The Concepts of the Theory of Disruptive Innovation

The theory of disruptive innovation uses the following concepts⁹⁰.

Innovation: The use of old or new technology to meet a new or old need for improving the performance of a product or process. This improvement is val-ued by potential users, purchasers or influencers. (In this theory, influencers should be understood as the decision-makers inside the company.)

According to this approach, we can talk about innovation when either the technology or the need to be met is new. The new need can be either a new

90 Paap, Jay and Katz, Ralph (2004): Anticipating disruptive innovation. Research-Technology Management, 48(5), pp. 13–22.

need of existing users or of completely new users. The novelty of the tech-nology or the need to be met must always be considered from the perspective of the organisation concerned: if it is new to the organisation, then it should be regarded as an innovation, regardless of whether there is nothing new in it for others. Taking a look at the different types of innovation discussed in the previous chapter, we can see that the concept of innovation used in the theory of disruptive innovation includes technological and marketing inno-vation but does not include organisational innoinno-vation.

Three possible cases of technological innovation

Old New

New

Need

X

• Productivity: The extent to which an investment in technological inno-vation yields a measurable change in the performance of a product or process.

• Leverage: The extent to which an improvement in the performance is perceived as having value by users, purchasers or influencers.

• Leverage minimum: The point at which the users, purchasers or influ-encers of a product or process first value the performance improvement.

• Leverage limit: The point beyond which the users, purchasers or influ-encers of a product or process no longer value the performance improve-ment.

• Drivers: The performance characteristics whose leverage is the greatest and thus represents the major consideration by potential users, purchas-ers or influencpurchas-ers when choosing a product or process.

• Dominant driver: The driver whose leverage is the greatest. This is the primary aspect considered by potential users, purchasers or influencers when choosing between different products or processes.

A distinction must be made between incremental and radical innovation, on the one hand, and sustaining and disruptive innovation, on the other. The comparison of incremental and radical innovation refers to how much the new solution is different from the old one from a technical perspective. The comparison of sustaining and disruptive innovation, however, does not refer

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to innovation itself but to its market impact. Disruptive innovation disrupts the previous business model, i.e. what is sold, how it is produced, distributed and promoted, who the purchasers and competitors are. Sustaining innova-tion, however, leaves the previous business model as it was, and enables the company to maintain or improve its competitive position within an un-changed framework. Of course, the distinction between the compared cate-gories is far from being clear, so much so that in some cases, it is arguable to which category an innovation belongs.

Those who coined the term ‘disruptive innovation’ originally used it in a far narrower sense, meaning only cases where a smaller company with products falling into a lower quality and price category and with fewer resources en-ters a higher category and becomes a competitor of larger companies there⁹¹. Nowadays, however, almost everyone uses this term in the broad sense men-tioned above. Two decades after the introduction of this concept, a termino-logical debate developed. Some consider the original, narrower interpretation of the term to be correct and the broader interpretation accepted by the ma-jority to be wrong⁹². In the narrower sense of the term, for example, Uber’s mobile technological innovation was not a disruptive innovation, since there was no shift from a lower to a higher category, but in the broader sense, it should be regarded as a disruptive innovation. Their only argument for the narrower interpretation is that it follows the original definition of the term.

However, the overwhelming majority thinks that the broader interpretation cannot and should not be changed⁹³. In fact, if we now switched to the nar-rower interpretation, we would be in trouble for two reasons. First, we would not have a term for the broader sense, and second, the overwhelming majority of the relevant literature of the past two decades has been written using the broader interpretation, and it cannot be disregarded. Since we agree with the majority opinion, we will also follow the usage of the majority of the relevant literature, i.e. the broader interpretation.

Technologies created through disruptive innovation are called disruptive technologies. While disruptive innovation may mean either the process or the result of innovation, disruptive technology can only mean its result.

We need two concept pairs instead of one because reality is more complex than stating simply that incremental innovations are sustaining, and radical

91 Bower, Joseph L. and Christensen, Clayton M. (1995): Disruptive Technologies: Catching the Wave. Harvard Business Review, 73(1), pp. 43–53.

92 Christensen, C. M., Raynor, M. E., and McDonald, R. (2015): What Is Disruptive Innovation?

Harvard Business Review, 93(12), pp. 44–53.

93 The Disruption Debate (2016): Harvard Business Review, 94(3), pp. 16–17.

innovations are disruptive. The Wankel rotary engine, for example, was a radical innovation, since technically it is completely different from the usual internal combustion engines. Nevertheless, in business terms and taking into account the entire automotive sector, it was not really disruptive, since during its history of several decades it only played a marginal role and proved to be a sustaining innovation. At the same time, the series of incremental innova-tions of Diesel engines, uninterrupted for decades, has significantly modified the balance of power in the competition within the automotive sector and has finally become disruptive.

The theory that we will now present focuses on disruptive innovation because it is this type of innovation that may turn the balance of power of the compe-tition upside down and offer innovative companies a major breakthrough op-portunity. Since this theory compares the performance of the technology con-cerned with customer needs, we must get acquainted with the S curve de-scribing technological life cycles.

The S curve of technological progress during the life cycle

The S curve shows the evolution of the performance of the technology against time if the development process is continuous. In this theoretical sec-tion, we will only represent the time spent on development; therefore, certain authors label the horizontal axis as ‘cumulated development effort’. Should the development process be interrupted for any reason, the curve would con-tinue horizontally and would only start to slope upwards when the suspended development is resumed. For reasons of simplification, we will draw the S curves assuming an uninterrupted development process and disregard any potential interruption; thus, the horizontal axis can be taken as the time axis.

Performance

Time Limit

Of course, in real life, development does not follow a continuous curve, it is more like a series of discrete points, each of them representing a new, more advanced version of the given technology. The approximating curve is drawn by us following these points so that we can get a clearer picture of the devel-opment.

The limit refers to the fact that the laws of nature limit the possible develop-ment of the performance of a given technology. It is impossible to ‘raise the limit’, since it is immovable, that is why it is a limit. In literature, we usually find the term ‘physical limit’, while ‘limit’ without any adjective rarely ap-pears. Here we have chosen to follow the minority usage because the adjec-tive ‘physical’ applied to the term ‘limit’ is not the best choice since the limit to the performance increase deriving from the laws of nature may also be a chemical, biological, etc. limit.