Disruptive Innovation Strategy: How Market Entrants Win

The Disruptive Innovation Model

The model is defined by three key performance areas:

• Bottom-left triangle: Underserved market segments.
• Upper-right triangle: Overserved market segments.
• Parabola: The normal distribution of performance desired by customers.

Key Insights on Innovation

• Incumbents: Companies with large resources and significant market share almost always win when competing through sustaining innovations.
• Entrants: New players frequently succeed in the bottom of the model because incumbents prioritize high-margin customers and often ignore lower-margin segments.

How Disruption Works

Disruption begins on a lower performance curve. It succeeds by offering lower costs, greater convenience, or by appealing to segments that incumbents consider low-value or disregard.

Core Principles

• The Disruptor Advantage: Disruptors (e.g., minimills) target specific segments at lower prices. Incumbents (e.g., US Steel) often willingly exit these low-margin markets.
• Market Evolution: As minimills compete, prices drop. Driven by the need for higher margins and increased expertise, they eventually move up-market, repeating the process until they reach the top.

Examples of Disruption

New Market Disruptors

• Canon: Their innovation created a ripple effect for complementors, significantly increasing the demand for paper and ink cartridges.
• Personal Computers: Companies like Apple and IBM targeted home and small business users that large computer firms could not comprehend or serve, fostering an entirely new ecosystem of complementors.

Low-End Disruptors

• Retail: Kmart and Walmart attacked the low-end, overserved users of full-service department stores. Today, online retailers like Amazon continue this trend with different strategies.

Hybrid Disruptors

• Southwest Airlines: Successfully captured unserved customers who previously drove or took the bus, while simultaneously pulling customers from the low-end of established commercial airlines.