Designing Disruptive Innovations

Quite a while ago Clayton Christensen of Harvard has mainstreamed the term "disruptive innovations". For strategists this has become a hot topic in today's rapidly evolving markets. However, in order to make the concept more useful in my consulting work I distinguish between different categories of disruptive innovations that all have unique characteristics and consquences:

Disruptive Technologies: some technologies have displaced other technologies to offer a whole new sphere of possibilities at lower prices. In the computer industry, CD-ROMs have displaced disk drives because they allowed storing much more information at lower prices. In the telecommunication industry, Internet telephony (VoIP) is another example of a technology that is steadily replacing older telecommunications technologies. With time disruptive technologies often become enablers for disruptive products, processes and business models.

Disruptive Products: these are products or services that replace similar existing products or services based on their superior attributes or lower price. As an example, mobile phones have become an important complement and often substitutes for fixed line phones. Digital music players, such as the Apple iPod have disrupted similar products like the CD-based walkman.

Disruptive Processes: processes that are of disruptive nature often outperform the traditional ways of working and give the adopting company a competitive advantage due to superior performance or lower cost. When Dell adopted just-in-time delivery for the electronics parts of its computers, it substantially cut warehousing and depreciation costs and outperformed its competitors. Similarly, integrating supply chain management from the customer all the way to the supplier has given Cisco a competitive edge in selling Internet routers.

Disruptive Business Models: Business Models that are disruptive do business in new and innovative ways in established and sometimes new areas. In the airline industry, so-called no frills airlines emerged with their low-cost business model and strongly competed with traditional flag carriers. In Europe, for example, EasyJet designed a business model that allowed them to offer low-cost flights directly online to their customers. Similarly, Google.com has disrupted online advertising and created a new revenue stream by placing highly targeted text ads besides the search results of its search engine.

Managing these different types of disruptive innovations and detecting them early enough in one's competitive landscape is definetly an art. Companies that excel at one or several of these disruptive design areas will be the leading innovators of the years to come...