The Disruptive Innovation model from Clayton Christensen is a theory that can be used for describing the impact of new technologies (revolutionary change) on a firm's existence. Clayton Christensen first coined the phrase "disruptive technologies" in 1997, in his book "The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail".
He showed that time and again almost all the organizations that have "died" or been displaced from their industries (because of a new paradigm of customer offering) could see the disruption coming, but did nothing until it was too late.
By doing what good companies are supposed to do - cater to their most profitable customers and focus investments where profit margins are most attractive - established industry leaders are on a path of Sustaining Innovations and leave themselves open for disruptive technologies to bury them. This happens because the resource allocation processes of established companies are designed to maximize profits through sustaining innovations, which essentially involve designing better and better mousetraps for existing customers or proven market segments. When Disruptive Innovations (typically cheaper, simpler to use versions of existing products that target low-end or entirely new customers) emerge, established companies are paralyzed. They are almost always motivated to go up-market rather than to defend these new or low-end markets, and ultimately the disruptive innovation improves, steals more market share, and replaces the reigning product.
Companies have two basic options when they seek to build new-growth businesses. They can try to take an existing market from an entrenched competitor with sustaining innovations. Or they can try to take on a competitor with Disruptive Innovations that either create new markets or take root among an incumbent's worst customers.
There are two distinct types of Disruptive Innovations. The first type creates a new market by targeting non-consumers. The second competes in the low end of an established market.
Christensen's research and studies at Harvard.
All kinds of companies - as they can be impacted by technology innovation/change.
The model shows that, as the performance demanded by the customers of an existing market increases over time, so does the performance provided within a technological paradigm. Often the performance improvement provided has a different trajectory to the trajectory of performance improvement demanded by the customers (see figure). When the trajectory slopes differ, and the performance provided exceeds performance demanded, new technologies that were only performance competitive in remote market niches may migrate into other customer networks. This provides innovators with a vehicle to new customers, who would have previously viewed their offerings as substandard; and enables them to offer established mainstream markets a new set of performance value attributes that are now more relevant than the current paradigm.
Disruption and commoditization actually go hand in hand. A company that overshoots, simply can't win (a firm that improves a product to the point that it is more than good enough for customers to use and pay a premium for). Either disruption will steal its markets, or commoditization will steal its profits. While new waves of disruption wash over an industry, the place where the money will be will shift across the value chain over time. While this happens, companies that position themselves at a spot in the value chain where performance is not yet good enough will capture the profit.
Disruptive Innovation requires a separate strategy process. This process must be emergent and focused on unanticipated opportunities, problems and successes, rather than intended and focused on improved understanding of what works and what doesn't.
Instead of designing products and services that address current behavior of current customers, the underlying aims of people should inform the design of innovations. Understanding what people really need is however far from easy.
Disruptive businesses can't achieve big profits very fast, due to their nature (addressing new markets, or addressing low end of existing markets). Venture capitalists are increasingly impatient for businesses to deliver profits.
Companies risk death with decisions to ignore technologies that do not appear to address their customers' needs, as they become fatal when two paradigmatic trajectories of progress interact.
Explained: How can Innovative Players Beat Large, Established Firms?