Disruptive innovation is one of those business terms that people are talking about today. This is because disruptive innovation can affect the very survival of a business.
Disruptive innovation is the process of when a new or smaller company sees an opportunity to enter and compete in an underserved or new market. The incumbent business is presently not focused on serving this underserved market segment and usually does not see the new business venture as a threat or competition.
Through their processes, the new business can work their way upward and grow until eventually, the customers of the incumbent business become their customers. Disruptive innovation is about the process, not the product or service. Amazon and Netflixs are two examples of companies that have disrupted the marketplace.
What Is Disruptive Innovation?
Disruptive innovation is when an incumbent business chooses to ignore a sector or downmarket customers in a market. As Clay Christensen, one of the great management thinkers of our day said:
A classic example of disruptive innovation is Amazon. In the 1990s, Amazon decided to sell books online. For a long time, the big booksellers ignored Amazon. And today, Amazon is much larger than any of those former big booksellers.
Another example of disruptive innovation is Netflix. For a long time, Netflix did not threaten Blockbuster with its DVD by mail service. Blockbuster totally ignored Netflix as a threat; they were convinced their customers wanted to enter their stores to get their hands on the latest releases immediately.
But over time, and by using online streaming services, Netflix took away Blockbuster’s core customers and users. So much so that we ask, “does anyone even know who Blockbuster is?”
That is why many times, disruptive innovation and technology go hand-in-hand. Companies like Amazon and Netflix were also driving the upward technological side of the business; through the technology, they could start to compete at levels once thought impossible.
The incumbent business also had access to the same technology; this is why disruptive innovation is not just about technology but the process.
Disruptive Innovation Happens When A Few Things Occur In An Industry:
- The incumbent businesses innovate and develop their products and services to appeal to their most demanding and/or profitable customers. In doing this, they will ignore the needs of those customers who they consider to be downmarket.
- A new business sees the downmarket customers are being ignored and sees an opportunity to serve these downmarket customers.
- The new business starts to meet the needs of the downmarket customers.
- The incumbent business does not respond to the new business. In fact, the incumbent business may not see the new business as a threat or even a competitor.
- The new business starts to move upward and is now offering solutions and services to the incumbent customers.
- The new business has now attracted many of the incumbent’s business clients and customers. At this point, business disruption or disruptive innovation has occurred.
The incumbent company had the opportunity not to allow this disruption to happen; instead, they choose to ignore the downmarket customers and the new business. Disruption was able to happen because the incumbent businesses choose to ignore customer segments; simultaneously, they discounted the new business’s effect on the industry.
Over the last 15 years, there has been a devastating disruption in the retail industry. Online retail has devastated traditional brick-and-mortar stores. The disruption has gone from everything from the company Tower Records to Hollywood Video to other well-known brands as Neiman Marcus and Saks Fifth Avenue.
One area to look at how disruption has impacted a particular retail sector is the online grocery industry; in 2012, consumers only 1% of all groceries sold in the United States were sold online. Today with tech-savvy Millennials and Gen Z, over 45% in this age group now say that they purchase only or most all groceries online. These numbers are expected to continue to skyrocket.
Disruptive Innovation’s Impact On Industry
Disruptive Innovation is taking place in every industry. Anyone in any industry has seen the effects of disruption as one company has disappeared and another company suddenly comes seemingly out of nowhere.
I recently have known three families who have purchased a home without ever seeing the home in person. Essentially they went online, spoke with some realtors, took an online tour, and purchased the home without ever stepping foot into the house.
People today are quite comfortable making a major purchasing decision completely online. If people are willing and feel comfortable purchasing a home online, they will certainly be willing to purchase furniture items online.
This means that smaller companies may sneak into a market without being noticed and disrupt the market. In disruptive innovation, the smaller companies serve the underserved areas that larger companies choose to ignore.
Ways Disruptive Innovation Can Affect Furniture and Other Industries
Disruptive innovation is that high-speed train that cannot stop. In the home decor and home furnishing industry and other industries, disruptive innovation could affect tradeshows, sales, and supply chains.
Tradeshows and Disruptive Innovation
In the home decor and home furnishing industry and many other industries, tradeshows are important. Many companies depend on tradeshows to conduct their business and generate new sales. At a tradeshow, a buyer will come in to look at the products and services first hand to see if they want to buy the product or service.
