What is Disruptive Innovation?

The disruptive-innovation theory explains why new firms armed with relatively simple, straightforward technological solutions can beat powerful incumbents, often creating entirely new markets and business models. The disruptive innovation theory was popularized in Harvard professor Clayton Christensen's "The Innovator's Dilemma". This article points to some examples of disruptive innovations, their characteristics, how to test for disruptive innovations, and further sources for review.
Some examples of disruptive innovations:

• Peer to Peer networking, disrupting traditional distribution mechanisms
• MPEG Audio and Video Compression (MP3 et al.), disrupting physical media
• PCs, disrupting other media devices (TV, stereo, etc.)
• Smaller sized hard drives (as discussed in the Innovator’s Dilemma)
• Steel Mini-Mills (as discussed in the Innovator’s Dilemma)
• Amazon.com (disrupting traditional Brick & Mortar retail)
• Dell Direct (disrupting the whole PC Industry)
• Cell Phones (disrupting PCs and digital cameras)
• Ebay (disrupting traditional retail systems)

Potential Disruptive Innovations

• Renewable and Distributed Energy (Solar, Biomass, etc.)
• Adaptive Eye-Care’s user-adjustable corrective glasses
• WiFi and organically grown networks

Characteristics of a Disruptive Innovation>

• Its performance attributes meet the unfulfilled needs of an emerging market’s customers. These same attributes are not initially valued by the mainstream market, which instead value different performance attributes and initially see the innovation as substandard.
• Emerging market adoption enables the innovation to increase its performance and to begin overlapping with the performance expectations of the mainstream market.
• Awareness of the innovation increases as the innovation develops, influencing change in the mainstream market's perception of what it values.
• The change in the mainstream market’s perception of what it values enables the innovation to disrupt and replace the existing offerings in the mainstream market.

Can you see why those us of working in the Base of the Pyramid are so excited about this theory? The Base of the Pyramid could be an ideal place to meet unmet needs and to incubate disruptive innovations, creating new markets and one day perhaps even disrupting mainstream markets higher up the pyramid. This idea of incubation in the BOP was put forward in Christensen and Hart's article "The Great Leap: Driving Innovation from the Base of the Pyramid". Quoting Professor Hart:

"It is much easier to take an innovation up-pyramid than it is to try to do it the other way around."

We believe that same reasoning is why Hewlett-Packard set up the HP labs in India.

Is the Idea Disruptive? Christensen’s Litmus Test
Summarized by Emergic.org

Executives must answer three sets of questions to determine whether an idea has disruptive potential. The first set explores whether the idea can become a new-market disruption. For this to happen, at least one and generally both of two questions must be answered affirmatively:

• Is there a large population of people who historically have not had the money, equipment, or skill to do this thing for themselves, and as a result have gone without it altogether or have needed to pay someone with more expertise to do it for them?
• To use the product or service, do customers need to go to an inconvenient, centralized location?

The second set of questions explores the potential for a low-end disruption. This is possible if these two questions can be answered affirmatively:

• Are there customers at the low-end of the market who would be happy to purchase a product with less (but good enough) performance if they could get it at a lower price?
• Can we create a business model that enables to earn attractive profits at the discount prices required to win the business of the overserved customers at the low end?
• Once an innovation passes the new-market or low-end disruption test, there is still a third critical question to answer affirmatively:
• Is the innovation disruptive to all of the significant incumbent firms in the industry? If it appears to be sustaining to one or more significant players in the industry, then the odds will be stacked in that firm’s favor, and the entrant is unlikely to win.

Sources and Links:
The Innovator's Dilemma, by Clayton Christensen
The Innovator's Solution, by Clayon Chistensen and Michael Raynor
The Great Leap Forward: Driving Innovation From the Base of the Pyramid , by Clayton Christensen and Stuart Hart
HBS Working Knowledge Article - A Diagnostic for Disruptive Innovation
Optimize Magazine - Forging Innovation from Disruption
CIO Magazine - Disruption is Good - an interview with Clay Christensen
Emergic.org Article - TECH TALK: My Mental Model: Creating Disruptive Innovations
Adaptive Eyecare - low cost, user adjustable eye glasses.