Reviewed by Aug 27, 2020| Updated on
Disruptive innovation refers to new technologies or applications which widely impact a sector or industry. They may include significant technological developments which alter the core business functions.
Examples of disruptive innovation are internet-driven technologies, which changed the method of carrying on business across the world. It required adaptation by many traditional forms of business and also paved the way for new types of business.
Understanding Disruptive Innovation
Disruptive innovation significantly alters the existing base requiring fundamental changes to business structures and processes. Businesses that adapt survive the change, while others move out.
A disruptive innovation marks a significant shift in an industry. Innovations in the industry often cause a change in the business environment, business models, increases competition, among other things.
Innovations can be beneficial for the consumer at large. For businesses, they may lead to short term loss of business, but maybe capable of long term gains with new and low-cost technologies.
A company can adopt new technologies in its business and remain competitive. A company should always be well informed about the technological changes to plan for any future changes in the business environment.
Technology or innovation is coined disruptive when it destabilises the existing environment and creates a new platform for doing business.
For example, e-commerce platforms offering low cost, asset-light business models disrupted the brick and mortar businesses and their profit margins. The launch of e-commerce platforms also leads to a reduction in the profits the existing businesses earned.
Adapting to New Technologies
A business may find it difficult to adapt to new technologies. The shift in methods of production may involve high investments. The business may also be saddled with the burden of clearly old inventories made with earlier technology.
For example, automakers find it difficult to move into the electric vehicle segment, which involves a higher cost of production. They need to clear their existing inventories and service the customers who bought the old technology goods.
Innovations and technological advancements or improvements cause significant business disruptions. The internet is no longer a disruptive technology in itself. However, the internet gave rise to many new business opportunities and business models which disrupted existing trade.
Businesses need to be incrementally active in their research and development efforts and provide new products and services to consumers. Such an approach helps them in staying ahead and able to deal with disruptions.