PAGE 7 iNM VOLUME 9 DISRUPTIVE INNOVATION
DISRUPTIVE INNOVATION
S W E T A N K S I N H A B A T C H 2 0 1 6- 1 8
N M I M S, M U M B A I
The theory of Disruptive Innovation explains the process that transforms an existing market by introducing simplicity, convenience, and affordability to a complicated and a high cost market. The theory which was introduced by Clayton Christensen, described it as innovation that creates new markets by discovering new categories of customers. Wikipedia is an example was disruptive innovation as it created a new market and replaced the traditional use of encyclopedia.
The incumbents( market leaders) pursue sustained innovation to increase their profitability and in doing so they become myopic to the lower section of the market. They focus more on the sophisticated customers at the top end of the market because traditionally they are the ones from whom they secure the highest prices. However, in doing so, they open the door for“ disruptive innovation” that allows new customers at the bottom of the market to access products that earlier was accessible only only to consumers with a lot of money.
In the initial stages disruptive innovation might lead to smaller gross margin and smaller target markets which might not be attractive to firms that are moving upward in the market, as they look towards increasing their profits. The disruptors( new companies) take advantage of this situation and make a move to acquire the lower rungs of the market. This is a cyclic process and the incumbents keep on moving upward in search of profitability which gives a chance to the disruptors to increase their market presence and over a period of time these companies make their presence felt and start competing with the market leaders.
Disruptive innovators usually find their first customers at the bottom of the market, and slowly build upwards from there. The incumbents are often slow to recognize this threat and ignore this threat as it is not much profitable to them. One of the most influential disruptions was the introduction of personal