Three Examples of Disruptive Innovation and Why They’re Important for Your Business

First described by Harvard academic Clayton Christensen in 1995, disruptive innovation theory has been called the most influential business idea of the early 21st century. But what is it and why is it so important? With the pace of change in the business world only ever accelerating, a solid grasp of this fundamental concept will serve organisational leaders well in navigating uncertain times.

What is disruptive innovation?

Disruptive innovation occurs when a product or service that is initially targeted at neglected sections of the market begins to usurp the market leaders. Established companies have a tendency to consolidate their activity around their successes. They refine what is working and focus on delivering maximum value to their existing customer base. In doing so, however, they ignore other sections of the market - usually those with less purchasing power. This creates an opportunity for innovators to deliver alternative services at cheaper price points. 

Disruptive vs sustaining innovation

With disruptive innovation being that which changes the market, sustaining innovation refers to innovation that maintains the market status quo. This is where companies that are already market leaders innovate in order to improve the service they product or service they provide to their existing customer base. 

An example of such innovation is in the various iterations of the iPhone. Which each new model, innovations are introduced, but they ultimately serve to target the same customers that the iPhone has always served. This behaviour, though logical, opens the door to the arrival of new entrepreneurs who can target what Monash University’s Computing and Commerce Association (CCA) describes as ‘the needs of the overlooked customer segment’. In an article on the subject, the CCA goes on to note how ‘new start-ups can use this advantage to rapidly gain customer base’.

The risk and reward of disruption

The CCA suggests that ‘disruption need not be scary to companies, but they should seek to embrace this change’. This includes making their own culture more flexible in order to foster the innovation from within. Market leaders must strive to continually reinvent the wheel, or they will inevitably find themselves displaced by competitors.

Take just the state of Queensland, for example. The University of Queensland Business School (UQBS) releases an annual survey called the ‘Brisban Innovation Scorecard’. According to their analysis, ‘the majority of innovation in the state is focused on incremental innovation’ - that is, sustaining innovation. What’s more, up to 90% of businesses are vulnerable to being disrupted. 

‘When part of the market that has been with you for years moves to someone else, that’s a warning sign’, says Dr Tim Kastelle, innovation specialist at UQBS and one of the principal authors of the study. ‘Another is when there is a segment of the market that is not economical for you to service’.

Three examples of disruptive innovation

By looking at and understanding thoroughly past examples of disruptive innovation, businesses can protect themselves from falling victim to competitors or, even better, secure their edge over the market.

Digital Distributors - Amazon & Netflix

Before the early 1990s, books and movies were purchased or rented from brick-and-mortar distributors.

But Amazon changed all that by taking advantage of the new technology of the internet to innovate in the industry. Customers could browse inventory online and then order a book directly to their homes. Over the years, Amazon would apply this same innovation to other product markets, to become, in 2023, the 5th most valuable company in the world. Traditional booksellers like Barnes and Noble and Borders, meanwhile, were consigned to the pages of history.

A similar story can be seen in the world of TV and Cinema. There, it was Netflix who introduced the innovation, again leveraging the internet to distribute DVDs, as Amazon did with books. Later, the company would repeat their innovative leap, though this time as the market leader, by shifting to a streaming model of distribution. Blockbusters, meanwhile, survives only as a novelty.

P2P Accommodation - Airbnb

Facing off against traditional accommodation booking services like Booking.com, Airbnb introduced the innovation of P2P, or peer-to-peer, commerce. That means that private property owners and customers could connect directly through Airbnb to offer low-cost alternatives to the traditional hotel industry. In its own study of the Airbnb case, Go Cardless, a payment provider, makes the crucial point that, although Airbnb started as a budget option targeting a narrow section of the market, ‘today, Airbnb provides luxury villas in addition to low-cost rooms - a disruptive innovation, stretching to all ends of the market’.

Disruptions of the Future - AI

We’ve barely begun to see the potential of AI technology, and, in some cases, its current implementations come with risks that must be managed. But it’s safe to say that its potential to learn and perform some tasks at exponentially faster rates than humans will lead to fundamental change across many industries.

How to disruptively innovate

In order to detect the potential for disruptive innovation in a particular industry, productivity specialists Inventium advises looking out for the four ‘Consumption Barriers’ that may be blocking access to a product or service for certain sections of the market. These barriers are:

• Cost - Are there people out there who cannot afford a certain product or service, but would otherwise be interested in it? By finding a way to make the product or service cheaper, you will be able to acquire these people as customers.
• Access - is accessing a product or service too difficult, complicated, or otherwise prohibitive? How could it be made simpler, easier, and more convenient for people?
• Time - Some products and services simply take too much time to make use of. Can you find a way to remove this limitation?
• Skill - Do the current products and services on the market present too great a learning curve or knowledge base for some to use? Is there a way to remove some of the work that might go into mastering a product?

Beyond the innovation

Besides simply identifying the right product or service, there are some other requirements that are necessary. It must also be the case that industry partners, such as suppliers, contractors and distributors, also benefit from the innovation. This is called a Coherent Value Network, and is crucial for ensuring an innovation takes hold in the marketplace. 

There is always innovation, and always the possibility of disruption. By identifying and addressing consumption barriers and ensuring a coherent value, you’ll be able to ensure that the most radical innovator in your industry is you and, if you’re already the market leader, that the only organisation you’ll be disrupting will be your own.