To develop their growth, many companies create new products or services by introducing them to a new market. This is called disruptive innovation.
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What is a disruptive innovation?
Disruptive innovation, or disruptive innovation, refers to an evolution causing a disruption in an existing sector of activity. It relates to products, services or models that replace those usually used on the market. This innovation will thus create a new market by making the old one obsolete.
There are two sources of disruptive innovation:
- innovation breaking down, or lower;
- breakthrough innovation by creating a market.
Downward disruptive innovation consists in offering a simpler, basic product or service, in line with the needs of an entry-level market. We speak of a break from the bottom when the new offer attracts entry-level customers compared to the reference offer and thus redefines the performance criteria.
Disruptive innovation by creating a market consists, as its name suggests, in creating a market that did not exist until then. The idea is to offer a product that meets a palpable need that has not yet been expressed. Although it may initially seem less efficient compared to the reference offer, this product develops market growth and renews its ecosystem.
Companies can resort to disruptive innovation for two main reasons:
- the products or services they offer no longer meet consumer habits;
- their business model no longer allows them to make money and create value.
Also, disruptive innovation consists of implementing a new concept that upsets the functioning of a sector of activity and usual practices. In other words, it’s about giving customers access to a product or service that previously seemed out of reach. Disruptive innovation results in the creation of a new category of products or services that did not exist, but also in the creation of new value. Disruptive innovation thus creates new growth opportunities for companies. Indeed, it implies the adoption of a new organization, a new mode of operation, new trades and new economic models, this new implementation contributing to the disappearance of the market which existed previously. Disruptive innovation should not be confused with incremental innovation, which consists of improving an existing product or service.
Disruptive innovation is a concept first introduced in the 1990s by Clayton Christensen. This economist addressed this term in two books: “The innovator’s dilemma” published in 1997 and “The innovator’s solution” published in 2003. In the first, he developed a theory according to which disruptive innovation is divided into three categories: continuity innovations, efficiency innovations and transformative innovations.
What are the benefits of disruptive innovation?
Disruptive innovation offers several advantages since it allows companies to:
- optimize their growth;
- to position itself as a market leader;
- to create new professions;
- to gain a sustainable competitive advantage.
For companies, disruptive innovation allows them to regain growth, especially when the market is saturated. By developing new products or services, they create not only a new market, but also a new demand. As a result, they expand the market while acquiring new customers who have not purchased the existing offer. Thanks to disruptive innovation, companies become a reference in their sector and increase their notoriety.
Position yourself as a market leader
Disruptive innovation makes it possible to take advantage of a void in the current market. This vacuum presents an opportunity since it offers companies the possibility of easier access to a market where competition does not exist. Companies will be able to establish themselves in this market as a leader, especially when they bring an innovation that works. By using disruptive innovation, companies can dominate the existing market.
Create new professions
Disruptive innovation also promotes the creation of new professions as well as the development of economic activity. To create new markets, it is indeed necessary for companies to create and integrate new know-how in the process of developing their offer.
Obtain a sustainable competitive advantage
Disruptive innovation brings sustainable competitive advantage to companies, as it will take time for their competitors to adapt and react to the new offering on offer. When the new products or services resulting from a disruptive innovation meet with commercial success, competitors will seek to imitate them, but it will be too late. For customers, the solution provided by innovative companies will be considered as the reference offer.
Start-ups often see disruptive innovation as an advantageous solution, since they often launch their activity in small or uncompetitive markets while having a limited budget. This option thus meets their needs for rapid visibility on these specific markets.
Examples of disruptive innovation
Nespresso, a coffee capsule system invented by Nestlé, is a perfect example of disruptive innovation in the coffee market. In 1986, the brand developed a business model consisting of designing a coffee machine and compatible capsules and selling them in its stores. Compared to the old model of selling coffee in sachets, Nestlé had to renew its business model by implementing new resources, new partners and new distribution techniques. Nestlé has thus developed two different business models, and therefore two different ways of selling coffee. Positioned at the top of the range, Nespresso generates a significant margin on the capsules sold, allowing the brand to create value, while obtaining a better return on investment.
In the field of travel and hospitality, there is a particularly interesting example of disruptive innovation, that of Airbnb. First of all, this company offered a new service: the rental of accommodation between individuals through an online booking platform. It was an innovative idea that changed the rules of the hotel sector. This new concept has allowed Airbnb to develop its activity, but also to create sources of income for other players such as homeowners. Launched as a start-up in 2008, the company has evolved a lot over the years and has now become the world leader in the reservation and rental of tourist accommodation. Airbnb is also one of the NATUs, that is to say companies that have managed to dominate a market by offering an innovative offer and economic model.
And finally, let’s cite one of the best examples of disruptive innovation: that of Uber. This company has proposed a new way of taking a taxi thanks to the creation of a mobile application linking customers and drivers. Uber has designed a disruptive web-based business model by redefining the regulatory contours of the VTC sector, transport cars with driver. The economic model operates according to three founding and innovative criteria.
- Uber is a platform that connects users with professional drivers.
- The drivers are not employed by Uber, but self-employed.
- There are no fixed costs related to driver salaries.
It is thanks to this economic model that Uber has encouraged the VTC and taxi sector to reinvent itself. By coming close to legality on certain regulatory aspects, the company has also implemented an aggressive commercial strategy, thus accentuating the break in the existing functioning in this sector of activity.
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