What is Disruptive Innovation?
In 1995, Clayton M. Christensen, Professor of Economics and Management at Harvard Business School, wrote “The Innovator’s Dilemma”. The book was an immediate success, and in the book Christensen stated his theory on disruptive technology and the definition of disruptive technology; simple, cheap and convenient. The dilemma occurs when you have customers who are willing to pay for further development of the high-end products, thereby resulting in margins that are so good that you cannot afford to go after new technology resulting in low margins.
Many companies are coming up with revolutionary new products and services, but that does not mean they are disruptive. Most companies, led by Silicon Valley, typically attempt to make their products better, cheaper, and this is often confused with being disruptive. The actual definition of disruptive technology is that it must be aimed at a market that has not been served previously, and characteristic of this is the fact that it is simple to use, cheap and convenient, he says. For an innovation to be defined as disruptive, first and foremost it has to be available to all. He also states that thinking it keeps on being revolutionary is a misunderstanding. The car was extremely revolutionary when it was invented more than a century ago, but it was aimed primarily at an existing “market”, the horse and cart. Only when Ford came up with a cheap model that was available to all did the car become disruptive as it replaced the existing “technology”, the horse and cart. It is important not to confuse the terms and refer to everything that is new and revolutionary as disruptive.
When does Disruptive Innovation occur?
Disruptive innovation occurs when technological development progresses much more quickly than the development of users’ needs and the simple, cheap and convenient technology unexpectedly takes over the existing technology. One typical example is Vipps, which developed a cheap, accessible and simple solution for sending money using smartphones, primarily to friends and then to associations and teams. Everyone understood how this was to be used, it was available to all and it was cheap (free). It was also aimed at an unserviced market, in that existing alternatives in practice had involved giving one another cash or standing the next round. As the technology gave low (read: no) income, it did not provide a particularly attractive business model for established payment service stakeholders. This was why joining in with the same race was not appealing, and established stakeholders had to carry on developing the products that their customers were already buying and that gave good, secure margins. They had to carry on supplying the functions required by demanding customers. When, overnight, Vipps started offering invoicing and invoice payment directly in the app, this had a disruptive impact on existing stakeholders (given the fact that it was still kept cheap enough).
Disruptive Innovation or The Innovator’s Dilemma?
Existing technologies such as online banking invoices, email invoices and hard copy invoices will retain their markets and customers will still pay profitable prices for these. This is why most companies cannot afford to fail to maintain their existing high-end customers and their needs and requirements, as they have to maintain their competitiveness as competitors. At the same time, the market is being eaten up from below by less profitable models. This is what is known as “the innovator’s dilemma”.
Disruptive Innovation and Compello
Compello has made inroads into the disruptive landscape with the Approve.ly app. Approve.ly is arranged as an independent unit and so can permit itself to go after far less profitable parts of the market than the parent company normally operates in, targeting the very lowest end and unserviced markets. In this way, the parent company can operate at the high end of the market and continue to earn good money, while the Compello Group recognises the innovator’s dilemma by investing in an independent “company” that can focus on disruption.
Approve.ly is a solution created with minimal production costs. A multi-tenant architecture in Microsoft Azure permits cost-effective scaling as users get involved. Compello is using the Lean Startup approach to acquire continuous feedback from customers by gauging how they use the product, with a view to continuously assessing whether or not changes should be made and what feedback should be pursued and what should be put on hold.
Relevant terms to Access Point: The Innovator’s Dilemma, disruptive technology