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Disruptive innovation: what is disruption, what is it for and why does it matter

Entrepreneurship is full of terms and expressions of its own – VC , elevator pitch , MVP … And one of the most absorbed by the business world was the concept of disruptive innovation .

We have prepared a series to explain the main words of this vocabulary that entrepreneurs need to know , whether to learn about the new tools that will boost their business or to help them speak the same language as mentors and investors.

Understand what disruptive innovation is:

I understand the concept of disruptive innovation

What do you think it is?

Synonymous with “innovative, modern, radical”. As Peter Thiel, founder of PayPal, puts it, “Disruption has metamorphosed into self-congratulatory jargon for anything that passes itself off as new and modern.”

What is it really?

It is a product or service that creates a new market and destabilizes competitors that previously dominated it. It is usually something simpler, cheaper than what already exists or something capable of serving an audience that previously did not have access to the market. It usually starts off by serving a modest audience until it grabs the entire segment.

Below, Itaú’s innovation superintendent, Ellen Kiss, explains how to innovate in large companies:

Who invented the term?

Clayton Christensen, professor at Harvard . He was inspired by the concept of “creative destruction” coined by Austrian economist Joseph Schumpeter in 1939 to explain business cycles.

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According to him, capitalism works in cycles, and each new revolution (industrial or technological) destroys the previous one and takes over its market.

When was it invented?

The term first appeared in a 1995 article, Disruptive Technologies: Catching the Wave . Christensen later recounts the theory better in his books and The Innovator’s Solution The Innovator’s Dilemma .

What is disruptive innovation for?

To explain the following theory: when a company launches a cheaper, more accessible and efficient technology, aiming at lower profit margins, it creates a revolution. It makes obsolete who was once the market leader.

It is the opposite of what Christensen calls “sustainable innovations”, those that fail to create a new market and compete with other companies in a more traditional way.

So that the pioneers are not vulnerable, the only way out would be to self-disrupt. An example: HP itself investing in popular PC lines before Lenovo does.

According to Christensen, some of the characteristics of disruptive innovations are: lower profit margins, smaller target markets and simpler products and services, which do not seem as attractive as existing solutions when compared to traditional performance metrics.

Who use

Christensen gives classic examples such as PCs replacing old mainframe computers; cell phones taking the place of landlines. Other modern examples:

  1. Wikipedia , which sabotaged thousands of encyclopedia sellers and paid online encyclopedia services
  2. Airbnb , which takes hotel associations seriously
  3. Apps like Easy Taxi and 99Taxis , which have taken the place of radio taxi companies
  4. Services like Netflix , which have thrown video rental stores into irrelevance
  5. And Google , which made millions of people forget they needed phone books.

Side effects

Disruptive innovation tends to annoy a lot of people. As a side effect, such a business often causes millions of people to be laid off, companies go bankrupt, or at least sudden drops in profit that force competitors to change course.

But that doesn’t mean they harm the world. On the contrary, disruptive innovations give consumers more information and power of choice, facilitate processes and make products cheaper, which thus become accessible to more people.

“A disruptive innovation gives new consumers access to products historically only available to consumers with a lot of money or skills,” said Marc Andreessen, another famous Silicon Valley entrepreneur and investor.

who is against

In addition to the harmed companies, some theorists and researchers have already questioned the logic of disruption. The hottest controversy was created by a recent article by historian and Harvard professor Jill Lepore in the New Yorker magazine .

Also read: ‘I was rejected by Harvard 10 times’, says Alibaba founder

She argues that the theory was built on flawed historical reasoning and that Christensen looked only at examples that confirmed his hypothesis.

Several of the companies that have suffered disruptive innovations would be out there going strong – as is the case with IBM and Xerox.

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