Disruptive Innovation: In Need of Better Theory (Markides, 2006) What is the main point authors want to get across? Olga Jemeljanova Joona Kanerva Niko Kuki Mikko Nummela Group

Outline Disruptive innovation Three distinctive types of disruptive innovations –Technological innovation –Business model innovation –Radical product innovation Conclusion

Disruptive innovation “Disruptive innovation, a term of art coined by Clayton Christensen, describes 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.” (Christensen, 2016)

Disruptive innovation Originally coined by Christensen (1997) describing technological innovation Disruptive innovations create different kinds of markets, pose radically different challenges for established firms, and have radically different implications for managers Use widened by Christensen and others to include products and business models Current usage is too wide as only shared characteristic is disruption to incumbents

Three types of disruptive innovations –Technological innovation –Business-model innovation –Radical product innovation These three distinct disruption types can be identified by –How they arise –Competitive effects –Required response from incumbents

Technological innovation Technological innovation (Christensen, 1997) –New technologies come to surpass seemingly superior technologies in a market Disruptive technological innovations eventually grow to dominate the market (Christensen & Raynor, 2003) Entrants tend to replace incumbents (Danneels, 2004) –Only way to respond: accept and find ways to exploit Established companies can exploit only with separate units (Christensen & Raynor, 2003)

Business-model innovation (BMI) Discovery of a fundamentally different business model in an existing business The new business model must enlarge the existing economic pie –either by attracting new customers into the market –or by encouraging existing customers to consume more Business model innovators do not discover new products or services

BMI competitive effects Business-model innovations usually require different key success factors and different combination of tailored activities on the part of the firm Usually new activities are incompatible with a company’s old set of activities This is a dilemma for established firms: these new ways of competing conflict with existing ways

BMI vs. technological innovation Disruptive technological innovations eventually grow to dominate the market (Christensen & Raynor, 2003) The available literature on business-model innovation does not support such an extreme position –Usually in the case of a business-model innovation the new way of competing in the business grows to a certain percent of the market but fails to completely overtake the traditional way of competing

BMI vs. disruptive innovation ”wisdoms” 1.New business models are not necessarily superior to the ones established companies employ –Most of the business-model innovations don’t make economic sense for established firms –Established firms have alternatives: investing its limited resources in adjacent markets or taking its existing business model internationally 2.Best way for an established company to adopt and to exploit such innovations isn’t necessarily through a separate business unit 3.Incumbents response for disruptive innovation does not necessarily mean that they have to adopt it

Radical product innovation (RPI) Creating new-to-the-world products Prevail consumer habits and behaviours Undermine the competences and complementary assets on which existing competitors have built their success New technology results RPI: markets emerging –Hordes of new entrants before the new market starts growing –Highest levels of product variety and rate of innovation –Later shakeout signalling the beginning of growth in the industry –Fluid market structure for most of the early years

Achievement of RPI Perfect entry time: right before the dominant design emerges Series of actions to grow the mass market from a niche Shifting the basis of competition from technical performance to quality and price Performance level good enough or even surpasses customer needs No product overengineering

RPI vs. technological innovation 1.Technological innovation –New entrants, start-ups –R&D to improve the product further or/and add to its functionality 2.Radical product innovation –Established companies –Scaling a niche market into a mass market Achievement of RPI is fundamentally different from business-model and technological innovations

Conclusion Not all disruptive innovations are the same –Technological, business-model and radical product innovations should be treated as distinct phenomena –May follow a similar process to invade existing markets and may have equally disruptive effects on incumbent firms –Produce different kinds of markets and have different managerial implications It is only when the topic of disruptive innovation is broken down into these finer categories that progress can be made

References Markides, C. (2006). Disruptive Innovation: In Need of Better Theory, Journal of Product Innovation Management. 2006, 23, pp.19–25. Clayton Christensen. (2016). Key Concepts: Disruptive Innovation. Available from: [Accessed on 11 January 2016].