When you go to a tradeshow, one complaint from companies attending the show and the companies showing is that many feel it is a waste of time and money. In the home decor and home furnishing industry, trade shows are costly.
This is one area of the market that could face disruptive innovation. The disruption could be so great that tradeshows no longer become important or necessary. Disruptive innovation could disrupt the entire process of how and why we do tradeshows.
A possible disruptive innovation for a tradeshow could be the use of technology as Augmented reality (AR) or Artificial Intelligence (AI). Both of these technologies could affect how people buy products and what kind of products they buy.
Tradeshows will probably become a combination of in-person trade shows and the use of other technologies. Like most things in disruptive innovation, this will happen over time and not all at once.
Sales and Disruptive Innovation
Disruptive innovation can also affect how sales are conducted and generated—everything from how to sell your products to how people buy your products. Amazon is an example of an industry that disrupted an industry, and that industry has never recovered.
Artificial intelligence (AI) could become so good that people will depend upon it to tell them who to buy from and why. This of course could help some companies, while hurting others.
Sales Reps are another area for disruption. A new process could ensure a company can run its sales force with fewer people while having an efficient and effective team.
Supply Chain and Disruptive Innovation
Disruptive innovation could see the entire supply chain shaken up. Presently many wholesalers are looking to do retail. Retailers to survive may shift how they buy products. Disruptive innovation may streamline the entire supply chain process to make it easier.
Disruptive innovation could disrupt transportation and how goods are shipped. Artificial intelligence, blockchain, robotics, self-driving vehicles,and drones could all affect how people receive their products and services.
Cognitive Procurement is where procurement is heading. To discover more about cognitive procurement, you can read What Is Cognitive Procurement? 6 Ways It Is Different Procurement by clicking here.
Surviving Disruptive Innovation
Disruptive innovation usually comes slowly; the problem is that many companies see the signs but choose to ignore them. By the time the companies pay attention to the signs, the process of disruption is already in place; it is already too late or much harder to adjust or change their business model.
Here are a few things to remember about disruptive innovation:
- Disruptive innovation is a process, not a product or service. This makes seeing disruptive innovation so difficult because companies are offering the same products and services, but it is their process that disrupts the market.
- Choose which fires you will fight. Not every new idea or innovation will turn out to be the next Amazon or Netflix. So the best thing you can do as an incumbent business is to keep an eye on these fires and then choose which fires you will fight.
- Not every innovation that comes along will disrupt the market. Usually, disruptive innovation comes through a low-end or a new market. A low-end market is when a lower-cost item is offered that is good enough, and then that company can work to take over the upward market. The new market is when a new company finds a new untapped market.
To find out more about disruptive innovation, the most important management thinker of our era was Harvard Business School, Professor Clay Christensen. Clay Christensen wrote the business book called The Innovator’s Dilemma.
Clay Christensen passed away in 2020 but before he died he co-authored another fascinating book called The Prosperity Paradox – How Innovation Can Lift Nations Out of Poverty. Both of these books are excellent books to read about disruptive innovation.
You can find out more about Clay Christensen, his books, and organization by clicking here. A few years ago I was privileged to hear Clay Christensen give an amazing talk; he truly is a great man and thinker.
If you prefer a free podcast, I recommend Disrupt Yourself podcast by Whitney Johnson. She has a weekly podcast that features business leaders and other disruptors to talk about business ideas and disruption. You can find out more about Whitney Johnson and her podcast by clicking here.
If you are interested to find out more about how Mondoro can help you create, develop and manufacture great home decor and home furniture products, – feel free to contact me, Anita. at my email by clicking here or become a part of our community and join our newsletter by clicking here.
What Is The Difference Between Supply Chain Management and Logistics?
Supply chain management is about the collaboration and partnerships to get the goods from raw material to the end consumer; it is about the partnerships and collaborations within this supply chain process. Logistics is one part of the supply chain management; logistics is about moving the goods from one place to another. In some instances, the logistics providers will also store the goods and send them on to the end consumer.
You can learn more by reading our blog What Is The Difference Between Supply Chain Management and Logistics? by clicking here.
What Are The Benefits Of Supply Chain Management?
There are many benefits to supply chain management. The benefits of supply chain management include teamwork and collaboration, improved quality control, better efficiency and effectiveness, on-time deliveries, maximization of overhead costs, improved cash flow, risk mitigation, and shipping optimization. All of these areas are greatly helped by proper supply chain management.