Three Requirements for Managing Disruptive Innovation

Who is this article for?

• Startups and tech companies looking to disrupt established industries
• Incumbent companies in any industry vulnerable to disruption
• CEOs, Chief Innovation Officers, Product Managers, Entrepreneurs
• Anyone interested in how innovation can transform markets and create new business models

Understanding disruptive innovation is critical for both startups looking to upend the status quo and established companies hoping to defend their market position. The theory and examples in this article provide a roadmap.

What is disruptive innovation, really?

The term “disruptive innovation” is thrown around constantly these days. But what does it actually mean? Let’s cut through the noise.
Harvard professor Clayton Christensen, who coined the term, says disruptive innovation transforms a product that historically was so expensive and complicated only a few people with a lot of money and skills had access to it. Disruptive innovations make the product more affordable and accessible to a much larger population.

• Personal computers disrupted minicomputers and mainframes
• Discount retailers like Walmart and Target disrupted department stores
• Smartphones disrupted laptops and point-and-shoot cameras

In each case, the disruptive product was initially inferior in the traditional metrics valued by mainstream customers. Early PCs had less power and storage than minicomputers. Discount stores had less selection and service than department stores. Smartphone cameras took lower quality photos.

The key elements of disruptive innovation

Truly disruptive innovations have a few key ingredients:

1. Enabling technology that makes the product more affordable and accessible. Think the microprocessor for PCs or internet streaming for Netflix.
2. An innovative business model that can profitably deliver the solution at low prices. Discount retailers succeeded by cutting costs to the bone. Airbnb doesn’t own properties and Uber doesn’t employ drivers, giving them structural cost advantages.
3. A coherent value network of suppliers, distributors, and partners whose business models align with the low-cost strategy. PC makers relied on software developers and chip makers optimized for low cost. Traditional partners are often unwilling to cannibalize their existing businesses.

As an example, Airbnb has leveraged Web 2.0 technologies and the cloud computing model to create a disruptive innovation in the tourism accommodation sector. Airbnb’s online platform makes it easy and affordable for people to rent out their homes to tourists, disrupting traditional hotels (Guttentag, 2013). The company has grown rapidly by appealing to cost-conscious travelers and enabling a large network of amateur hoteliers.

How to manage disruptive innovation

So how can companies identify and develop potentially disruptive innovations? Christensen says the key is to focus on the “job to be done” – what customers are really trying to accomplish. Too many companies focus on building a better mousetrap, adding features to existing solutions. Instead, they need to look for unmet customer needs.

Tallyfy makes it easy to track customer interactions

To identify disruptive opportunities, companies need a systematic way to track customer interactions and feedback, especially in the early stages of the customer relationship.
That’s where Tallyfy’s workflow management software can help. With Tallyfy, you can:

• Explain processes once and generate interactive smart forms that guide employees to collect the right information
• Structure intake by connecting forms into multi-step workflows that track the full customer journey
• Set up if-this-then-that logic to automatically assign tasks, set deadlines, and trigger actions based on customer inputs
• Get real-time visibility into the status of every customer interaction without having to nag employees for updates

This systematic approach ensures you capture the full picture of evolving customer needs, so you can spot patterns and identify where new solutions are needed.

Risks and warnings

While the potential of disruptive innovation is exciting, business leaders must also be aware of the risks and challenges:

• Investing too heavily in unproven ideas that don’t pan out, wasting resources
• Cannibalizing existing revenue streams and upsetting key stakeholders
• Underestimating the difficulty of scaling up a new business model
• Failing to adapt quickly enough as disruptive innovations emerge in your industry

Tallyfy can help you manage disruption

In today’s fast-moving business environment, no company can afford to ignore the threat – and opportunity – of disruptive innovation. Tallyfy gives you the tools to:

• Create customer-facing workflows that allow you to track interactions from first touch through the entire journey, so you can identify unmet needs and disruptive opportunities
• Build process templates for developing and testing new ideas in a structured way, without having to start from scratch each time
• Coordinate work across teams and departments to quickly act on disruptive threats and opportunities, with full transparency and accountability

No matter what industry you’re in, disruptive innovation is a force to be reckoned with. Tallyfy gives you the agility and insight to stay ahead of the curve. See Tallyfy in action and learn how it can help you harness disruption.

What is Disruptive Innovation?

Disruptive innovation refers to a new product, service, or business model that fundamentally changes and disrupts an existing market. The concept was first introduced by Harvard professor Clayton Christensen in his 1997 book “The Innovator’s Dilemma.”

Disruptive innovations often start out as inferior alternatives to mainstream offerings in terms of traditional performance metrics. However, they offer unique benefits like lower cost, greater convenience, or a better user experience that appeal to underserved or overlooked market segments. Over time, these innovations improve and move upmarket, eventually displacing incumbent market leaders (Christensen et al., 2018).

