Economics of

innovation and
entrepreneurship
Week 3:
Disruptive Innovation

Wildan Trusaji, S.T., M.T.

1
Outline

 Outline
 Definition of Disruptive Innovation
 Why Incumbent Failed to Be Innovative
 What can Incumbent do
 What can Disruptor do
 Assignment
Outline

Definition of Disruptive
Innovation
Definition of Disruptive Innovation

Clayton Magleby Christensen is an American

scholar, educator, author, business consultant,
and religious leader who currently serves as
the Kim B. Clark Professor of Business
Administration at the Harvard Business School
of Harvard University
Definition of Disruptive Innovation
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
 Definition of Disruptive Innovation

Definition of Disruptive Innovation

Norman (1998: The Invisible Computer)

Definition of Disruptive Innovation

Definition of Disruptive Innovation

Porter's generic strategies

Definition of Disruptive Innovation

Definition of Disruptive Innovation

Definition of Disruptive Innovation

Definition of Disruptive Innovation

2008 Android Hadir

2009 – 2012 Nokia Xseries (QWERTY)
2011 Nokia Lumia Series
2014 Nokia X Family (Andorid Based)
Definition of Innovation - Example

Definition of Disruptive Innovation

Why the incumbent not make the disruptive innovation?

Outline

The Incumbent
Why the Incumbent Failed
The Incumbent

Sustaining Innovation : An innovation that does not significantly affect existing

markets. It may be either:
Evolutionary
An innovation that improves a product in an existing market in ways
that customers are expecting
Revolutionary (discontinuous, radical)
An innovation that is unexpected, but nevertheless does not affect
existing markets

Christensen, Clayton M. (1997), The

innovator's dilemma: when new
technologies cause great firms to fail,
The Incumbent – Innovator’s Dilemma

Disruptive Technology Sustaining Technology

Niche Market Big Market
Unmet Future Needs Current Needs
Unproven Proven or Predicted

Fixed Cost
Variable Cost
Sunk Cost
Opportunity Cost
The Incumbent – Innovator’s Dilemma
Opportunity Cost

Sunk Cost
The Incumbent – Innovator’s Dilemma

Big Company -> Big Asset or Overhead -> Big Fixed Cost -> Sensitive to Decreasing Q

Disruptive Technology -> Niche Market -> Relatively Small Q

The Incumbent

Definition of Disruptive Innovation

What can Incumbent do?

Outline

The Incumbent
What to do
The Incumbent – What to do

Definition of Disruptive Innovation

Economic of Scale

Economic of Scope
The Incumbent – What to do
A spinoff is the creation of an independent company through the sale or
distribution of new shares of an existing business or division of a parent company.

Sharing Asset
between Parent and
Child Companies

Economic
of Scope?
The Incumbent – What to do
Why not do both?
Disruptive Technology Sustaining Technology
Niche Market Big Market
Unmet Future Needs Current Needs
Unproven Proven or Predicted

Child Company Parent Company

Fixed Cost
Variable Cost
Sunk Cost
Opportunity Cost
The Incumbent – What to do

Definition of Disruptive Innovation

Child Company
Parent Company
Outline

The Disruptor
What to do
The Disruptor
 The Disruptor

Definition of Disruptive Innovation

Norman (1998: The Invisible Computer)

The Disruptor

25
Outline

Assignment
The Incumbent – Innovator’s Dilemma

• Make 5-10 slide that talks about

• Identify the innovation that disruptive
• Identify the Disruptor
• Identify the Incumbent
• Identify the effect of that disruptive innovation to the
new market creation
• What Incumbent do (reaction or anticipation)
• Result & Conclusion