Disruptive innovation is commonly misunderstood. Just watch “Glass Onion: A Knives Out Mystery” to hear one of the main characters, Miles Bron, get the definition of “true disruption” really, really wrong. Thankfully (spoiler alert), he was the villain, so we’ll move past it and be the heroes of the story, by doing a mini dive into what true disruption really is.
Disruption, a theory of competition
Recently, one of my colleagues framed disruption in a way that truly helped me better understand the theory. She called it a theory of competition.
Disruption theory helps you know in advance the likelihood of you being able to beat your competitors, it is a way to predict the winners of an innovation race, and if leveraged correctly it can be a fail proof growth strategy. That is the power of disruption.
The goal of disruptive innovations is to commercialize simple, affordable innovations that replace expensive, complex systems and products, thereby increasing accessibility and affordability for all.
If an entrant to the market can successfully do this, then they are more likely to beat the incumbents.
Note, that this is only the case in a competition of disruptive circumstances not in sustaining ones. In sustaining circumstances the goal is to make better products that can be sold for more money to high paying customers. Sustaining innovations aren’t better or worse than disruptive innovations, they just have different goals. A competition of disruptive innovations is, in a way, a competition in a different weight class from a sustaining innovation.
Back to leveraging disruption theory to win. If you want to be a disruptor, you don’t have to “break the system itself” like Miles Bron suggests you do. Instead here is what you do:
Leveraging disruption to win
To beat market incumbents with disruptive innovations, you first have to determine if your product or service is actually disruptive. You also have to understand that disruption is relative. An idea that is disruptive towards one business may be sustaining towards another, and if that is the case then to have a better chance of winning you should reevaluate and find a disruptive idea that is disruptive to all established players in the target market.
To determine if your innovation is disruptive it must meet certain criteria.
First, your product or service must target nonconsumers or overserved customers. This is because incumbents have existing resource allocation processes designed and perfected to support sustaining innovations targeting high paying customers, and aren’t able to defend the new or low end customers that disruptors will go after.
Second, your innovation needs to be not as good as the existing offering. If your product or service is not as good then incumbents are likely to ignore the disruptive threat or opportunity until it’s too late.
Third, your product or service must be simpler, easier to use, or more affordable than existing offerings. An innovation that can generate profits at discount prices is a valuable growth strategy in itself because as managers move that innovation up market with higher performances and higher prices the increment in pricing falls to the bottom line, which in accounting speak is a good thing.
Fourth, your innovation should have a technological enabler that will allow it to move up market. Moving up market is essential, your innovation can’t stand still because then you will find yourself in a market of hard to differentiate products competing at comparable prices, and similar to my previous point, if your innovation moves up market then price increments fall into the companies profits, earnings, or net income helping you win.
Fifth, your technology must be paired with a disruptive business model. In disruption the simplifying technology must be embedded in a business model whose resources, process and profit formula enable it to deliver the simple and affordable solution in a cost effective way. That business model then needs to be embedded in a new value network that won’t force the disruptive innovation to conform.
A previous post of the Institute’s has a great graphic of six questions to test the “disruptiveness” of your innovation that may be easier to refer to for future ventures. But for now, just know if your product or service follows the above criteria, then you have correctly developed a disruptive innovation, and more importantly you are on the path to beating the incumbents.
For more of our Thursday Theory Tips, read:
Thursday Theory Tips – Who are your best customers?
Thursday Theory Tips – Is my business model working for me?
