Disruptive innovation

A disruptive innovation is a new technological innovation, product, or service that eventually surpasses and uproots a dominant paradigm or player. The disruptive innovation theory explains why new firms armed with relatively simple, straightforward technological solutions can sometimes beat powerful incumbents, often creating entirely new markets and business models. The theory is also a powerful draw for many companies to enter the BoP, who hope to use BoP markets as a place to create and incubate disruptive innovations.

Historical examples of disruptive innovations include the telephone (disrupting the highly profitable telegraph industry); the computer industry, repeatedly (minicomputers disrupting mainframes, personal computers disrupting mincomputers); audio formats (music CDs over tapes and records, MP3s potentially over CDs); recycled steel & steel mini mills (disrupting the large mining and milling systems) and desktop publishing (over the traditional publishing industry). The theory of disruptive innovation was popularized in Harvard professor Clayton Christensen’s "The Innovator’s Dilemma". Christensen described one common trajectory for a disruptive innovation:

• The innovations performance attributes meet the unfulfilled needs of an emerging market’s customers. The mainstream market does not initially value these same attributes and views the innovation as substandard; the industry’s dominant players therefore ignore the innovation.
• Emerging market adoption enables the innovation to increase its performance and to begin overlapping with the performance expectations of the mainstream market.
• Awareness of the innovation increases as the innovation develops, influencing change in the mainstream market’s perception of what it values.
• The change in the mainstream market’s perception of what it values enables the innovation to disrupt and replace the existing offerings in the mainstream market.

In the 2002 article, “The Great Leap: Driving Innovation from the Base of the Pyramid” BoP pioneer Stuart Hart and Christensen argued that the BoP has a huge potential to incubate disruptive innovations as BoP markets are often characterized by non-consumption (no options or only poor options) and are generally ignored by mainstream businesses. Hart and Christensen also suggest that business models travel easier going up the income pyramid than down, meaning a innovation incubated in the BoP could eventually migrate its way to the ToP. The potential for disruptive innovation is a commonly cited reason for why companies become excited about the BoP, however its important to note that it is unlikely that successful disruptors set out to create a disruptive innovation from the beginning. Instead those companies probably had either 1) an innovation that did not meet the needs of a mainstream market and therefore had to look for or create an emerging market or 2) a need that could not be met by the mainstream provider, requiring an innovation more suited to its requirements.