Disruptive innovation

In business theory, a disruptive innovation is 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. The term was defined and first analyzed by the American scholar Clayton M. Christensen and his collaborators beginning in 1995, and has been called the most influential business idea of the early 21st century.Generally, disruptive innovations were technologically straightforward, consisting of off-the-shelf components put together in a product architecture that was often simpler than prior approaches. They offered less of what customers in established markets wanted and so could rarely be initially employed there. They offered a different package of attributes valued only in emerging markets remote from, and unimportant to, the mainstream.The technological changes that damage established companies are usually not radically new or difficult from a technological point of view. They do, however, have two important characteristics: First, they typically present a different package of performance attributes—ones that, at least at the outset, are not valued by existing customers. Second, the performance attributes that existing customers do value improve at such a rapid rate that the new technology can later invade those established markets.When the technology that has the potential for revolutionizing an industry emerges, established companies typically see it as unattractive: it’s not something their mainstream customers want, and its projected profit margins aren’t sufficient to cover big-company cost structure. As a result, the new technology tends to get ignored in favor of what’s currently popular with the best customers. But then another company steps in to bring the innovation to a new market. Once the disruptive technology becomes established there, smaller-scale innovation rapidly raise the technology’s performance on attributes that mainstream customers’ value.Implementing high technology is often resisted. This resistance is well understood on the part of active participants in the requisite TSN. The electric car will be resisted by gas-station operators in the same way automated teller machines (ATMs) were resisted by bank tellers and automobiles by horsewhip makers. Technology does not qualitatively restructure the TSN and therefore will not be resisted and never has been resisted. Middle management resists business process reengineering because BPR represents a direct assault on the support net (coordinative hierarchy) they thrive on. Teamwork and multi-functionality is resisted by those whose TSN provides the comfort of narrow specialization and command-driven work.The effects of high technology always breaks the direct comparability by changing the system itself, therefore requiring new measures and new assessments of its productivity. High technology cannot be compared and evaluated with the existing technology purely on the basis of cost, net present value or return on investment. Only within an unchanging and relatively stable TSN would such direct financial comparability be meaningful. For example, you can directly compare a manual typewriter with an electric typewriter, but not a typewriter with a word processor. Therein lies the management challenge of high technology.Wikipedia not only disrupted printed paper encyclopedias; it also disrupted digital encyclopedias. Microsoft's Encarta, a 1993 entry into professionally edited digital encyclopedias, was once a major rival to Britannica but was discontinued in 2009. Wikipedia's free access, online accessibility on computers and smartphones, unlimited size and instant updates are some of the challenges faced by for-profit competition in the encyclopedia market.However, 8 inch drives were not affordable for the new desktop machines. The simple 5.25 inch drive, assembled from technologically inferior 'off-the-shelf' components, was an 'innovation' only in the sense that it was new. However, as this market grew and the drives improved, the companies that manufactured them eventually triumphed while many of the existing manufacturers of eight inch drives fell behind.CRT sets were very heavy, and the size and weight of the tube limited the maximum screen size to about 38 inches; in contrast, LCD and other flat-panel TVs are available in 40', 50', 60' and even bigger sizes, all of which weigh much less than a CRT set. CRT technologies did improve in the late 1990s with advances like true-flat panels and digital controls; however, these updates were not enough to prevent CRTs from being displaced by flat-panel LCD and LED TVs.This low end disruption eventually undermined the sales of physical, high-cost recordings such as records, tapes and CDs.Cameras for classic photography are stand-alone devices. In the same manner, high-resolution digital video recording has replaced film stock, except for high-budget motion pictures and fine art. The rise of digital cameras led Eastman Kodak, one of the largest camera companies for decades, to declare bankruptcy in 2012. Despite inventing one of the first digital cameras in 1975, Kodak remained invested in traditional film until much later. In business theory, a disruptive innovation is 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. The term was defined and first analyzed by the American scholar Clayton M. Christensen and his collaborators beginning in 1995, and has been called the most influential business idea of the early 21st century. Not all innovations are disruptive, even if they are revolutionary. For example, the first automobiles in the late 19th century were not a disruptive innovation, because early automobiles were expensive luxury items that did not disrupt the market for horse-drawn vehicles. The market for transportation essentially remained intact until the debut of the lower-priced Ford Model T in 1908. The mass-produced automobile was a disruptive innovation, because it changed the transportation market, whereas the first thirty years of automobiles did not. Disruptive innovations tend to be produced by outsiders and entrepreneurs in startups, rather than existing market-leading companies. The business environment of market leaders does not allow them to pursue disruptive innovations when they first arise, because they are not profitable enough at first and because their development can take scarce resources away from sustaining innovations (which are needed to compete against current competition). A disruptive process can take longer to develop than by the conventional approach and the risk associated to it is higher than the other more incremental or evolutionary forms of innovations, but once it is deployed in the market, it achieves a much faster penetration and higher degree of impact on the established markets. Beyond business and economics disruptive innovations can also be considered to disrupt complex systems, including economic and business-related aspects. The term disruptive technologies was coined by Clayton M. Christensen and introduced in his 1995 article Disruptive Technologies: Catching the Wave, which he cowrote with Joseph Bower. The article is aimed at management executives who make the funding or purchasing decisions in companies, rather than the research community. He describes the term further in his book The Innovator's Dilemma. Innovator's Dilemma explored the cases of the disk drive industry (which, with its rapid generational change, is to the study of business what fruit flies are to the study of genetics, as Christensen was advised in the 1990s) and the excavating equipment industry (where hydraulic actuation slowly displaced cable-actuated movement). In his sequel with Michael E. Raynor, The Innovator's Solution, Christensen replaced the term disruptive technology with disruptive innovation because he recognized that few technologies are intrinsically disruptive or sustaining in character; rather, it is the business model that the technology enables that creates the disruptive impact. However, Christensen's evolution from a technological focus to a business-modelling focus is central to understanding the evolution of business at the market or industry level. Christensen and Mark W. Johnson, who cofounded the management consulting firm Innosight, described the dynamics of 'business model innovation' in the 2008 Harvard Business Review article 'Reinventing Your Business Model'. The concept of disruptive technology continues a long tradition of identifying radical technical change in the study of innovation by economists, and the development of tools for its management at a firm or policy level.