Well-known examples of disruptive innovations include:

• Netflix disrupting Blockbuster with its DVD-by-mail and streaming services
• Airbnb disrupting the hotel industry by enabling peer-to-peer short-term rentals (Guttentag, 2013)
• Uber disrupting the taxi industry with its ride-sharing platform
• Wikipedia disrupting traditional encyclopedias with its crowdsourced, online model

How Will AI Impact Disruptive Innovation?

Artificial intelligence (AI) and related technologies like machine learning, natural language processing, and computer vision have the potential to be major disruptive forces themselves, as well as enablers of further disruptive innovations across industries.

AI is already powering disruptive innovations like:

• Autonomous vehicles that could disrupt transportation and logistics
• Intelligent virtual assistants disrupting customer service
• AI-powered drug discovery platforms disrupting the pharmaceutical industry
• Personalized learning systems disrupting traditional education models

By automating cognitive tasks, generating novel insights from data, and enabling more personalized user experiences, AI lowers the barriers to creating disruptive innovations. It allows startups and newcomers to rapidly experiment, iterate, and scale in ways that were not previously possible.

At the same time, incumbent firms cannot afford to ignore the disruptive threat of AI. They must develop the “cognitive resilience” to simultaneously perceive AI as both an opportunity and a threat (Dewald & Bowen, 2010). This means investing in AI capabilities, exploring new AI-enabled business models, and proactively cannibalizing legacy offerings before more nimble disruptors do.

The financial services industry, for example, has seen an explosion of AI-powered “fintech” startups in areas like mobile banking, robo-advising, and peer-to-peer lending. Palmié et al. (2020) argue that these disruptive fintech innovations are happening not just at the firm level but at the broader ecosystem level. Established financial institutions will need to become deeply embedded in this evolving ecosystem to stay relevant.

What Does the Future Hold?

As AI continues to advance and diffuse through the economy, we can expect to see a steady stream of disruptive innovations emerge, transform, and converge in unpredictable ways. Christensen et al. (2018) note that our understanding of disruptive innovation is still developing and call for further research into issues like disruption response strategies, performance trajectories, and innovation metrics.

For business leaders and entrepreneurs, succeeding in an age of AI-driven disruption will require a proactive approach to innovation that balances exploration and exploitation. This means not only developing innovative products, but proactively creating and targeting the right markets for those innovations (Sandberg, 2002).

It will also require a willingness to disrupt one’s own business model when necessary. As Sultan (2013) argues, cloud computing and Web 2.0 provide a glimpse of how quickly the “power of disruptive innovations” can render existing knowledge and capabilities obsolete. With the rise of AI, the cycles of disruption are only likely to accelerate.

Tallyfy Tango – A cheerful and alternative take

Scene: Two friends, Indy and Nova, are chatting at a trendy coffee shop.

Indy: Hey Nova, have you heard about this new startup that’s causing a stir in the tech world?

Nova: No, what’s it about?

Indy: They’re calling it a “disruptive innovation” – apparently it’s going to change the game in their industry.

Nova: Disruptive innovation? Sounds like something out of a sci-fi movie. What exactly does it do?

Indy: From what I understand, it’s a new way of doing things that completely shakes up the status quo. It’s not just an incremental improvement, but a total game-changer.

Nova: Interesting. Can you give me an example?

Indy: Sure! Remember when Netflix first came out and totally disrupted the video rental industry? Blockbuster never saw it coming.

Nova: Oh yeah, I remember that. It was a classic case of disruptive innovation. Netflix offered a completely new way to watch movies that was more convenient and affordable.

Indy: Exactly! And now this new startup is promising to do something similar in their industry. It’s exciting to think about how it could change things for the better.

Nova: It sure is. I love seeing companies shake things up and bring fresh ideas to the table. It keeps everyone on their toes and drives progress forward.

Indy: Agreed. Here’s to disruptive innovation and the brave entrepreneurs who make it happen! *raises coffee mug*

Nova: Cheers to that! *clinks mugs*

Related Questions

What are the two types of disruptive innovations?

The two main types of disruptive innovations are low-end disruption and new-market disruption. Low-end disruption targets customers who don’t need the full performance valued by customers at the high end of the market. New-market disruption creates a new market by turning non-consumers into consumers with a new offering.

Is Netflix disruptive innovation?

Yes, Netflix is a classic example of disruptive innovation. They started by offering a low-end service of mailing DVDs, which appealed to a new market of movie watchers who wanted convenience and a wide selection. Over time, Netflix has moved upmarket, adding streaming services and original content to appeal to a wider audience, disrupting the traditional television and movie industry.

Is airbnb a disruptive innovation?

Airbnb is another example of disruptive innovation in the hospitality industry. They created a new market for people looking for unique, affordable accommodations and turned non-consumers into consumers. By providing a platform for individuals to rent out their homes, Airbnb has disrupted the traditional hotel industry and changed the way people travel.

