The theory of disruptive innovation, has done wonders in the business world for many companies. Many leaders of large organizations such as Salesforce.com, Intel and Southern New Hampshire University have enjoyed the outcome of the innovation method.
Unfortunately, many companies have misunderstood the whole concept leading to failure. Additionally, important changes that have been made over the past two decades have been overshadowed by the popularity of the initial concept, hence the innovation is still being judged from the flaws that have been rectified.
The other problem is that people have not read about the concept in serious articles for a deeper understanding. Many individuals simply describe disruptive innovation as any situation where a firm is shaken up and previous incumbents stumble. There is much than this.
The problem of conflating the breakthrough of any firm with all breakthroughs that changes the competitive pattern of a company is that all innovations have specified strategies. Failing to integrate insight from valid research materials ends with a company using wrong tools, reducing the chances of success of the innovation.
Disruptive Innovation Definition
Disruption occurs when upcoming businesses successfully challenges an already existing incumbent business. In such times, incumbents are busy looking into the well-being and demands of their most demanding and profitable consumers, which they fulfil and exceed at the expense of their other consumers.
Entrants that are considered disruptive enter the market and focus on fulfilling the needs of the “ignored” consumers by delivering more suitable services; frequently at a favourable cost.
Incumbents, chasing high-profitable consumers do not respond aggressively. Entrants then slowly begin providing the services that the incumbent’s mainstream are providing, still keeping the advantage that kept them in the market.
Once a majority of incumbent’s mainstream starts responding to the offerings of the entrant’s disruption has occurred.
Is Uber Disruptive Innovation?
Uber has changed the transport system through its mobile application of joining the individuals who want taxi services to drivers providing the services. Since its launching in 2009, Uber firm has grown tremendously and is currently being used in more than 60 countries (and still expanding). It has spawned a series of competitors (start-ups trying to emulate its business marketing model). But is Uber really disrupting the taxi business?
Taxis before Uber
According to Christensen, the answer is no. Uber’s financial strategies and success do not fit as a description of disruptive- although it is described as one. Here are reasons why Uber cannot be considered disruptive;
Disruptive innovations Theory
Disruptive markets are made because incumbents overlook two types of markets. One is the Low-end footholds that the incumbents ignore because they are busy focusing on the needs of their most profitable customers; ignoring the needs of the less demanding customers. In fact, incumbents exceed the expectations of their mainstream a lot. This gives the disrupter a chance by fulfilling the low-end customers need at first.
The other chance is when a disrupter takes advantages of new-market footholds by converting non-consumers to consumers. For instance, when the photocopying technology was just emerging, Xerox targeted big companies to provide them with the services they needed at high costs.
Bowling-league operators, school librarians, and other firms were priced out of the market and had to use mimeograph machines or carbon paper.
In the 1970s, new challenges came up with personal photocopiers that were affordable to small individuals and small organizations (and a new market emerged). From their modest beginning, personal photocopier gradually got to the mainstream photocopier market, which Xerox saw as a stronghold and valued.
These are the two circumstances from which disruptive occurs based on the definition. However, it is difficult to conclude that Uber was as a result of low-end opportunity because it would mean taxis had made the cabs too easy and clean for the demanding clients only. Also, Uber did not create a new market (customers who thought the existing services were too expensive and drove themselves and, therefore, used public transport).
Uber was begun in San Francisco (a well-served taxi market), and their customers were individuals who were already using the taxis.
Ubers customer’s base has been rapidly increasing- which is what happens when you provide a service that is needed worldwide, is better and less expensive. However, disrupters start by focusing on the unserved market and then move to the mainstream.
Uber did the complete opposite: building a position in the mainstream transport industry and then moved to the low-end customers.
Disruptive innovations don’t attract mainstream customers until quality catches up with their standards.
Disruptive innovations are different from “sustaining innovations.” The latter improves the products and existing services of the incumbent’s existing market: the clearer TV picture, fifth blade in a razor, better mobile phone reception. The improvements can be breakthroughs or Incremental advances, but they make a company sell more to its mainstream.
On the other hand, disruptive innovations, are considered inferior at the beginning by incumbent’s customers. Basically, customers do not want to make the shift to the new product because it is cheap. They wait until the services improve to satisfy them. When this happens, they happily accept the shift and the low prices (this is how disruptive reduces the price in the market).
Uber’s strategy seems to be more of sustaining innovation. There is no time that Uber was described as inferior among taxis; in fact, it has always been considered a better option. Booking a ride only needs a smartphone, pay is convenient, and you get to rate the ride afterwards maintaining quality services.
Uber also delivers punctually, has reliable services and its prices are similar or slightly lower than already existing taxis. When incumbents are threatened by sustaining innovations, many of the companies are motivated to respond. They are introducing competitive technologies, for example, hailing apps, and disputing the legitimacy of Uber’s services.
Why Getting It Right Matters with Disruptive Innovation Ideas
You may still be wondering why the words you use to describe Uber are important. The company has definitely caused disarray in the taxis industry, is it disruptive? No. For you to realize the benefits correctly, you must understand the theory correctly.
