MGMT755 - Strategic Planning and Management
Discussion Question: Look at the characteristics of disruptive innovation. In what way is a disruptive innovation similar to a radical innovation? How is a disruptive innovation different than a radical innovation? As a manager, what are the strategic implications of the similarities and differences?
Dess, Lumpkin, Eisner and McNamara (2014) define a disruptive innovation as an innovation "that overturns markets by providing an altogether new approach to meeting customer needs." Further, Dess, Lumpkin, Eisner and McNamara (2014) tell us that disruptive innovations are:
- Less sophisticated and technologically simpler than the products or services currently available.
- Appeal to customers that are looking for solutions which are more convenient and less costly.
- Take some time to take effect.
- Are only considered to be disruptive once they have taken effect in a new market.
Because disruptive innovations provide a new approach to meeting customer need they often times steal a market. For this reason, it is critical that managers/leaders can anticipate a disruptive innovation, recognize a disruptive innovation, understand the threat posed by this innovation and be prepared to act. Not recognizing a disruptive innovation and not acting can have a long-term, negative impact on firms. One way of anticipating disruptive technologies is by focusing on customer and operational needs (Paap and Katz, 2004). Paap and Katz (2004) tell us that to be successful firms must be comfortable with and good at "dualism" - functioning effectively and efficiently today to sustain their market but also incorporating disruptive innovations into the market to be competitive into the future. While on one hand managers/leaders must be anticipating the disruptive innovations of others, they must also be planning their own next move/disruptive innovation.
Schmidt and Druehl (2008) tell us that a disruptive innovation typically enters a market/displaces a product in the low end (e.g., customers have the lowest willingness to pay for the product/lowest demand for the product attributes) of the product market and works its way up. It is because a disruptive innovation typically enters the market at the low end of the product market that many managers/leaders overlook the potential damage that can be done (Schmidt and Druehl, 2008). Schmidt and Druehl (2008) provide the following example of this: Toyota entered the US car market with economy cars which typically have low margins. GM and other US car manufacturers easily gave up this market as their profits came from higher-end vehicles. Once Toyota got their foot in the US door, they soon began to "encroach upward" and began selling mid-size vehicles (e.g. Camry) and luxury vehicles (Lexus) - entering the markets where there is higher margin.
Innovations fall on a continuum based upon their innovativeness. There are incremental innovations at one end of the continuum and radical innovations at the other. Incremental innovations enhance practices or products while radical innovations fundamentally change existing practices or products (Dess, Lumpkin, Eisner and McNamara, 2008). Lettl, Herstatt, and Gemuenden (2006) tell us that a radical innovation often times relies completely on new technological principles, new architectures, or new materials. Lettl, Herstatt, and Gemuenden (2006) further tell us the firms that are most successful at radical innovations are those that are open to new technologies, recognize the relevance and benefits of new technology, are able to recognize their most creative and entrepreneurial staff, are willing to consider partnering with research institutes, have a supportive environment and have strong intrinsic motivation. It is very possible and likely that a disruptive innovation to also be a radical innovation.
Dess, G., Lumpkin, G, Eisner, A. and McNamara, G. (2014). Strategic Management - Seventh Edition. New York, NY: McGraw-Hill Education.
Lettl,C., Herstatt, C., and Gemuenden, H. (2006). Users' Contributions to Radical Innovation: Evidence from Four Cases in the Field of Medical Technology. Journal of R&D Management, 36(3), 251-272. Retrieved December 11, 2016, from https://www.researchgate.net/profile/Christopher_Lettl/publication/227627422_Users%27_Contributions_to_Radical_Innovation_Evidence_from_Four_Cases_in_the_Field_of_Medical_Equipment_Technology/links/0046351d56c81c410c000000.pdf
Paap, J., and Katz, R. (2004). Anticipating Disruptive Innovation. Research Technology Management, 47(5), 13-22. Retrieved December 11, 2016, from https://faculty.usfsp.edu/gkearns/Articles2/Anticipating%20disruptive%20innovation.pdf
Schmidt, G. and Druehl, C. (2008). When Is a Disruptive Innovation Disruptive? Journal of Product Innovation Management (25), 347-369. Retrieved December11, 2016 from https://s3.amazonaws.com/academia.edu.documents/45846648/j.1540-5885.2008.00306.x20160521-2456-1hnw11i.pdf?AWSAccessKeyId=AKIAJ56TQJRTWSMTNPEA&Expires=1481461646&Signature=0GnYSc2XajuGOI5DnFhaHzDS%2FUA%3D&response-content-disposition=inline%3B%20filename%3DWhen_Is_a_Disruptive_Innovation_Disrupti.pdf