What are the 4 stages of disruptive innovation?

The four stages of disruptive innovation are: 1) Foothold market entry, where the disruptor establishes a presence in a low-end or new market; 2) Main market entry, where the disruptor begins to attract mainstream customers; 3) Market expansion, where the disruptor grows rapidly and captures a significant share of the market; and 4) Disruption, where the incumbent firms are forced to respond to the disruptor’s threat.

What are examples of disruptive innovation?

Some well-known examples of disruptive innovation include personal computers disrupting mainframes, smartphones disrupting traditional cell phones, and digital cameras disrupting film photography. In each case, the disruptive technology started out inferior to the incumbent in terms of performance, but appealed to a new market with its simplicity, convenience, or affordability. Over time, the disruptive technology improved and moved upmarket, eventually displacing the incumbent.

Who coined the term disruptive innovation?

The term “disruptive innovation” was coined by Harvard Business School professor Clayton Christensen in his 1997 book “The Innovator’s Dilemma.” Christensen’s research showed how successful, well-managed companies can fail when confronted with disruptive technology because they focus too closely on their most profitable customers and ignore the low-end of the market or new markets.

How does disruptive innovation impact an organization?

Disruptive innovation can have a major impact on organizations, both those being disrupted and those doing the disrupting. Incumbent firms often struggle to respond to disruptive threats because their processes and values are tailored to their existing customers and business model. Disruptors, on the other hand, can grow rapidly by tapping into new markets and delivering value in innovative ways. To stay competitive, organizations need to be aware of potential disruptive threats and be willing to cannibalize their own products and services if necessary.

References and Editorial Perspectives

Christensen, C., M., McDonald, R., Altman, E., J., & Palmer, J., E. (2018). Disruptive Innovation: An Intellectual History and Directions for Future Research. Journal of Management Studies, 55, 1043 – 1078. https://doi.org/10.1111/joms.12349

Summary of this study

This study traces the intellectual history of disruptive innovation theory, noting how its core principles have been clarified through research seeking anomalies. The theory has evolved from a technology-change framework to a broader causal theory of innovation and competitive response. The authors propose several underexplored topics, such as response strategies, performance trajectories, and innovation metrics, to guide future research on disruptive innovation.

Editor perspectives

As a workflow automation platform, we at Tallyfy find this study fascinating as it provides a comprehensive overview of how disruptive innovation theory has evolved over time. Understanding the core principles and future research directions can help us stay ahead of the curve in developing innovative solutions that transform how businesses manage their processes.

Dewald, J., & Bowen, F. (2010). Storm Clouds and Silver Linings: Responding to Disruptive Innovations Through Cognitive Resilience. Entrepreneurship Theory and Practice, 34, 197 – 218. https://doi.org/10.1111/j.1540-6520.2009.00312.x

Summary of this study

This study focuses on how small incumbent firms respond to disruptive business model innovations through cognitive resilience. Using cognitive framing arguments, the authors argue that risk experience moderates perceptions of opportunity, while perceived urgency moderates situation threat. The study tests this framework in the real estate brokerage context and provides implications for small business incumbents facing disruptive innovations.

Editor perspectives

At Tallyfy, we recognize the importance of cognitive resilience in responding to disruptive innovations. As a workflow management solution, we aim to help small businesses adapt to changing market conditions by providing them with the tools to streamline their processes and remain agile in the face of disruption.

Guttentag, D. (2013). Airbnb: Disruptive Innovation and the Rise of an Informal Tourism Accommodation Sector. Current Issues in Tourism, 18, 1192 – 1217. https://doi.org/10.1080/13683500.2013.827159

Summary of this study

This article explores the emergence of Airbnb as a disruptive innovation in the tourism accommodation sector. It examines Airbnb’s novel business model, built around modern internet technologies, and its distinct appeal, which centers on cost-savings, household amenities, and the potential for more authentic local experiences. The study also discusses the regulatory and tax concerns surrounding Airbnb rentals and the potential impacts on the traditional accommodation sector and destinations.

Editor perspectives

We find Airbnb’s disruptive impact on the tourism industry particularly interesting at Tallyfy. The company’s success demonstrates how innovative business models and technologies can transform entire sectors. As a workflow automation platform, we strive to empower businesses to embrace digital transformation and adapt to changing market dynamics, much like Airbnb has done in the tourism industry.

