Disruption in Business

Abstract

This paper defines the term disruption as applied to business theory. The term originally coined by Clayton Christensen 1997 has seen continued use and development over the past 20 years. Christensen further defined the term in his 2015 article, “What is Disruptive Innovation?” Mochari (2015) gives some additional description, while Brown (2018), Furth (2018), and Larson (2016) discuss leading disruptors such as Apple and Amazon, as well as lesser known companies, how they have tapped into technological trends, and how it has impacted their industries.  Additionally, the paper discusses how not only to be successful with disruption, but how to be the company who stays on top within an industry, and who has been successful in demonstrating this.

Disruption in Business

Webster’s dictionary defines disruption as “to cause (something) to be unable to continue in the normal way: to interrupt the normal progress or activity of (something).” Clayton Christensen coined the term disruptive innovation in his book The Innovator’s Dilemma (Christensen 2015). Since that time, the word disruption has been thrown around about many different ideas, technologies, and theories within business. What is disruption in business, how do we define it, and who has been successful creating it?  Various scholars have contributed to the conversation, while observing the market and the actions of the companies who are a part of it.

What is Disruption?

When a new technology or business enters into the market and is successful in doing so, can this be defined as a disruption? Christensen (2015) describes disruptive innovation as “a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors.” IIan Mochari (2015) discusses how this term is misused. He clears things up by stating that disruption is “what happens when the incumbents are so focused on pleasing their most profitable customers that they neglect or misjudge the needs of their other segments.”

According to Larson (2016), low-end disruption refers to businesses that are just “adequate” at serving their customer base. They come in at the low end of the market and are generally the lower profit market for the incumbents. Therefore, as new businesses emerge, the incumbents move upward. The focus is placed on areas of higher profit margin.

The article defines new-market disruption as businesses in competition against non-consumption in the market’s lower margin sectors. Like low-end disruption, the developing business can profit from lower prices, as the products being offered are usually seen as “good enough.” Larson states, “The main difference between the two types of disruption lies in the fact that low-end disruption focuses on overserved customers, and new-market disruption focuses on underserved customers” (2016).

New products or services that are innovative launch every day. When these technologies initially launch, are they considered disruptors right away? Larson points out a word of caution given by Clayton Christensen that to determine the projected success of an innovator’s business model takes time. Netflix is a prime example. Now at the core of everyone’s household entertainment, the service has clearly replaced the need for Blockbuster and other movie rental businesses. At first, however, its DVDs-by-mail service did not serve as a threat. Customers still wanted the option of new releases at their fingertips immediately. In transitioning to an on-demand streaming model, Netflix was able to “siphon away Blockbuster’s core customers” before the company had time to combat the effects of this new business model on their own (Larson 2016).

How do we Define Disruption?

It is an ongoing challenge for brands to find growth in their own competitive landscapes. Since the role of consumer insight is to shape and inspire disruptive ideas to guarantee effectiveness with target consumers, companies are increasingly challenged to grow in ways that are not always entirely comfortable.

According to Brown (2018), Uber or Airbnb are the first brands that come to mind when marketers are prompted to think of brands that have successfully disrupted. They may also think of textbook examples such as Apple or Amazon. While these are the most well-known brands, and therefore at the forefront of our minds, there are many other local, and less famous cases that can provide opportunities for learning from and sharing. It is worth asking ourselves what we can learn from brands that have maintained growth under weighty market pressures.

Brown explains that in order to successfully change a market, a brand must differentiate themselves in the minds of consumers and stand apart in some impactful way. This takes various forms, sometimes relating to technology or specific aspects of the product itself, but often the change stems from zoning in on specific moments to dominate in the journey of the consumer.
According to Brown, “Brands that best leverage their distinctive assets to drive their power in the minds of consumers will differentiate themselves at moments that matter to maximize their chances of growth” (Brown 2018).

In order to change the way things have traditionally been done, disruptors must challenge the status quo, establishing the category debate by using knowledge from categories that are seemingly irrelevant. Brown (2018) notes that Capitec is an excellent example of how this was done in the banking world. They combated traditional banking by doing two things: opening on Sundays and simplifying their offers. This, of course, drew attention and excitement, that the company then followed with excellent customer service and competitive fees.

The article also discusses the use of huge and brief discounts to draw consumers to purchase online, when they are traditionally in-store shoppers. Occasionally, retailers like Takealot and others will offer major discounts in order to negate the need for customers to hold the item in their hands. Time pressure is another tactic used. An extreme example is when a site like onedayonly.co.za offers a major discount but for a very short period. Brown (2016) points out that a strategy focused solely on the discounting tactic will find it difficult to retain any growth it achieves.

Technology also affects our lives in our attachment to our handheld devices. For example, the increased usage of WhatsApp, which has taken traditional text messaging and increased its social functions has broadened boundaries and satisfied needs, giving a wider consumer base what they desire in an app.

Brown (2018) gives several additional examples of this, such as Standard Bank’s Snapscan app. It has provided the ability for one to make or accept payments in a wider landscape where bulky card machines may not be available to merchants. Additionally, ABSA was the first in the world to allow customers to make banking transactions through their social media accounts with ChatBanking, which allowed customers to make banking transactions through their social media accounts. Another interesting app gaining popularity is SweepSouth, which gives customers access to a large database of well-qualified cleaners on-demand.

