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02 JULY 2011

Disruptive versus Radical Innovations

"The innovator's dilemma is this: a company that does everything by the book – listening to customers, managing by facts, being disciplined about costs and quality, and so forth – can get blindsided by an innovation that rapidly takes away its markets, because it was doing everything right. The innovations that cause this 'why bad things happen to good companies' dilemma are disruptive innovations. The signature story of disruption reads as follows: an upstart low–end competitor displaces a much larger incumbent in a market, with the incumbent either retreating upmarket to higher margin/lower volume products or dying out altogether. ...

Examples are smaller, cheaper hard drives disrupting incumbent hard drive makers, hydraulic shovels disrupting cable–winch shovels (an early 20th century example), PCs disrupting mainframes, ink jet printers disrupting laser printers and, most recently, the Nintendo Wii starting to disrupt the Playstation and the Xbox.

Major though they were, innovations such as CDs, laser printing and jet airplane engines were not disruptive with respect to the technologies they displaced ( cassette tapes, light lens Xerography and piston engines respectively). In each case, the incumbents benefited from these non–disruptive, or sustaining innovations.

The key point to remember is that disruption is a market/business phenomenon and has little to do with technology per se. In particular, a disruptive innovation may or may not represent a major technical breakthrough. Major breakthroughs, which are called 'radical' in Christenson's model, may or may not be disruptive, while minor, or 'incremental' innovations can be massively disruptive. The opposite of disruptive is sustaining. Why and how does disruption happen?

A disruptive innovation usually starts as a low–quality differentiated product in a low–volume marginal segment of a much larger mature market, which demands attributes that the mainstream market does not, and which is willing to give up performance attributes the mainstream market is not (example, Wii customers willing to give up sheer processing horsepower for 3d input capability).

A marginal player occupies this segment and starts growing rapidly, solving initial quality problems while retaining a cost advantage.

The incumbent mature market leader, no matter how visionary, is forced to ignore the opportunity because it does not meet the growth needs dictated by its larger size, and also because the disruptive product is not yet good enough for its mainstream customers.

The marginal player goes through a learning curve, solves its quality problems and suddenly starts threatening the market leader in its main markets

The incumbent scrambles to put together a response, nearly always fails because of the disruptor's head start and optimized culture, and retreats to a higher–end market."

(Venkatesh Rao, 23 July 2007)

TAGS

breakthrough • business phenomenon • cable-winch shovels • cassette tapes • CDs • Clayton Christensencompetitor • differentiated product • disruptiondisruptive innovation • disruptive innovations • growth needs • hard drive • hydraulic shovels • incremental • ink jet printer • innovation • innovations • innovators dilemma • jet airplane engines • laser printer • laser printing • light lens Xerography • listening to customers • mainframemarket leader • market phenomenon • Nintendo Wii • non-disruptive • opportunity • PCs • piston engines • Playstationproductradicalradical innovationsustaining innovations • technical breakthrough • Venkatesh Rao • Xbox

CONTRIBUTOR

Simon Perkins
09 MAY 2011

How Unilever, Coke and the Mini car got it so wrong

"Even the biggest businesses can make big mistakes – and when they do, the result can be a commercial calamity. Companies are constantly striving to improve their products and turn a profit. But changing an existing product can go horribly wrong, leaving customers in revolt and companies in crisis. Mishandled marketing and bungling public relations can make the slickest of businesses look incompetent. And the costs both financially and to reputation can be enormous. Persil, Coca–Cola and the British Motor Corporation have provided some of the most extreme examples as Evan Davis has been finding out for a new BBC Two series."

(BBC News, 8 May 2011)

Business Nightmares with Evan Davis – Doomed Designs will be on BBC Two at 20:00 BST on Monday 9 May 2011

Fig.1 '2009 Mini Cooper Turns Fifty and is Younger than Ever', picture 09ELG550925430AC

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TAGS

195919851990s1994BBC • best-selling • blind taste test • BMC • British Motor Corporation • businesscarcelebrity endorsementCoca-Colacommodity • companies in crisis • customer revolt • customersenterprise • Evan Davis • failure • garmentinnovationJohn Lennon • low price • loyaltymarket dominancemarket leadermarket researchmarketing • Mini (car) • new and improved • New Generation Persil • original formula • original recipe • Pepsi • Pepsi Challenge • Persil • Persil Power • Peter SellersPolaroidpriceProcter and Gambleproductproduct change • product formula • profitpublic relationssoap • soft drink • Spike Milligan • stain • taste (sociology)UKUnilever • washing powder • waste

CONTRIBUTOR

Simon Perkins
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