Guttentag, D., & Smith, S., L. (2017). Assessing Airbnb as a Disruptive Innovation Relative to Hotels: Substitution and Comparative Performance Expectations. International Journal of Hospitality Management, 64, 1 – 10. https://doi.org/10.1016/j.ijhm.2017.02.003

Summary of this study

This study investigates the extent to which Airbnb is used as a hotel substitute and examines how Airbnb guests expect their accommodations to perform relative to hotels. The findings suggest that nearly two-thirds of Airbnb users had used the platform as a hotel substitute. When considering traditional hotel attributes, Airbnb was generally expected to outperform budget hotels/motels, underperform upscale hotels, and have mixed outcomes versus mid-range hotels, signaling some consistency with the concept of disruptive innovation.

Editor perspectives

At Tallyfy, we are intrigued by the comparative performance expectations between Airbnb and traditional hotels. Understanding how disruptive innovations stack up against established players in terms of key attributes can provide valuable insights for businesses looking to innovate and stay competitive in their respective markets.

Palmié, M., Wincent, J., Parida, V., & Caglar, U. (2020). The Evolution of the Financial Technology Ecosystem: An Introduction and Agenda for Future Research on Disruptive Innovations in Ecosystems. Technological Forecasting & Social Change/Technological Forecasting and Social Change, 151, 119779 – 119779. https://doi.org/10.1016/j.techfore.2019.119779

Summary of this study

This study defines disruptive innovation ecosystems and illustrates the impact of the financial technology (FinTech) ecosystem on disrupting the financial services industry. The authors offer an agenda for future research on disruptive innovations and ecosystems, emphasizing the need for further attention to the role of ecosystem development and evolution in relation to disruptive innovations.

Editor perspectives

As a workflow automation platform, Tallyfy is part of the broader ecosystem of disruptive innovations transforming how businesses operate. We recognize the importance of understanding the development and evolution of these ecosystems to stay at the forefront of innovation and provide our users with the most effective solutions for managing their processes.

Sandberg, B. (2002). Creating the Market for Disruptive Innovation: Market Proactiveness at the Launch Stage. Journal of Targeting, Measurement and Analysis for Marketing, 11, 184 – 196. https://doi.org/10.1057/palgrave.jt.5740076

Summary of this study

This paper examines market proactiveness at the launching of disruptive innovations, emphasizing the importance of proactiveness related to the market in developing commercially successful products. The study analyzes market proactiveness in detail, with specific emphasis on targeting, and presents a case study describing how the market was created for a pharmaceutical disruptive innovation, assessing the role of market proactiveness in this effort.

Editor perspectives

At Tallyfy, we understand the significance of market proactiveness when launching disruptive innovations. As a workflow management solution, we actively engage with our target market to ensure that our product addresses their specific needs and pain points, enabling us to create a strong market presence and drive adoption.

Sultan, N. (2013). Knowledge Management in the Age of Cloud Computing and Web 2.0: Experiencing the Power of Disruptive Innovations. International Journal of Information Management, 33, 160 – 165. https://doi.org/10.1016/j.ijinfomgt.2012.08.006

Summary of this study

This paper explores the disruptive innovation phenomenon of cloud computing and Web 2.0, specifically examining their impact on organizational knowledge. The study highlights how some organizations take advantage of the dynamism generated by innovations in information and communication technology (ICT) to create new products and business models, while others struggle to adapt, often with negative consequences.

Editor perspectives

As a cloud-based workflow automation platform, Tallyfy is at the forefront of leveraging disruptive technologies to transform how organizations manage their processes and knowledge. We recognize the power of cloud computing and Web 2.0 in enabling businesses to innovate, collaborate, and adapt to the ever-changing market landscape.

Glossary of terms

Disruptive innovation

A disruptive innovation is a new product, service, or business model that initially serves a niche market but eventually displaces established market leaders by offering more affordable, accessible, or convenient alternatives. These innovations often leverage new technologies or approaches to create value for customers in ways that incumbent firms struggle to match.

Business model innovation

Business model innovation refers to the process of fundamentally changing the way a company creates, delivers, and captures value. This can involve introducing new revenue streams, restructuring cost structures, or redefining customer relationships. Disruptive innovations often rely on novel business models to challenge industry incumbents and reshape market dynamics.

Ecosystem

In the context of disruptive innovation, an ecosystem refers to the network of interconnected entities, such as firms, institutions, and individuals, that collaborate and compete to create value around a particular innovation. Ecosystems play a crucial role in fostering the development and adoption of disruptive technologies and business models.

Market proactiveness

Market proactiveness is the strategic approach of actively engaging with the target market to understand their needs, preferences, and pain points. This involves gathering market insights, anticipating future trends, and proactively developing products or services that address customer demands. Market proactiveness is particularly important when launching disruptive innovations to ensure product-market fit and drive adoption.

Cognitive resilience

Cognitive resilience refers to the ability of individuals or organizations to adapt their thinking and decision-making processes in the face of adversity or disruption. In the context of disruptive innovation, cognitive resilience enables incumbent firms to recognize the potential threats and opportunities posed by new entrants and respond effectively by adjusting their strategies and business models.