Essay On The Disruptive Innovation Business Model

The Disruptive Innovation Business Model

The term “Disruptive Innovation” originated with Clayton Christensen and addresses the strategies that focus on a product or service and enters the market at the bottom (Clayton Christensen, 2012). However, using the strengths inherent in a disruptive business model, they have the ability to move steadily upward, displacing competitors with the ability to change direction and experiment without fear of large financial risk. These startup companies frequently incorporate production methods that pull out the consumers who feel the present offering are too expensive, too difficult to use, or are too sophisticated for their tastes.

Graph 1. Business Model of Disruptive Innovation

Before addressing the concept of Disruptive Innovation, a discussion of business models in important to understand what they are any why they are useful. There are various types of business models available and in the process of selecting the appropriate one, there is one important issue to address: the ability to deliver value to consumers in a manner that assures sustainability (Kastelle, 2012). Bade-Fuller and Morgan (2010) present that business models serve the purpose of describing types and kinds of businesses, serving as role models for organizational functions, or assuring a strategic fit.
A business model promotes the ability to categorize by utilizing taxonomies and typologies (real world companies and theory). They enable managers to experiment with change and innovations; Bade-Fuller and Morgan use the analogy of a business model acting as a cooking recipe and managers as the cooks. A cook will try out different ingredients or ways of combining the components of the recipe to create the best finished product. Managers also organize the components of their business model for the optimum result.

Literature Review

The appropriate indication for the Disruptive Innovation business model was discussed by Bjartmarz (2015). She employs the concept of a “circular economy” as opposed to traditional linear economies. The primary focus is on minimization of waste where products are recycled or incorporated into the development of different products, extending their life cycle. This process promotes the sustainability of the company in a circular fashion. In an effort to obtain a competitive edge, companies are turning to Disruptive Business Model to alter corporate processes in an attempt to adapt to a circular economy.
Markides and Dyon (2010) provide actions a company can take against a competitor using the disruption model. While giving examples of companies successfully employing the strategy of using an additional model completely different from the competitor and from the old model, there are challenges that have caused failure on the part of several large corporations. At Harvard Business School, discussions have concluded that patterns of disruption have become common (Christensen, Wang and van Bever, 2013). Consulting firms are finding that traditional strategy recommendations are down to approximately 20 percent of the total determinations. In circumstances where a company opts to employ two business models, Rao and Weintraub (2013) suggest an evaluation of corporate culture and managerial attitudes; the impact on these influences has the ability to bolster or terminate innovative business strategies. Anthony, Johnson and Eyring (2004) write about three technologies to assist a corporation in evaluating their success with incorporating a disruptive business model into their marketing strategy.

Companies Employing Disruptive Innovation

America is the home to Zipcar, dealing in automobile rentals (Bjartmarz, 2015). The disruptive model is employed by using the same care repeatedly to enable customers to avoid purchasing a car with the accompanying expenses of parking, maintenance, and gasoline. In addition, a decrease in CO2 is another benefit. According to estimates by the Zipcar corporation, the use of their product results in the conservation of approximately 120 million tons of oil (Zipcar.com, 2015).
McKinsey Consulting is an example of a company that had a successful primary business that opted to branch into other markets with a disruptor business model (Christensen, Wang and van Bever, 2013). It unbundled its services and created McKinsey Solutions, the model is completely divergent in its lack of focus on human capital. The advantage offered by this offshoot is shorter project times with a satisfactory rate of return on investment that protects the company in the event of an economic downturn. This concept is a dramatic departure from the corporation’s original judgment-based value proposition. However, it is a business strategy that is successful for McKinsey Consulting.
H&M is a clothing store in Sweden came to the realization that after a short life cycle, their products were ending up in landfills. The company initiated a recycling of their used clothing by promoting customer drop-off areas in the stores. After cleaning, the items are re-sold at discounted prices.

Strengths and Weaknesses of a Disruptive Innovation Business Model

Weaknesses. Senior management must consider the pros and cons of using a disruptor model before deciding to use it. As mentioned previously, changing to a different business strategy or incorporating an additional one in cooperation with the present on can be stressful on a corporate environment (Rao and Weintraub, 2013). Through the use of surveys, corporate culture can be fostered to become more innovative. This is accomplished by focusing on organizational strengths currently in place and build the changes in small increments.
If a successful company decided to alter their strategy to change their present business model or add an additional model with the goal of disrupting the operation of their competitors, it has to realize that public perception of the business operations will change. Careful evaluation assists in determining methods to overcome this weakness and perhaps even enhance the current perceptions.
The risk of a startup company using a disruptor model is that there are so many others in the marketplace (de Jong, 2015). Like birds squabbling over a juicy prize, small startups have competition with each other for a piece of the large company’s pie. Competition is not only with the large company, but with all the smaller companies its market share.
Strengths. Disruption business models can be employed by start-up and small companies against large corporations with domination in the market (PRWeb, 2015). Without innovations keeping current with the industry, major competitors are experiencing sluggish revenues which startups companies can disrupt with aggressive business strategies. Hesitancy to disrupt their position offers niche companies the chance to make significant headway in the market.
If a large competitor recognizes that a company with a disruptor business model has set its strategies into motion, there is little it can do to protect itself (De Jong, 2015). The speed with which these types of strategies can implement their activities is difficult for corporations to divert. Startups of only 10 years ago are coming under attack from competitors aided by their agility and flexibility. The low cost of creating a company dealing in electronic intelligence is minimal and the threat can be very real. With the ability to experiment with ideas and easily discard them with low financial risk, a small company using a disruptor model has advantages over a dinosaur that moves with the speed of walk.

Managerial Implications

Bjartmarz (2015) suggests that disruptive business models utilize five specific progressions:

Extending product usefulness.

Promoting an improved use of outputs
Altering the concept that consumers are actually “users”
Restructure inputs by suppliers in the value chain of the company
Create innovative ways to share the economy
If a company chooses to use a different business model, there are steps to compete with another model in the same industry (Markides and Dyon, 2010). By using a new model in addition to the old one, some corporations are capturing a significant share of the market. This can pose a problem if they are conflict in their underlying value chains. For example, airlines selling their tickets online in an effort to confront competitors with lower prices may lose partnerships with travel agents. Companies that use free promotions to lure in new customers risk alienation of their current customers. However, using two business models against a competitor with a disruption model can be effective. The strategy is to create a second model that is different from both the current one and the one in use by the competition. The two models can assist in attracting potential synergies, but they must be kept separate enough to sidestep contention. The creation of separate units within the companies combats this problem, connecting them with integrated mechanisms. British Airways tried this method unsuccessful with its subsidiary, Go Fly. However, Mecedes and Nintendo were able to achieve their goals with this strategy (see Table 1).

Conclusion

Tanya de Jong terms 2015 as the “Year of the Disruptor” (De Jong, 2015). Small companies previously considered too insignificant to include in protective strategies are using disruption business models to excavate chucks in their market shares or even create a public impression they are irrelevant. Whether the disruption business model is being used by a startup company or by an established corporation to head off attempts by smaller organizations, the possible advantages and disadvantages carry different weight with each entity. Managers are required to carefully examine the market to decide how to address the issue.
Disruption is the greatest future threat to the culture and commercial enterprise of successful organizations. However, the disruption is not just to the business operations of the targeted company. Society will be assaulted by changes offered to the way people work and live. Whether this is a benefit or a detriment to business remains to be seen.

References

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