strategy of disruption

Analysis of Strategy of Disruption

Posted on Posted in IT Strategy

The “Strategy of Disruption” is a theory developed by Professor Clayton Christensen (1997), which provides a framework for organisations for identifying potential emerging opportunities and challenges in the marketplace and adopting the appropriate strategic solution.

Christensen states that there are two types of innovation:

  1. Sustaining innovation: A way to constantly improve a product or a service that is already in the market. Often organisations try to improve a product or service by adding features that are required (and used) only by their high-end customers, which are the ones that generate most of their revenue.

Low-end customers have to pay more for these new features that they are not interested in and they will never use.

  1. Disruptive innovation: Do not attempt to bring better products to established customers in existing markets. As the simpler products continue to improve, new entrants get a foothold in the market .Simpler, cheaper, more convenient

 

As a result, there are three types of disruptive innovations:

Low-end

An organisation that enters the market aim to attract the low-end customer from the established company by creating a less rich in features but cheaper, more convenient and simpler product.  Subsequently ,the new entrant company will focus on including the high-end customers as well (by improving the product/service), trying to put the established company out of market (Amazon.com).

New Market

An entrant organisation might try to enter the market by attracting non-customers of a product and service first (creating a new market), and then aim to include the low-end customer from the established organisation. The next step will be to get the high-end customers as well (eBay).

 Top-down

This strategy involves high-end customers. The new product or service will be created and sold at a premium price, aiming at getting only the most profitable customers of the established company (iPhone).

It is interesting to say that once a company, through disruptive innovation, force another one out of the market; it becomes at risk of being challenged in the same way by a new entrant.

Christensen suggests that organisations should pay more attention to their mainstream customers (low-end) by having an autonomous business unit that can compete with new entrants.

Christensen posts a set of questions that act as a litmus test on disruption:

— Is there a large population of people who historically have not had the money, equipment or skill to do this thing for themselves?

— Are there customers at the low end of the market who would be happy to purchase a product with less (but good enough) performance if they could get it at a lower price?

— Is the innovation disruptive to all of the significant incumbents in the industry?

It is a powerful theory. Windows – the incumbent is being disrupted by the iPad and other tablets. New technology that is inferior on attributes that matter to Windows’ best customers, but superior on other attributes that matter to many others.

However, I believe Christensen’s second theory of disruption – low-end disruption is flawed. It presumes that the buyers are rational. Buyers can have widely different motivations, susceptible to advertising, lack of product knowledge, fall prey to the need for instant gratification, etc. Not every attributed that matters can be documented and measured. An example is Apple’s iPhone which sells despite Androids mobile phones available at cheaper prices.

It should work together with Porter’s Generic Strategies (1980) to achieve and maintain competitive advantage

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