Is LED light bulb disruptive to the incandescent and CFL light bulb business? Similarly, are smartphones disruptive to the business of PDAs, cameras, PCs, music players, video cameras, torchlights, and many more? Disruptive refers to changing or causing disruption to the business of production and distribution of traditional products. It causes trouble and stops the business of incumbent products from continuing as usual. For example, the rise of LED light bulbs as a more durable and energy-efficient alternative became disruptive to the production and selling of CFL and incandescent light bulbs. Similarly, due to the growing scope effect through adding and enhancing features, the smartphone has disrupted the firms doing business with PDAs, portable music players, and many more.
Knowing the characteristics of the disruptive nature of innovations is quite essential. The rise of it not only offers better means of Getting jobs done, it also erodes the business opportunities of existing firms. Consequentially, it opens new possibilities for investment while reducing revenue, profit, and stock price of incumbent firms engaged in producing matured products. Due to a lack of understanding of the business dynamics caused by the disruptive effect of Radical technologies and innovations, small investors miss the investment opportunities in firms pursuing disruptive innovations. As all the waves of candidate disruptive innovations do not succeed in disrupting, investors often suffer from massive losses due to investing in Startups seeking Disruptive Innovation.
How to define?
Technology cores power all innovations. Due to the maturity of technology cores, all inventions have an S-curve-like life cycle. Upon showing rapid growth in performance, they slow down due to the maturity of technology cores. Fortunately, the change of matured technology cores with emerging ones, forming reinvention waves and offering them a new wave of growth. Sometimes, those reinvention waves grow and cross the threshold level, succeeding in providing better alternatives. As a result, businesses producing matured products suffer from disruption due to the rise of reinvention waves. Hence, disruptive innovation refers to the rise of reinvention waves through the change of matured technology cores disrupting existing firms’ business.
Despite the success of unleashing disruptive effects, invariably, reinvention waves emerge in primitive form. They get birth as an inferior alternative to incumbent ones. For example, in the 1980s, mobile phones were inferior and costlier than land phones. However, due to their uniqueness and amenability to the growth of the underlying technology cores, they have been growing through the cumulative effect of idea flow. Sometimes, these reinvention waves cross the threshold level, unleashing disruptive effects. However, not all reinvention waves succeed in being disruptive. For example, plasma display could not grow as a disruptive force to CRT display. Similarly, the autonomous driving wave has still been struggling to cross the threshold of human driving performance.
Disruptive Innovation Examples
There have been numerous disruptive innovation examples. Disruptive innovation examples include word processors, laser printers, and digital cameras, among many others. They create and destroy jobs, firms, and investment opportunities. They are the significant drivers of Wealth accumulation and annihilation in capitalism. Furthermore, the innovation epicenter has been migrating due to disruptive effects, causing the rise and fall of firms and countries. Consequentially, both innovators and development planners face tremendous stress and opportunity. Such a reality led to Andy Grove’s famous quote: Only the Paranoid Succeed. Hence, how to exploit the crisis point that challenge every company underscores the importance of disruptive innovation.
The respective technology cores power all innovations. For example, digital cameras’ technology core is the fusion of electronic image sensors, lenses, storage, connectivity, image enhancement algorithms, and displays. Similarly, the technology core of conventional automobiles results from the fusion of internal combustion engine, power transmission, and liquid fuel. As explained, innovations suffer from slow growth due to the maturity of the underlying technology core. For this reason, the performance growth of ICE automobiles and many others has reached saturation.
However, innovations can exit the maturity wave of the current life cycle through the change of technology core. Consequentially, reinvention waves are formed, giving birth to primitive alternatives to matured innovations. However, sometimes, those primitive innovations keep growing due to the growth of the new technology core. Hence, Disruptive technologies are defined as technologies powering reinvention waves and developing through incremental advancement, consequentially empowering innovations to reach the threshold level for unleashing disruptive effects. Often, multiple technology components get fused into the disruptive technology core. Examples of disruptive technologies are electronic image sensors, multi-touch user interfaces, graphical user interfaces, and many more.
However, disruptive technologies are not destructive technologies. For example, although LCD technology disrupts CRT display business, LCD is not destructive. Similarly, unlike nuclear or biological weapons, LED light bulbs, word processors, or semiconductors are not destructive.
Clayton Christensen Disruptive Innovation
In pursuit of knowing why good-performing firms fail or why the continuation of doing good things leads to the failure of business, Prof. Clayton came up with some valuable observations. Some are innovators’ dilemmas, creative destruction, and disruptive innovation.
At the maturity or growing phase of the S-curve, incumbent firms keep making risk-free profits. It happens due to proven technology, known consumer preferences, complementary assets, established supply chains, and monopolistic market position due to the success from sustaining innovation. But reinvention waves invariably surface to offer primitive alternatives and loss-making revenue. Furthermore, although they are amenable to progression, those reinvention waves are fraught with pervasive uncertainties. Hence, incumbent firms profiting from monopolistic positions in matured products experience a decision Dilemma.
Whether to switch to a reinvention wave or not is called the Christensen Innovators Dilemma. Due to this dilemma, incumbent highly successful firms often shy away, leaving the reinvention waves to startups or new entrants to drive. For example, RCA left Radio, TV, and Consumer electronics reinvention waves to Sony. Similarly, Sony left the reinvention of Walkman to Apple. Due to innovators’ dilemma, often, incumbent firms suffer from disruptive effects due to the rise of new entrants or startup-driven reinvention waves. Hence, Clayton Christensen’s Disruptive Innovation refers to incumbents’ suffering from the burn of disruptive effect due to the avoidance of reinvention wave caused by innovators’ dilemma and leaving them to new entrants to grow and unleash disruptive effect to incumbents’ business of matured products.
Disruptors and Startups
We all are familiar with disruptor Netflix. Similarly, word processors, smartphones, or digital cameras are disruptors. On the other hand, startups driving disruptive innovations are also disruptors. Hence, disruptor startups are those who succeed in nurturing reinvention waves, unleashing disruptive effects on cumbent businesses producing matured products. Examples of disruptive startups are Apple, Sony, Microsoft, and Spotify—among many others.
Disruptive refers to ceasing the business of matured products through growing reinvention waves. Due to the disruptive effect, reinvention waves are powerful. However, not all reinvention waves succeed in being disruptive. As disruptive effects open investment opportunity in startups or new entrants pursuing reinvention and erodes the appreciation of the stock price of incumbent firms, disruptive innovations offer decision-making challenges. Likely unfolding effect disruptive effect, it also causes a hype cycle.