How to respond to disruptive innovation
Radically disruptive products can overtake existing solutions as they improve in quality. These are often created from new technologies, eventually bringing a significant competitive advantage and impacting existing business models. Consider how the car completely took over from the horse and cart.
As an existing organisation, you will likely be incrementally improving your product (the blue line). The model below shows what can happen when a radically disruptive product is released (the orange line):
Existing organisations must pay careful attention to new types of solution or risk the following:
Solution emerges - When the quality/feature depth of the solution is low, it can be targeted at overlooked (needs are not well met) or low-end (won’t or can’t pay much) customer segments.
Inferior quality - Due to the quality/depth of the solution at creation, it may not be perceived as dangerous to existing organisations.
Enhancement - By the time the new type of solution matures, it may be too late for existing organisations to respond. Market growth and revenue growth of the new product follow an S-curve and start to increase rapidly. As an example, consider the first cars, the horse and cart businesses may have seen these as significantly inferior at their start, but rapid advancements meant they quickly replaced them.
Replacement - The new type of solution has sufficiently evolved to replace (disrupt) the existing market. At its worst, the current organisations could go out of business. Further enhancements lead to a significant competitive advantage for the new solution.
Risk reduction
Reduce the risk of a competitor’s disruptive innovation by:
Monitoring competitors closely, especially those with a new type of solution.
Reacting early.
How to act
You have a number of options:
Building yourself - This can be difficult if you leave it late as your competitor may have a large product.
Buying the competitor - The longer you leave this, the more expensive it will be. However, it is a lower risk as you will have more evidence that the product will be successful.
Partnering with the competitor - A poor option in the long run as they grow and weaken you.
Pivoting your entire business - This is a very risky approach but may be necessary if you are late to react and your market is being replaced.