Disruptive Innovation

Dr. Suresh Manimala

 Henry Ford..

“If I had asked people what they wanted, they

would have said faster horses.”

He adapted the moving assembly line process

for the manufacture of automobiles, which
allowed him to manufacture, market and sell
the Model T at a significantly lower price than
his competition, enabling the creation of a new
and rapidly growing market. (1908)
 The Ford Model T story
 In doing so, Henry Ford froze the design of the
Model T.
 This allowed him to refine the moving
assembly line process, which allowed him to
cut costs further, lower prices even further,
and drive the growth of Ford Motor Company
from 10,000 cars in 1908 to 472,350 cars in
1915 to 933,720 cars in 1920.
 The Ford Model T story
 As long as the Model T’s design remained ahead of
the competition, competed on price, and the
market’s needs remained static, this was a
successful and disruptive innovation strategy,
since Ford had no compelling reason to innovate
in any other sphere other than cost and price
reduction.
 Later, GM disrupted this with ‘A Car for every
Purse & Purpose’ slogan by Alfred Sloan in 1920’s
countering ‘Any colour….’ by Ford, supported by:
 Installment selling, Used car trade-ins, Annual model
changes
 Disruptive innovation
Disruptive innovation, a term coined by
Clayton Christensen (Harvard University),
describes a process by which a product or
service takes root initially in simple
applications at the bottom of a market
and then relentlessly moves up the
market, eventually displacing established
competitors (‘Disruptive Technologies: Catching
the Wave’ & ‘Innovator’s Dilemma’, 1995)
 Disruptive Innovation
An innovation that creates a new market and
value network and eventually disrupts an
existing market and value network, displacing
established market leaders and alliances.
More recent sources also include "significant
societal impact" as an aspect of disruptive
innovation.
 DI…...
 Not all innovations are disruptive, even if they are
revolutionary.
 For example, the automobile was not a disruptive
innovation, because early automobiles were expensive
luxury items that did not disrupt the market for horse-
drawn vehicles.
 The market for transportation essentially remained intact
until the debut of the lower-priced Ford Model T in 1908.
 The mass-produced automobile was a disruptive
innovation, because it changed the transportation
market, whereas the first thirty years of automobiles did
not.
 Sustainable Innovation
 The current trend in the market
 Companies tend to innovate faster than their customers’
needs evolve
 Most organizations eventually end up producing products
or services that are actually too sophisticated, too
expensive, and too complicated for many customers in their
market.
 Companies pursue these “sustaining innovations” at the
higher tiers of their markets because this is what has
historically helped them succeed.
 By charging the highest prices to their most demanding and
sophisticated customers at the top of the market,
companies will achieve the greatest profitability.
Disruptive Technology Model
Performance-Time Matrix
Disruptive innovation….
 The SI Impact..
By following the Sustainable Innovation route
, companies unwittingly open the door to
“disruptive innovations” at the bottom of the
market. An innovation that is disruptive
allows a whole new population of consumers
at the bottom of a market access to a product
or service that was historically only accessible
to consumers with a lot of money or a lot of
skill.
 DI Characteristics..
 Characteristics of disruptive businesses, at least in
their initial stages, can include: lower gross margins,
smaller target markets, and simpler products and
services that may not appear as attractive as existing
solutions when compared against traditional
performance metrics.
 Because these lower tiers of the market offer lower
gross margins, they are unattractive to other firms
moving upward in the market, creating space at the
bottom of the market for new disruptive
competitors to emerge.
Disruptive innovation - Examples
Disruptor Disruptee
Transistor Radios Valve- Furniture Radios
Mini Steel Mills Integrated Steel Mills
PC Typewriters &
Wordprocessors
CMOS sensor Kodak Film
Digital Still Camera Motion Picture Camera
Email Postal Services
itunes Music Stores
 DI Examples….
Land phone
Walkman
Ipod
Mp3 player
Digital Camera
Handycams
Mobile phone Reservation/Payment counters
Dictionary
Pedometer
Calendar
Scanner/Copier
Laptops, Tablet
Atlas, Route Maps
Ticket booking services
Remote…..
 DI Examples….

Online classes Colleges / Universities

ebooks Printed books
YouTube DVDs / Video CDs
Online banking Bank Branches
Online Stores Retail stores
Cloud Storage Hardware resources
Autonomous Vehicles Drivable automobiles
Web Telephony Conventional Telephony
 DI Examples
LEDs Light Bulbs

Solid State Drives Hard Disks

LCD CRT

Plastic Metal, Wood, Glass, etc.

Downloadable Digital CDs, DVDs

Media
Televisions, Home Movie Theatres
Theatres, Video Recorders
 Web….
Online Portals & Services Agencies
Brokers
Middlemen
Travel Portals Travel Agencies

Online Healthcare services Clinics

& Medical shops
Web Medi shops
 DI Chains….

Mp3 players CDs Musicassettes Records

Tablets Laptop Desktop Mainframe

Comp
 DI Examples….
Phone
TV
Newspaper
Magazines
Future Mobile Media Book reader
Tablet
Personal Computer
Camera
Audio/Video Recorder
Etc., etc., etc…
 And…

3 D printing….

Manufacturing?
 DI & SI
 Incumbent companies are held ‘captive’ by their
most profitable customers who impose great indirect
control over the resource allocation process inside
the firm and forced to follow the SI route
 DI is generally followed by outsiders and smaller
firms who do not have the ‘chains’ imposed y the
existing customers
 DI may not appear profitable to incumbents initially
 Arguments..
 Christensen : disruptive innovations can hurt successful, well-
managed companies that are responsive to their customers
and have excellent research and development.
 They tend to ignore the markets most susceptible to
disruptive innovations, because the markets have very tight
profit margins and are too small to provide a good growth
rate to an established (sizable) firm.
 Thus, disruptive technology provides an example of an
instance when the common business-world advice to “focus
on the customer" (or "stay close to the customer", or "listen
to the customer") can be strategically counterproductive.
 Low-End & New Market DIs

 Low-end disruption
 targets customers who do not need the full
performance valued by customers at the
high end of the market
 New-market disruption
 targets customers who have needs that
were previously unserved by existing
incumbents.