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