Disruptive Innovation Case Study

B. How firms can respond to the emergence of potentially disruptive technologies and innovations. The term, disruptive innovation was coined by Clayton Christensen.16 In his book, The innovator’s dilemma,

17 he describes two types of innovations: sustaining and disruptive innovation. According to him, sustaining innovations are those that improve product performance in ways that the mainstream or high-end customers would normally value, while disruptive innovations have new features that generally target the low end, less profitable part of the market, or even create a market for new customers. Initially, they deliver worse product performance than the already established technologies based on what mainstream customers value, but usually catch

The following section addresses this in more detail.

Preparing for potentially disruptive innovations

For a firm to be able to succeed in the face of disruptive technology, it needs not only to be able to identify which technologies are potentially disruptive, but also be able to develop and even market them before they overtake the existing technologies. After identifying such technologies, it also needs to understand what the technology is, how it might it develop, what new benefits it offers over existing technologies, how all these might affect the organisation, and what might prevent the organisation from effectively adopting and exploiting the new technology.16

This is not as easy as it sounds, because “markets that do not exist cannot be analysed17”. Because disruptive innovation usually targets new customers, or low-end customers, it is extremely difficult for companies to analyse these emerging markets. Applying traditional principles that have led to

This has led many firms to take the “safe” route and ignore the disruptive technology, focusing on satisfying the mainstream customers instead. A popular example of this is Blockbuster, an American movie and video game rental company. It was a very large company that thrived in the 80’s and 90’s. It had a lot of stores all over the US, that customers could go in and rent movies for small price, and then return it within an agreed time, or pay a late fee. Customers loved the idea of being able to walk into a nearby store, and get the newest movie releases. Then Netflix came along, and started a seemingly insignificant business of offering a DVD mailing subscription service.

They didn’t have stores like Blockbuster, didn’t have nearly as many movies on offer, and couldn’t offer new movie releases, because it took a long time for a movie ordered by mail to reach the customer. Netflix only appealed to people who liked online shopping and didn’t care about new releases. Because of this,

Blockbuster didn’t pay any attention to Netflix. They decided to open even more stores, adopt new marketing strategies like selling toys and magazines in the stores. They conducted market research on their mainstream