Disruptive Innovation: The Theory Of Disruptive Innovation In Business

Disruptive innovation is the introduction of a product or service into an established industry that performs better and, generally, at a lower cost than existing offerings, thereby displacing the market leaders in that particular market space and transforming the industry

It is a term in the field of business administration which refers to an innovation that creates a new market and value network and eventually disrupts an existing market and value network, displacing established market leading firms, products, and alliances.

Today, the term disruptive innovation is used broadly. It's often applied to any circumstance where a new technology ushers in significant business, industry or market changes and disrupts the status quo.

The theory of

Disrupters tend to focus on getting the business model, rather than merely the product, just right. When they succeed, their movement from the fringe (the low end of the market or a new market) to the mainstream erodes first the incumbents’ market share and then their profitability. This process can take time, and incumbents can get quite creative in the defense of their established franchises. For example, more than 50 years after the first discount department store was opened, mainstream retail companies still operate their traditional department-store formats. Complete substitution, if it comes at all, may take decades, because the incremental profit from staying with the old model for one more year trumps proposals to write off the assets in one stroke.

Importance of disruptive innovation

Business leaders see disruptive improvement as important for bringing benefits to customers and society, as the disruptive innovator produces a better offering (often at a lower price) while at the same time creating new value and spurring additional improvements beyond the early iterations of its product or service.

According to business thought leaders, the reasons executives must be aware of disruptive innovation and how it occurs are two-fold. Knowledge of how disruptive innovation works will help executives prepare their companies to anticipate innovations that could become competitors. It will also give

Many leaders of small, entrepreneurial companies praise it as their guiding star; so do many executives at large, well-established organizations, including Intel, Southern New Hampshire University, and Salesforce.com.

Netflix is a great example of disruptive innovation. Its DVD-by-mail model turned the video rental business on its head and helped push an industry titan, Blockbuster, into bankruptcy. ... But ten years in, video streaming threatens to disrupt Netflix' business model.

Let’s consider Uber, the much-feted transportation company whose mobile application connects consumers who need rides with drivers who are willing to provide them. Founded in 2009, the company has enjoyed fantastic growth (it operates in hundreds of cities in 60 countries and is still expanding). It has reported tremendous financial success (the most recent funding round implies an enterprise value in the vicinity of $50 billion). And it has spawned a slew of imitators (other start-ups are trying to emulate its “market-making” business model). Uber is clearly transforming the taxi business in the United States. But is it disrupting the taxi