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DISRUPTIVE INNOVATION MODEL

A business model to devise a unique way of beating the competition

The concept of the disrupter was introduced in 1995 by Clayton Christensen in an article in Harvard Business Review entitled Disruptive Technologies: Catching The Wave

A disrupter is a new entrant to a market who sees a gap left by the large incumbent suppliers. Usually the disrupter is small and eager to win business from anywhere. The smaller customers that are eschewed by the oligopolists are easy pickings for the disrupter.  Indeed, the oligopolists do not notice or do not care when, in the first instance, small crumbs are taken from underneath their table. The disrupter does things differently. They find ways of meeting the needs of the mass market, usually by producing a product or service in a more cost-effective way.

Large incumbent suppliers are loath to change for fear of losing their privileged position. New entrants to a market, especially those who have little to lose, can shake up the market by offering cheaper, better, faster products that still meet market needs. It should be noted that true disruption of a market occurs only when a significant share is won, otherwise the new supplier has simply occupied a niche.  Attacking the mass market usually means having a new, very cost competitive product that performs well against the more expensive incumbents.

 

In order to disrupt a market it is necessary to answer three questions:

 

1. Is there anything in the products or services within the current market that could be removed without any serious effect on customer demand? If yes, there could be an opportunity to remove elements of the offer, lower costs and prices and so be successful with the disruption.

2. Do current suppliers to the market bend over backwards to serve the needs of customers? If yes, it may be difficult to persuade customers to move to a new supplier as they will fear they may not get the product or service they currently receive.

3. Are incumbent suppliers making full use of all the channels to market? If no, there may be an opportunity to exploit one of the channels (particularly online) to reach customers more efficiently.

As Clayton Christensen puts it:  What jobs are customers hiring products and services to get done? If you can understand this, you will be closer to working out whether your new idea will be disruptive.

The lack of interest that the incumbent supplier has at the bottom end of the market means that the new entrant’s disruption will hardly be noticed and it will be tolerated in the first instance. The product offered by the new entrant might be of lower performance than existing products which may themselves be over-specified for the needs of this bottom end segment. This is dashed line 1 in the diagram. The disrupter’s products win sales because they are good enough and significantly cheaper. This allows the new entrant to gain traction and rapidly build up sales because it is addressing a significant part of the market. In a short space of time the disrupter can move from the low end of the market into the mainstream by which time it is too late and too difficult for the incumbent to take sufficient retaliatory action.

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