products they produce around mature technology core. Hence, the business of the inventions, in the form of reinvented products, migrate from once-dominant firms to new entrants. But those new entrants may emerge from outside national boundaries. For example, Japanese Sony invented Walkman and was the dominant firm in the portable much player market. Due to the reinvention of Walkman as iPod, portable music players migrated from Japanese Sony to American Apple.
Similarly, smartphones, cameras, displays, light bulbs, and television, among many others, have migrated across the boundaries of firms and industries. Even such migration has turned inventing countries into the importers of the reinvented versions of their inventions. For example, despite being the inventor of the camera and the light bulb, America is now the importer of both digital camera and LED light bulb modules from Japan. In retrospect, Japan’s success is out of migration through disruptive innovation.
Disruptive innovation theory:
Disruptive innovation has become a buzzword–notably, in the startup community. They are many connotations of it. Hence, there have been multiple interpretations, leading to confusing understanding among stakeholders. Therefore, there is a need for a unified theory in explaining different attributes. Having a common understanding around a unified theory is vital for understanding the root causes of innovation dynamics and ensuring synchronized appropriate responses from multiple stakeholders.
Hopefully, this article has given enough clarification to comprehend the multidimensional aspects of disruptive innovation. In order to get further clarification, we should keep dissecting instances having disruptive innovation elements–whether as a cause or effect. Due to its immense implication, comprehension of disruptive innovation as a unified phenomenon is vital for inventors, innovators, entrepreneurs, Startups, corporations, investors, and policymakers.
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