The author Anshuman Gandhi comes from an advertising/communications background, having worked with marketing agencies like McCann and WebChutney on over 60 brands for markets across the world. He blogs at anshumangandhi.com.
Disruption. A word that has been given many different definitions by thought leaders and has been used in various contexts. It is associated with successful startups and it is associated with existing market leaders bringing out new products or services.
In short, anything successful in the market is now seen as disruptive in nature.
This has led to different understandings of what the concept stands for and what the theory entails, thus completely cancelling out the viability of Disruptive Innovation as a theory.
What is Disruptive Innovation?
To understand what is Disruptive Innovation, one first needs to be clear about the definition of disruption — a word which has been thrown around way too much recently.
Disruption means a disturbance or problem which interrupts an event, activity or process. It is basically a negative word and not a welcome change, despite what most of the industry thought leaders have made it out to be.
For instance, a disruptive traffic signal causes accidents or a disruptive construction worker brings down buildings, etc.
Now here is a definition of Disruptive Innovation by the man who coined the term, Clayton M Christenson:
“It transforms a product that was historically so expensive and complicated that only a few people with a lot of resources had access to it. Disruptive Innovation makes it more accessible and affordable to a much larger population.”
Disruptive Innovation is a process in which an organisation or startup caters to an over-served market with a simpler and cheaper form of the product. These are low-margin mass products targeted to the lower end of the market relevant of the given industry. Once that part of the market has taken over, the player moves upstream, directly competing with the market leaders.
There are three essential conditions which qualify a venture as a Disruptive Innovation
1. Disruptors start in a low margin, over-served niche in a market ignored by market leaders.
2. An innovation in the business model which makes this market segment profitable.
3. The model can be duplicated while moving upstream, thus competing directly with the market leaders for their core customer base.
You can also check out this video explaining Disruptive Innovation by Harvard Business Review.
Market leaders or established players, however, follow a different technique of innovation.
It is when an existing market leader is focused on retaining and improving their offerings to the largest and most profitable section of the customer base. It is a constant battle to provide your customer the best service in the market. Thus companies over-serve the customer with additional or improved services constantly.
Notable examples include when Maruti replaced its own product Maruti 800 with Maruti Alto, or when iPhones replaced iPods.
How can someone become a disruption innovative thinker?
Look for markets where there are barriers or constraints which inhibit consumption. It could be skills, money or it just takes too long.
Find problems or frustrations which customers face. Now solve the problem by participating in the innovation game and solving that problem through a simpler and cheaper technique.
How do you analyse the market to search for disruption opportunities?
- Find customers who are consuming less or nothing at all in an area the market leaders are not focussed on.
Talk to people to understand the customer requirements better.
- Observe customer behaviour and analyse the data.
- Distribute samples or trial versions of your product, incentivise feedback and optimise product or service.
- Involve potential customers while the product is still being built so as to customise it according to market requirements.
- Perform extensive quantitative and qualitative market research on the target market to understand a potential or future client/customer better.
There are various strategies that can be employed to stay relevant to the majority of your customers. One of them is extendible core, which means improving or increasing your product or service focus without making huge capital investments. For instance, Flipkart’s moving into a new vertical like fashion.
How to move from a sustaining innovation model to a disruption innovation model
Start with a small investment. A single employee or a small team which in their spare time can focus on these low margin market segments and try to find solutions to make them more profitable.
There are two ways to invest; either internally or by acquiring an external smaller player in the market. Another method is developing a startup ecosystem through seed funding and investments.
Tata is doing this, Mahindra is doing the same and many established market leaders are following along the same path.
Constantly analyse the results of this experimentation and study it. Generate insights from them and fine-tune your strategy. One can modify existing practices; either learn from the disruptors or buy/acquire them.
Disruption can affect anyone, anywhere!
Smartphones are currently seen as disruptive to the PC industry. They were focused on the low end of the PC market. Now smartphones are seen as alternatives to PCs. This is a perfect example for Disruptive Innovation.
But the smartphone disrupted other, surprising, industries as well. The flashlights’ market size dropped with the launch of Nokia 1100. Watches, calculators and SMSes — all industries which experienced disruption at the hands of our pocket computers. E-commerce players, banking and mobile wallets — every product on the market has a significant effect on completely unrelated industries.
Understanding the theory and then changing your strategies is an essential tactic either as a startup or as an incumbent. I hope that now you better Disruptive Innovation or market disruption and can now use it correctly.
The views expressed here are of the author’s, and e27 may not necessarily subscribe to them. e27 invites members from Asia’s tech industry and startup community to share their honest opinions and expert knowledge with our readers. If you are interested in sharing your point of view, please send us an email at writers[at]e27[dot]co.