How To Identify Distruptive New Business

disruptive innovation

disruptive innovation

Disruptive business models introduce threats to existing ways, but also opportunities for new sources of competitive advantage (Markides, 2006). Christensen’s landmark disruptive theory explains how fringe ideas come to redefine entire markets, not only explains why new businesses emerge and maturecompanies fall. It actually helps to predict the future success of new ventures more accurately. Raynor (2011) argues that Disruption theory is the only theory which has been statistically proven to be an effective predictive tool. Despite the groaning shelves of books offering advice on innovation, most managers continue to struggle to create the profitable growth their companies need. The reason? The vast majority of management theories base their prescriptions on explanations of the past. When it comes to predicting successful innovation, a willingness to apply the empirical and theoretical rigor of the scientific method to prove what will work in the real world has been notable by its absence (Raynor, 2011). Established companies in industries as diverse as airlines, media and banking are seeing their markets invaded by new and disruptive business models. The success of invaders such as easyJet, Netflix and ING Direct in capturing market share has encouraged established corporations to respond by adopting the new business models alongside their established ones (Markides and Oyon, 2010). According to Markides and Oyon (2010) the markets that get created by new business models are not necessarily more attractive than existing markets. In addition, the new customers who are
attracted to the new business models are not the kinds of customers that established corporations should necessarily pursue. For example, Internet brokerage created a huge market in the United States. Even though this market is big and growing, is it a market that all established brokers ought to go after? Most probably not. According to Markides (2006) researchers examined the theory behind disruptive technological innovation and identified a number of issues that require
further and deeper exploration. The business-model innovation is one type of innovation that
tends to be disruptive to established competitors. A Business-model innovation is the discovery of
a fundamentally different business model in an existing business. Another type of innovation that
tends to be disruptive to the established competitors is radical innovation, which creates new-tothe-
world products. A radical innovation is disruptive to consumers because it introduces
products and value propositions that disturb prevailing consumer habits and behaviors in a major
way (Markides and Oyon, 2010). Christensen, Clayton M. (1997) in his original formulation of
disruptive theory focused primarily on technological innovation and explored how new
technologies came to surpass seemingly superior technologies in a market.
Raynor suggests (2011), that all disruptive innovations stem from technological or business
model advantages that can scale as disruptive businesses move upmarket in search of moredemanding
customers. These advantages are what enable the extendable core; they differentiate
disruption from mere price competition. “A disruptive innovation is an innovation that transforms
the complicated, expensive services and products into things that are so simple and affordable
that you and I can use them” (Christensen, 2002). According to Christensen, most always at the
beginning of an industry, the services or the products that are available are so complicated and
expensive that the only people who can participate are people with a lot of money (Richardson,
2010).
Christensen (2012) explains that a disruptive technology is an innovation that transforms a
product that historically was so complicated and expensive that only people with a lot of money
and a lot of skill had access to owning and using it, into a product or a service that is so much
more simple and affordable that a much larger population of people can now own it and use it.”
It’s not a breakthrough. The meaning in Christensen’s work is simplicity and affordability.
“A disruptive innovation describes a process by which a product or service initially begins as
asimple application and then moves up market, eventually displacing established competitors.”
“An innovation that is disruptive allows a whole new group of consumers’ access to a product or
service that was originally only accessible to those who could afford it (Christensen, 2002, 2012).
The characteristics of disruptive businesses, at least in their initial stages, can include: lower gross
margins, smaller target markets, and simpler products and services that may not appear as
attractive as existing solutions when compared against traditional performance metrics. Because
companies tend to innovate faster than their customers’ lives change, most organizations
eventually end up producing products or services that are too good, too expensive, and too
inconvenient for many customers. By only pursuing sustaining innovations that perpetuate what
historically helped them succeed, companies unwittingly open the door to disruptive innovations
(Christensen, 2002, 2012).

From “HOW TO IDENTIFY DISRUPTIVE NEW BUSINESSES” by Elizabeth Robles Maldonado

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