Designing Disruptive Innovations
Alexander Osterwalder
Quite a while ago Clayton Christensen of Harvard has mainstreamed the term “disruptive innovations”. For strategists this has become a hot topic in today’s rapidly evolving markets. However, in order to make the concept more useful in my consulting work I distinguish between different categories of disruptive innovations that all have unique characteristics and consquences:
Disruptive Technologies: some technologies have displaced other technologies to offer a whole new sphere of possibilities at lower prices. In the computer industry, CD-ROMs have displaced disk drives because they allowed storing much more information at lower prices. In the telecommunication industry, Internet telephony (VoIP) is another example of a technology that is steadily replacing older telecommunications technologies. With time disruptive technologies often become enablers for disruptive products, processes and business models.
Disruptive Products: these are products or services that replace similar existing products or services based on their superior attributes or lower price. As an example, mobile phones have become an important complement and often substitutes for fixed line phones. Digital music players, such as the Apple iPod have disrupted similar products like the CD-based walkman.
Disruptive Processes: processes that are of disruptive nature often outperform the traditional ways of working and give the adopting company a competitive advantage due to superior performance or lower cost. When Dell adopted just-in-time delivery for the electronics parts of its computers, it substantially cut warehousing and depreciation costs and outperformed its competitors. Similarly, integrating supply chain management from the customer all the way to the supplier has given Cisco a competitive edge in selling Internet routers.
Disruptive Business Models: Business Models that are disruptive do business in new and innovative ways in established and sometimes new areas. In the airline industry, so-called no frills airlines emerged with their low-cost business model and strongly competed with traditional flag carriers. In Europe, for example, EasyJet designed a business model that allowed them to offer low-cost flights directly online to their customers. Similarly, Google.com has disrupted online advertising and created a new revenue stream by placing highly targeted text ads besides the search results of its search engine.
Managing these different types of disruptive innovations and detecting them early enough in one’s competitive landscape is definetly an art. Companies that excel at one or several of these disruptive design areas will be the leading innovators of the years to come…
I think there is a book idea in here. IMHO, disruptive technologies gets predominant media attention, but tying other types of disruptive innovation needs closer examination.
products and processes are part of a business model, so to put them next to each other in the list seems a little illogical.
perhaps it would be more helpful to discard the “disruptive business model” entry and replace it with
- disruptive communication channels
- disruptive revenue streams
- disruptive customer relationships
- disruptive partnerships
i think that would explain the corresponding examples better.
Dear Osterwalder
Thanks to let us sharing your insights about business models.
I follow your footsteps since the early days previous of your PhD at Lausanne in 2004.
You inspire me to work on the medical field wiht a new business model I intend to validate and let you know any day soon.
Silvio Penteado (PhD in progress)
I’m not sure I’d agree with you Alex. I think this is more a question of semantics.
In fairness to Dr. Christensen, innovations are not restricted to products. Innovations can be made on manufacturing process. For instance, though Toyota and GM both manufacture automobiles, and both use JIT (disruptive innovation in value chain), Toyota’s design scientists have incorporated more robotics in their assembly line, and this has dramatically reduced the time it takes to assemble different models on the same assembly line.
There are more than 5 disruptions there (JIT, Robotics, Minaturization, etc.), so using the word disruptive innovation, I humbly suggest, is more appropriate.
I think this aligns very closely with the thinking of Geoff Moore in “Dealing with Darwin”
Of the 12 or so innovation types, the disruptive type that a business model offers has the ability to upset an established set of players in a mature market