Alongside the term “INNOVATION”, which is very fashionable, we often see the term disruptive attached. Disruptive innovation has indeed become a Holy Grail sought after by all entrepreneurs. Particularly in the technological field.

Where does this strong interest come from? What do disruptive innovations allow that other types of innovation do not?

The neologism “disruptive innovation”, which can be replaced by “breakthrough innovation”, refers more to the circumstances in which the innovation takes place than to the content itself.

This concept has become very trendy since we started seeing previously unknown companies emerge in a very short time and become behemoths that dominate their market while pushing well-established competitors, once thought to be unshakeable, to disappear. It was described in the book titled “The Innovator’s Dilemma” released in 1997.

Innovation First

Innovation, which is the act of introducing a new product, service, or process that breaks through in its market, is the mechanism that allows for the renewal and evolution of a market. This success can be commercial or not; we see innovation in the non-profit sector, for example.

The most popular form of innovation is incremental innovation: releasing a new product by improving an existing product or adding a new feature to it.

But this form of innovation is far from being the only one. It is even, as a general rule, very expensive. It is therefore the prerogative of incumbents: that is, companies already on the market: they invest the money earned through the current product into research and development to create an even more efficient product, thus perpetuating their dominance in their market.

Radical innovation is another form of innovation: creating a completely new product, radically different from the existing one, to replace it for the same users: the rotary dial phone was gradually replaced by the push-button phone, then by the wireless phone, then by the IP phone,… The diesel engine replaced the steam engine on construction equipment, the VHS tape gave way to the DVD, etc. The English name for this process is “a breakthrough”.

And the Circumstances of Innovation

Professor Clayton Christensen of Harvard Business School introduced a new classification of innovation in his famous book “The Innovator’s Dilemma” [1997], based on the circumstances in which the latter takes place. This determines its impact on its market and the reaction of incumbents towards it.

Sustaining Innovation

It consists of offering a more sophisticated product at a higher price. It generally aims to interest the upper segment of the customer base.

Sustaining innovation includes the two forms of innovation mentioned above. Incremental innovation and radical innovation both fall into this category.

The series of different iPhones (3G, 3GS, 4, 4S,…) fits this case. Succeeding models have, for example, increasingly efficient cameras or new features such as fingerprint readers or NFC readers.

Between 1979 and 1994, Intel offered an average annual gain of 20% on the speed of its microprocessors to keep a permanent lead over its competitors. This guaranteed Intel leadership in its market. Furthermore, this constituted an impassable barrier for all companies wishing to enter the microprocessor market.

Efficiency Innovation

It consists of marketing a product identical to the existing one at a lower price. This is achieved by optimizing processes and reducing production costs.

The Dacia Logan falls into this category: a family car with 4 doors, 5 real seats, and a large trunk was offered at a very competitive price.

The cheaper product competes with a product already on the market. It is intended for the same customer base. The target market is thus not expanded. It is about diverting customers from incumbents to one’s own benefit.

Disruptive Innovation

Disruptive innovation consists of offering a simpler product at a lower price. The product in question does not initially target the same customer base as the existing product. As a result, it expands the target market.

What Disruptive Innovation Enables

Disruptive innovation, when well-executed, allows for the introduction of a new technology more calmly, without being threatened by competition. This is due to the fact that the new product:

• is less efficient than the competition.
• targets customers who were not interested in the existing product. Very often, it doesn’t even address the same need. As a result, it is not identified by incumbents as threatening.
• does not use the same metrics to measure performance or quality.

The innovative company can, therefore, develop its product until it becomes as effective as the competing product. At that point, the competing product is hit by obsolescence and eliminates itself.

Thus, the process that led to the disappearance through obsolescence of very large groups, very well managed and apparently very prosperous, has been highlighted.

Example of Disruptive Innovation

We tend to think that this mechanism is only possible thanks to the very rapid evolution of technology. To prove the contrary, the author of the book describes the striking case of excavation machinery. Their history spans a century: from 1870, the year of the appearance of the first steam and cable excavation machines intended for mining exploration, until 1970 when only 4 former manufacturers survived, transforming into minor players in the hydraulic excavator sector.

This is due to the appearance around 1947 of the first hydraulic backhoes. The notable fact is that until 1970, hydraulic backhoes were not intended to replace site excavation machinery; they were indeed much less powerful and had reduced capacities in terms of volume and weight of material moved. As a result, instead of communicating on the power and volume of their machines, companies marketing hydraulic backhoes communicated on their agility and speed of maneuvers, the width of their bucket, their reduced cost,… They were then intended for road works as well as urban developments.

A few incumbent companies nevertheless felt the danger to their activity represented by the development of hydraulic cylinder technology; but they failed to negotiate the technological turn.

How Incumbents React

The appearance of a new technology, even a fledgling one, is generally accompanied by the appearance of a swarm of new startups exploiting the niche. Incumbents then face a multitude of problems preventing them from maneuvering correctly in such circumstances. Here are their main challenges:

Innovation Management

How does Microsoft, for example, distribute the work of its executives between those handling the most profitable activities of the moment and the teams exploring innovation hypotheses that in a large number of cases end up failing?

How do you compare a person managing the development of the new version of their operating system, bringing billions in revenue to the company, and the person experimenting with a new concept of a gesture-controlled phone that may never be marketed?

The company actually needs to put its most competent, creative, and talented personnel on projects that do not give them sufficient visibility and recognition.

Profit Optimization

Since large companies are extremely well managed and optimized to maximize profits, they tend to follow their wealthiest customers, who bring them the most and who demand increasingly sophisticated products. They thus put themselves in danger of an attack from the bottom of their segment.

Innovation and the Size Problem

Managing innovation becomes more problematic as the company increases in size. Apple had international success in 1977 by selling 43,000 copies of its Apple 2. Conversely, Apple neared bankruptcy in 1993 by selling 140,000 copies of its first PDA, the Newton.

Innovations that satisfy small-sized startups are insufficient for the growing appetite of large groups.

Marketing Problems

The major problem in this case is that even among the incumbent companies that had understood the threat to their activity represented by the burgeoning technology and had the means to acquire and develop it by buying startups, they failed. This is due to their inexperience in a new field.

When the leader in excavation machinery released its hydraulic model, it failed twice: it failed to sell it to its usual customers – who did not need it – and it failed to enter a new market, for which it did not have the keys.

And in Conclusion..

By offering a less efficient product, serving new customers, and using new metrics, disruptive technologies advance masked in even a very crowded market and cause the obsolescence of dominant products. It is the weapon of the new entrant against the dominant player in a market.