For example, small start-ups nibbling away at the periphery of your company should be ignored- if they are not in a disruptive trajectory, which is a mortal threat. Both of these challenges are different from efforts by other competitors to impress your bread-and-butter customers.
The Uber example shows how identifying a disruptive company can be hard. This is not personal; even the experts who understand disruption theory still forget the subtler of the strategy when making decisions. Here are four points that are often get overlooked:
1. Disruption is a process
It is wrong to describe a product or service that is in one fixed point, rather than the process that it has been over time, using the term “disruption innovation.” For example, the first minicomputers, were neither disruptive because they were low-end upstarts nor heralded as the superior mainframes in many markets, they were mainstream because of the path they used (from the fringe to the mainstream).
All innovations start as a small experiment. Disrupters focus on both the product and the business model. If they are successful, their movement from the fringe to the mainstream erodes parts of the incumbent’s profitability. This method could take a long time because they can become very defensive when protecting their stronghold market.
For instance, the mainstream retail companies, still operate their stores, 50 years after the first discount department was opened. Complete substitution could take decades if it ever happens.
The fact that disruption can take decades explains why many companies ignore disrupters. Take the instance of Netflix and Blockbuster’s customers. Netflix launched in 1997, was not appealing to Blockbuster’s users who were renting new releases on impulse. Although Netflix had a wide selection, its delivery system (the U.S. mail) meant the selections took days to get to the customer. As a result, the system was only appealing to movie buffs, online shoppers and early DVD player’s adopters.
Netflix( Blockbuster’s disrupter)
If Netflix stopped at this and did not broaden its market, Blockbusters decision to ignore its competitor would not have been so tragic; the companies sustained the needs of different customers very differently.
However, eventually, new technologies allowed Netflix to stream videos online, making it appealing to Blockbuster’s core customers. The latter now considered it a cheap option that offered a variety, while observing quality which made it very appealing. It got there through a classic disruptive path.
If Netflix (like in Uber’s case) had begun by targeting the core customers of Blockbuster, the response would have been very vigilant and perhaps successful. Failing to respond to Netflix’s trajectory led to its collapse.
2. Disrupters often build business models that are very different from those of incumbents.
This can be best explained by healthcare centers; Practitioners rely on their years of experience when operating outside their offices and test results to interpret the symptoms of the patients, make diagnoses and prescribe treatments. We refer this to a “solution shop” business model.
In contrast, some clinics are using a disruptive path, using a business “process” model: They follow standardized protocols to treat and diagnose to treat a small or increasing number of disorders.
Apple’s iPhone is a good example of a company that used innovation business model to effect disruption.
In 2007, the product that Apple debuted in the market was a sustaining innovation in the smartphone market: it targeted the same customers desired by incumbents, and its initial success could be better explained by brand superiority.
The iPhone’s subsequent growth is correctly described as a disruption- not for other digital phones but for the laptop as the main source of internet.
This was improved not solely through product improvements but also through the introduction of a new business model.
Apple changed the game by facilitating the connection of phone users with app developers. By creating a new market for internet users, and eventually challenging laptops as mainstream users’ gadgets choice for accessing online information.
3. Some disruptive innovations succeed; some don’t
The third most common mistake is to focus on the results achieved- to claim that a firm is disruptive in virtue to its success. Success is not built in disruption’s definition. Not every disruptive paths lead to great results and not every successful newcomer follows the disruptive path.
For example, in the 90’s multiple numbers of internet-based retailers, pursued disruptive paths but only a few triumphed. The failures are only boundary makers of the theory and not a sign of deficiency. Besides, avoiding head-on competition, with incumbents and playing the odds; the theory says very little about winning the foothold market.
A woman enjoying a netflix show at home
If we describe all business successes as “disruption,” then all enterprises that rise to the top will be seen as insights of common success strategy. This may cause danger of managers mixing up and matching behaviors that are inconsistent with each other increasing chances of failure.For example, Uber and Apple’s iPhone, owe their success to a platform-based model. iPhones connect app users with phone developers, while Uber connects drivers with riders. But Uber through its sustaining nature has expanded its functionality, expanding it better than traditional taxis.
On the other hand, Apple has followed a disruptive path by building its network of app developers making an iPhone similar to a personal computer.
4. The saying “Disrupt or be disrupted” can misguide you.
Incumbent companies do not have to react to disruption if it is occurring; they should not go to extremes of dismantling a successful business. Instead, they should implement sustaining innovation. Also, they can create a different department to provide opportunities arising from disruption.
Research carried out by Harvard shows that the success of this new department depends on the ability to keep the two enterprises separate. This means that at some point the incumbent business will have to manage two business at the same time.
There is a probability of the new department stealing some clients from the core business. However, the incumbent should not address the issue before it actually becomes an issue.
Disruptive innovation is the most common path that small entities use to compete with incumbents. It could take years before the disrupters finally catch the eye of the mainstream of the incumbent’s clients. It is gradual, but once it happens, it is too late for the main businesses to undo the mess.