Clayton Christensen – Innovation Day 1
Understanding the basics of Disruptive Innovation.
1. Technology just keeps getting better: In every market, technology advances and improves – driven by a set of behavioral, economic, regulatory and institutional factors. Companies take advantage of this by offering better products at higher prices and by listening to and targeting mainstream and high-end users.
2. Customers will use a technology, up to a point: Technological progress inevitably reaches a point where it is far above what customers actually need and use.
3. Overshooting customer needs enables disruption: When the level of technological progress is far above what customers actually need and can use, the phenomena of overshooting creates the opportunity for an upstart to come in with something that’s cheaper, simpler and good enough for a set of customers who don’t need the advanced technology. Once the entrant carves out a piece of the market on the low end, they improve the “good enough” product, march upstream and can take a significant piece of market share from incumbents.
4. But it’s not really about the technology: It’s about the business model. Small, nimble, disruptive firms can succeed with business models that are unattractive to incumbents. If an incumbent requires a 40% margin on a product in order to support its operations and remain profitable, would they really encourage a product that might only have a 20% return? Whereas, for an upstart, that 20% might make them extremely profitable.