Disruptive Innovation

Learning about Disruptive Innovation

For a brief introduction to the Theory of Disruptive Innovation, keep reading...

For a slightly more in-depth discussion of Disruptive Innovation, try reading our Disruptive Innovation Primer, a short (4 page) document outlining the key principles in more detail.For a full discussion of Disruptive Innovation, we recommend reading the Innovator's Dilemma or the Innovator's Solution.
 

The Need for Disruptive Innovation

Only 25% of all new products that established companies introduce in their markets succeed. Seventy-five percent fail. Only 10 percent of companies can maintain a level of growth that satisfies their shareholders over the long term. Ninety percent cannot. Most of those companies seem to be doing all the right things; listening to their best customers, keeping a close eye on competitors, and investing heavily in technological advancements. Long-term success requires more. It requires that companies develop strategies around disruptive innovations.

Disruptive innovations either create new markets or reshape existing markets by delivering relatively simple, convenient, low-cost innovations to a set of customers who are ignored by industry leaders. Historically, companies that dominate an industry have had little interest in pursuing these types of innovations because profit margins are often lower and the innovations don't address the needs of those companies' best customers. However, companies that have recognized the value in pursuing disruptive growth -- such as Intel, Procter and Gamble, Cisco, Johnson & Johnson, Dow Corning and IBM -- have all profited from this type of innovation at various points in their histories.

The Theory of Disruptive Innovation

There is a simple, important principle at the core of the disruptive innovation theory: Companies innovate faster than customers' lives change. Because of this, most organizations end up producing products that are too good, too expensive, and thus too inconvenient for many customers. By only pursuing these sustaining innovations, companies unwittingly open the door to entrants that can offer simpler, more convenient and lower-cost products to those customers who have no need to keep up with the accelerated pace of innovative change.

This phenomenon happens for a good reason: good managers are trained to seek higher profits by bringing better products to the most demanding customers in the marketplace. But in that pursuit of profits, companies end up overshooting less-demanding customers who are perfectly willing to take the basics at reasonable prices. Furthermore, they ignore nonconsumers who have a problem to solve, but cannot solve it due to a lack of skills, wealth, ability or time.

This is the essence of "The Innovator's Dilemma:" doing everything right actually makes it difficult for even the best run companies to spot and seize opportunities with the highest growth potential.

Successful Disruptive Innovators

But there is hope. Companies that have been successful at disruptive innovation have all followed a common pattern, which provides the basis for what companies can do to successfully innovate. The elements of this pattern include:

• Start with good enough performance along traditional dimensions. Offer new benefits such as simplicity, convenience, or low prices
• Appeal to overshot customers or nonconsumers that have an important "job-to-be-done"
• Often utilize low cost or "start small" business models
• Take advantage of competitive weaknesses and blind spots. Successful disruptive innovators like Proctor & Gamble, Dow Corning and Intuit have all followed parts of this pattern to create booming new growth businesses
• Proctor & Gamble's popular "Swiffer" product line greatly simplifies a complicated household task. P&G came up with the idea for Swiffer by observing a frustrated woman who had spilled coffee grounds in her kitchen. By creating products to help consumers quickly and easily clean small spills, P&G has created a blockbuster brand on its way to being the fastest brand in P&G's history to get $1 billion in sales

More Examples of Disruption Innovations

Dow Corning, a leader in the silicones industry, created its web-based Xiameter business to address customers who simply wanted to purchase silicone in bulk and didn't need the added services that Dow Corning offered. Using a low-cost business model, Xiameter has successfully provided an offering for customers that were overshot with traditional offerings.

Intuit, a $US 2.4 billion software developer, has achieved disruptive success over and over again by providing simple financial software solutions for customers, accountants, and small businesses -- customers that leading financial software and service providers found unattractive. One of Intuit's disruptive wins was Quickbooks: A small business accounting software product that took over 70 percent of the market in its first year, blindsiding its competitors.