The seeds of disruption

Where to find “the next big thing”, the one product that’s so innovative that it will turn an industry upside down? That is a question that managers and entrepreneurs around the world ask themselves, looking for opportunity and seeking to protect and advance their business. We took a look back and might have some new answers for you.

By Prof. Dr. Christina Raasch

Innovation born in market niches

First, there is a ‘standard answer’ to this question. It comes from the “guru of disruptive innovation” (New York Times, 2020), the late Clayton Christensen from Harvard Business School. He says: Established players in an industry keep trying to make established products ever more sophisticated – laptops running a bit faster, dishwashers running a bit more quietly, etc. Meanwhile, disruption is born, unheeded by incumbents, in a market niche – created by firms on a much smaller budget than the established players, newly entering the industry and not afraid of losing customers due to an unorthodox product offering. While these seeds of disruption are initially small and uncertain, they may take root and flourish, eventually becoming appealing to mainstream customers and outcompeting established products. We all know the examples: digital photography wiping out film, Netflix and video streaming closing the doors of video rental stores, smartphones rising and replacing laptops as the primary access point to the Internet.

Innovation created by users

Next to this ‘standard theory of disruptive innovation’, there is another theory contestant, from just across the river from Harvard. It’s by Eric von Hippel (MIT Sloan School of Management), the guru of “user innovation.” He says, Innovation comes from lead users of existing products. They know the product, but have new needs and are looking for a different and better solution. Out of sheer necessity, they create a new solution for their own use. Take Josephine Cochrane, a wealthy US-American citizen, who created the first usable dishwasher in 1886, because she was tired of her dishes chipping and breaking when they were washed by hand.

Searching The True Origin of Innovation

This clash of theory-giants intrigued us: Where do disruptive innovations mostly come from? After all, the right answer makes all the difference to managers seeking to future-proof their business, because it will tell them, where to look for disruptive threats: new firms entering the market with niche offerings or lead users?

We examined this question thoroughly by investigating the origins of 60 innovations. You probably know and use a lot of them: the World Wide Web, the microwave, the personal computer, the pocket calculator, laser eye surgery, television, email, LED,  3D printing, and many more. As the source of innovation, we took the person or organization who built the first functional prototype. If the innovation was created to sell it, we labeled this as a case of producer innovation, following Christensen’s theory. By contrast, if the first functional prototype was created by an individual or an organization for own use, we labeled it as a user innovation, following von Hippel.

The Results Of Our Search

Our results showed an even split: in 44 percent of cases, the innovation was created to sell it, in 44 percent of cases it was created by users for own use.¹

While this result may change our academic understanding of disruption, it does not make things easier for managers looking for guidance. Or does it? We also checked the circumstances in which disruption came from either source and found some interesting patterns. In settings characterized by fast-changing technology, innovations of high technological novelty and/or strong appropriability (meaning that innovators are well protected from imitators), disruptive innovations tended to come from profit-motivated individuals or firms seeking to capture the market (producer innovators). By contrast, in settings characterized by fast-changing user needs, innovations offering very new and different functions, and/or low appropriability, disruptive innovations tended to stem from users.

What Managers Can Do Now

So what should you do as a manager trying to anticipate disruptive threats or looking for a disruptive opportunity?

  1. Don’t give up on the users of the existing product. Seek out lead users and figure out what new needs and perhaps even solutions they have. Sometimes, they might even be your own employees. After all, a lot of car enthusiasts work for BMW; a lot of gamers work for Nintendo; and a lot of cereal eaters work for Nestlé. But when you do, be careful about the answers: some may indeed be incremental, others may address extreme niches that will never appeal to a bigger market; but some might be the “next big thing.”
  2. Second, consider your setting. Is the technology pretty stable, or fast-evolving? Are user needs changing quickly, or adapting slowly? Do you anticipate “the next big thing” to be an entirely different product functionality, or rather a very different technological solution producing a similar product offering? If, on all three counts, you are leaning towards the first option, you should definitely talk to those lead users, tap into online and offline user communities, and seek out users from analogous markets that experience the same needs in a more extreme form. If you are leaning towards the second option in each case, keep a close eye on new market entrants and the unorthodox product offerings they come up with.
  3. Third, beware that spotting disruption early on is a very tricky business and (unfortunately) no pattern or theory is correct 100 percent of the time.

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¹ The rest did not belong in either category.

Full paper: Preißner, Stephanie & Raasch, Christina & Schweisfurth, Tim, 2017. "Is necessity the mother of disruption?," Kiel Working Papers 2097, Kiel Institute for the World Economy (IfW Kiel).