Streaming services and those that allow customers to download content are finding their way into more and more homes, putting a great deal of pressure on the traditional broadcasting model. Netflix and ShowMax are spreading across television screens and computer monitors like wildfire. Music on demand from Apple Music or Google Play gives the ability for immediate listening or purchasing ability. Fibre-optic internet is even finding its way into more homes than ever (Brown 2018).

While relying too heavily on technology can be an unnerving move, successful brands are doing their homework to make sure the trends they are climbing on board with are legitimate trends, not just fads. They will continue innovating in order to stay ahead of the game, use technology to redesign old categories, reframing constantly in unexpected ways.

Brown states that “changes to the way people choose, and the set of brands they select from will lead to substantial changes to the way they feel and behave” (2018). In other words, the relationship between all brands within a distinct market can be significantly impacted by disruption. To deal with this reality, marketers must act as if they are in perpetual beta. Quick feedback is necessary in the identification of opportunities to deviate their course and combat the moves of competitors. In addition to heading off disruptor impact, these actions can be utilized to keep other brands on the defensive. While true disruption is not exactly commonplace, bringing significant change to your category is highly possible. If the desire is to grow your brand faster than others, ensuring you lead the change is extremely important.

Who has been Successful in Creating Disruption?

Amazon leads the charge in the embodiment and power of continual and audacious disruption. According to Furth (2018), “This is the company that, in its beginning went head to head with publishers and established booksellers around the world. It forced many competitors and established business to change their business models or close the doors.”  The value created by Bezo and his team’s ability to provide billions of books and other printed materials worldwide more cheaply and efficiently than anyone had before greatly overshadowed any short-term negative consequences they may have experienced in the beginning. In 1997, less than two years after the company’s initial public offering (IPO), the company was rewarded with a stock market increase of more than 5,000 percent.

As if this wasn’t enough, Furth (2018) states that the team went on to successfully disrupt other large companies such as Sony, Apple, and Samsung. While these corporations had seen early domination, along with Barnes & Noble, of the e-reader and tablet realm, Amazon ultimately rocked that boat, discontent with being simply a logistics company.

As important e-commerce companies are concerned, Amazon is now second only to the Chinese conglomerate Alibaba. They dominate important segments of entertainment, IT, and consumer electronic industries. There is no question that companies who could not or did not want to take the threat seriously are now experiencing serious regret as they have been pushed out.

Furth (2018) both asks and answers the question of what has kept Amazon at the height of its powers for almost 25 years. Perhaps the answer lies in Amazon’s concise yet direct mission statement: “Our vision is to be Earth’s most customer-centric company; to build a place where people can come to find and discover anything they might want to buy online” (Furth 2018).

Bezos has demonstrated that operating a consumer-centric machine that puts the buyer at the center of the ecosystem, allows the company not to become hung up on proprietary technology or products that one day might be disrupted or challenged by a company who is more forward thinking for that moment. Amazon’s customers are its entire reason for being, which, in an industry that has previously been led by a handful of powerful people and organizations, sets off a chain reaction that quite often affects the world’s population in an innovative and transformative way.

In closing, disruption in business can refer to anything that upsets the status quo, or the tenets that have already been established within an industry.  Low-end disruptors begin at the bottom of the market, serving a portion of the customer base, and benefitting for a time by operating at lower cost, thus offering lower prices. The end game, however, is almost always to move up the ladder with the goal being the high-dollar consumer. While Apple, Amazon and Uber are some of the main companies that come to mind when we think of someone having the corner of a market, there are other players in lesser know industries seeing just as much success but being talked about far less. Disruption is based on staying ahead of competitors as well as trying to predict their next moves, specifically when it comes to advancing technology.  While true disruption in business is difficult to define, and even nonexistent according to some, there is certainly no denying that there are companies who have entered an industry and climbed steadily to the top, who continue to see success today.

References

Brown, Kantar Millward. (2018, November 28). Leading Disruption. Biz Community. Retrieved

from http://www.bizcommunity.com/Article/196/82/184863.html

Christensen, Clayton M. (2015, December). What is Disruptive Innovation? Harvard Business

Review. Retrieved from https://hbr.org/2015/12/what-is-disruptive-innovation

Furth, John F. (2018, May 18). Why Amazon and Jeff Bezos Are So Successful at Disruption.

Entrepreneur. Retrieved from https://www.entrepreneur.com/article/312481

Larson, Chris. (2016, November 15). 4 Keys to Understanding Clayton Christensen’s Theory of

Disruptive Innovation. HBX. Retrieved from https://hbx.hbs.edu/blog/post/4-keys-to-

understanding-clayton-christensens-theory-of-disruptive-innovation

Mochari, Iian. (2015). The Startup Buzzword Almost Everyone Uses

Incorrectly. Inc. Retrieved from https://www.inc.com/ilan-mochari/clayton-christensen-disruptive-innovation-cheatsheet.html

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