The Explainer: How to Be a Disruptor

Summary

This video explains the concept of disruptive innovation, as introduced by Professor Clayton Christensen. It highlights how smaller companies can outmaneuver industry giants by focusing on underserved, price-sensitive customers. While large corporations focus on upgrading products for higher-paying clients, disruptors offer simpler, lower-cost alternatives that gradually improve, eventually taking over the market. Examples include steel mini mills, Toyota, Hyundai, and Procter & Gamble's Crest White Strips. The key to success for incumbents is to adopt disruptive innovation principles, treat it as a separate unit, and develop low-cost solutions tailored to customer needs.

Takeaways

• 😀 Disruptive innovation occurs when a small company offers simpler, low-cost alternatives that appeal to underserved customers.
• 😀 Large companies often focus on sustaining innovation, which means upgrading their existing products to attract high-paying customers, leaving regular customers behind.
• 😀 Entrepreneurs use disruptive innovation to target the market ignored by industry giants, offering basic but valuable products.
• 😀 The big players in the industry tend to overserve their customers, adding unnecessary features that lower their appeal to regular customers.
• 😀 Disruptors improve their products incrementally to appeal to a broader market, often without the big players noticing until it’s too late.
• 😀 The steel mini mills are a classic example of disruption, initially offering low-quality rebar and later moving into sheet steel, stealing market share from larger mills.
• 😀 Companies like Toyota and Hyundai exemplified disruption by starting with economy models and later adding luxury features and brands.
• 😀 To counter disruption, industry giants must create their own disruptive innovations, treating them as separate entities with distinct business models and growth expectations.
• 😀 Successful disruption involves identifying the customer’s job to be done and segmenting customers based on that job, not by product or demographics.
• 😀 Procter & Gamble’s Crest White Strips serve as an example of disruptive innovation, offering an affordable, DIY alternative to expensive dental services.
• 😀 Disruptive innovation reshapes markets and creates new ones, providing opportunities for growth in a rapidly changing world.

Q & A

What is disruptive innovation, as described by Clayton Christensen?

Disruptive innovation is a process where a small, young company challenges and beats an industry giant by offering simpler, low-cost alternatives to meet the needs of regular customers, whom the larger companies overlook while focusing on higher-paying customers.

How do industry giants typically focus their innovation efforts?

Industry giants focus on sustaining innovation, which involves upgrading their existing products and services to attract higher-paying, more profitable customers.

Why do large companies eventually fail to serve all their customers effectively?

Large companies start ignoring regular customers who want simple, affordable solutions, as they become more focused on attracting high-paying customers. This leads them to add unnecessary features or 'bells and whistles' to their products that customers don't want to pay for.

How does the disruptor company exploit the gap left by larger companies?

The disruptor company focuses on providing simple, low-cost solutions that appeal to the regular customers ignored by the large companies. Over time, the disruptor improves its product to attract a wider audience, while the larger companies continue to overserve their niche customers.

Can you give an example of a classic disruptor in the industry?

A classic example of disruptive innovation is the steel mini mills, which initially produced low-quality rebar but eventually moved to producing sheet steel. They successfully took market share from large mills that were dominant in the steel industry.

What other companies are examples of disruptive innovators?

Toyota and Hyundai are more recent examples. They started with economy models and later added luxury features and brands, disrupting the automobile market.

How can large companies fight back against disruptive innovation?

To fight back, large companies must launch their own disruptive innovations. This involves creating a separate unit with a different business model, treating the project with distinct growth expectations, and focusing on providing low-cost solutions to meet customer needs.

What approach should industry giants take when developing disruptive innovations?

Industry giants should segment customers by the job they need to get done, not by product, market size, or demographics. They should develop basic, low-cost solutions that fulfill these customer needs.

How did Procter & Gamble use disruptive innovation to create growth?

Procter & Gamble created Crest White Strips, a low-cost, DIY alternative to expensive dental services. This is an example of how they used disruptive innovation to meet the needs of customers looking for affordable oral care solutions.

What is the impact of disruptive innovation on markets?

Disruptive innovation creates new markets and reshapes existing ones by offering simpler, more affordable solutions that meet the needs of a broader audience, often starting by targeting underserved customer segments.