Disruptive Innovation

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Incumbents & New Entrants

As seen in the case of Netflix and Blockbuster disruptive innovations can have major impacts on both the incumbents and new entrants of an industry. In the case of the new entrants a disruptive innovation provides an opportunity to access new forms of market share. Because of the disruptive innovation a product/service that was once had limited interest has now become the most desired due to its lower price and/or new function, compared to the previously established mainstream product. Subsequently, this creates an entire new market, allowing for additional new entrants. As a result of the situation between Netflix and Blockbuster we began to see the emergence of other online platforms such as Hulu and Amazon Prime/Video entering the marketplace, due to the opportunity created by the disruptive innovation.

In the case of the incumbent, failure to adequately respond to the disruptive innovation can lead to the demise of the entire business as evident in the case of Blockbuster. However, this did not have to be the case. The emergence of a disruptive innovation requires action from the incumbent in order to withstand its affects. This action could come in the form of an acquisition where they acquire the disruptive innovation and make it part of their operations. Or alternatively, they could create an entirely separate division in order to directly compete with the new entrant on the basis of technological innovation. Unfortunately, Blockbuster failed to take any action in sufficient time and ultimately was over taken by Netflix as well as other online platforms.

Conclusion

Disruptive innovation is an occurrence that interrupts and does not simply occur at a single point in time, but rather takes place over an extended period. It is not only the technology itself that represents the disruption, but also the response this technology elicits that distinguishes it as disruptive. Disruptive innovations have significant structural damage on the business model of an industry, which will be evidenced by a shift in what is valued by the mainstream consumer. This disruption can lead to changes in dominance throughout the industry and can require significant change and adaption on behalf of the incumbents, while simultaneously providing opportunity to new entrants.

References

Bower, J; Christensen, C. (1995). Disruptive Technologies; Catching the Wave. Harvard Business Review. January-February.

Christensen, C; M, Raynor; R, McDonald. (2015). What is Disruptive Innovation?. Harvard Business Review. December, Pg. 44-53.

Wessel, M; Christensen, C. (2012). Surviving Disruption. Harvard Business Review. December.