Disruptive Innovation - Making it happen in Organizations

            

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Authors: Sanjib Dutta, Anil Kumar Kartham
Senior Faculty Member, Faculty Associate
ICMR (IBS Center for Management Research).

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Grameen Telecom also benefited from this innovative business model. A single phone connection in a rural area generated revenues of $100 revenue per month compared to $30 in a city area. Analysts felt that if this model was extended to all rural areas it could generate revenues of more than $ 100 million per year. They also believed that if this concept was applied successfully in countries like India and China, revenues could well go up to tens of billions of dollars. Such is the power of disruptive innovation.

Innovation is the successful exploitation of new ideas and is a vital ingredient for competitiveness, productivity and social gain within businesses and organizations2. But, disruptive innovation is an innovation that is of highly discontinuous or revolutionary nature, which is the opposite of evolutionary or incremental innovation.3 Thus one can say that all disruptive innovations are innovations, but all innovations are not disruptive. They are incremental as well.

Toyota, the Japanese car manufacturer, severely undercut the competitiveness of American automobile manufacturers in the lowest tiers of the car market with the launch of its Corona model in the 1960s. Corona was simple and reliable, and soon became the second car of middle-income customers. Inspired by the success of Corona, other Japanese automobile companies such as Honda and Datsun (Nissan) entered these segments and started to compete with Toyota. In order to maintain its profit margins, Toyota entered the upper segment of the market with its launch of the Corolla, the Tercel, the Camry, the 4Runner, the Lexus, and the Avalon lines. Honda and Datsun followed suit. These small Japanese companies of the 1960s, which manufactured cheap products, eventually became huge global corporations manufacturing the highest-quality automobiles.4 Here, Toyota created a new growth market through its disruptive innovation.

Another good example of disruptive innovation is the Sony transistor radio of the 1950s. It was a disruptive technology; it was different from standard radios of the day as the volume produced was very low. But Sony's customers who were mainly teenagers did not mind the low volume as they could listen to their favorite rock-and-roll music without their parents knowing about it. Within a few years, Sony had driven the American high quality radio manufacturers out of the market. Sony followed the same approach in the television market. It entered the market with the launch of a cheap black and white model, going on to produce the super-sophisticated Trinitron later when it was well-established in the market.

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2] London-innovation.org.uk
3] P. Thomond & F. Lettice, Cranfield University, Cranfield, England
4] Christensen C, Craig T, H Stuart, The Great Disruption, Foreign Affairs, Mar/Apr2001, Vol 80, Issue 2.