Disruptive Innovation
Disruptive Innovation
What is disruptive innovation?
- Cheap, simple alternatives rise from below
- Sound management becomes the trap
- How to tell which low-cost rivals you can safely ignore
What disruptive innovation really changes isn’t the product but how you see your competitors. Most companies list rivals of similar revenue that exhibit at the same trade shows. Once you accept this concept, your watch list changes. It now includes companies that never show up next to your quotes, products your sales team dismisses as “toys,” and non-customers who use nothing at all because your product is too expensive. It forces you to look past the market-share table and at what lies outside your market.
There are two paths. One is the low-end type, which wins over low-end customers who are already overserved and unwilling to pay more, by offering a lower price. The other is the new-market type, which turns people who couldn’t use the product at all, because it was too expensive or too complex, into new customers. Either way, there is a condition: technology must improve faster than customer requirements rise. If the customer baseline rises faster than performance improves, the reversal never happens. The incumbent must also have a cost structure in which defending the low end cuts profit margins, so that it “rationally” withdraws from that market.
In practice, the term is misused in two ways. One is as a shield for a money-losing new business. A team says “disruptive innovation takes time” about a line that has lost money for three years, but if it can’t name its non-customers, it’s simply a product that doesn’t sell. The opposite also happens: labeling every low-cost competitor as disruptive and fighting back by cutting core product prices 20%. If the rival has no technology curve to climb upmarket, all you lose is your own margin. Christensen himself drew the line, saying Uber is not a disruptive innovation, because it targeted the mainstream customers of existing taxis from the start. The test isn’t “is it new?” but “where does it start, and where does it climb?”
John KimInstructor John Kim, CEO of Nanum Consulting and author of “B2B Marketing Design”
Kwangdong MinExpert in business models, revenue models, and market researchSystematized by Clayton Christensen in The Innovator's Dilemma (1997).
Consider a hypothetical case. Company A makes industrial flow meters, with 260 employees and KRW 85 billion (≈ US$63,594,200) in annual revenue. Three years ago, low-cost imports with ±1.5% accuracy arrived, but A judged them not comparable to its flagship model, which guarantees ±0.3%. Meanwhile, its low-end market share fell 9 percentage points every year.
- At the first-half strategy meeting, the head of sales declared, “Our customers can’t get their equipment certified at that precision,” and the proposed response was moved off the agenda after three minutes.
- A strategy planning manager visited the 38 accounts the company had lost over the past two years. Thirty-one turned out to be wastewater-treatment and irrigation sites, where ±1.5% accuracy had been enough all along.
- When the same team compiled five years of competitor spec sheets, they found accuracy had improved from ±1.5% to ±0.6%. Their calculation showed about two years left until competitors reach the ±0.5% requirement of the core market.
- The CEO did not hand it to the existing sales organization. Instead, he spun the low-end line off into a separate 15-person business unit and made it clear: 'Even if sales of existing products get cannibalized here, no one will be held accountable.'
- The team cut the sensor count and simplified calibration, launching the L Series at a 41% lower cost in just 9 months. On-site installation time dropped from 4 hours to 50 minutes.
- Eighteen months after launch, the L Series had brought in KRW 6.2 billion (≈ US$4,638,600) in sales and 140 new accounts, and the annual decline in low-end market share narrowed from 9 percentage points to 2.