Disruptive Technology refers to that advanced or new technology that completely alters the way a business or an industry operate thereby replacing and disrupting the existing technology. Some of the recent examples include LED displays, smartphones & e-commerce. Virtual reality and augmented reality wearables such as Magic Leap are in the early stages of disruption. The term was coined by the American scholar Clayton M. Christensen and his collaborators in 1995, and has been called the most influential business idea of the early 21st century. Many leaders of small, entrepreneurial companies praise it as their guiding star; so do many executives at large, well-established organizations.
Clayton Christensen, describes Disruptive Innovation as 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 market, eventually displacing established competitors.
Generally Disruptive innovations are produced by startups, mid-sized companies and smaller entrepreneurs rather than market share leading companies. The market leaders focus only on pursuing “sustaining innovations” which has historically helped them achieve higher profitability by charging highest price to their most demanding, loyal and sophisticated customers. This unintentionally opens 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.
A disruptive technology need not be always disruptively better than those offered in the market and would disrupt the market economics. For example: The advent of e-commerce retailing has led consumers to buy products online rather than their store, with online options often carrying lower prices. This has benefited consumers but made it much more difficult for producers and brick-and-mortar stores to maintain profitability.
Most companies are more risk-averse and will adopt an innovation only after seeing how it performs with a wider audience. Companies that fail to account for the effects of a new, disruptive technology may find themselves losing market share to companies that have found ways to integrate the technology into the way that they manage labor and capital. Hence smarter companies start working with the startups who are already working on disruptive technologies to understand the impact and gather knowledge for a smooth transition when the technology is adopted by critical mass of users. Acquiring or investing in such startups will pave the best way for large corporations to adopt to the disrupting technologies.
Such startups, however, need to have a very different culture from their parents. They need to get excited about small markets,to get started , and must have a much higher tolerance of failure.
Christensen, C., “The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail”, Harvard Business School Press, 1997