According to the standard definition by Clayton Christensen, a disruptive innovation is a product that is lower quality from the viewpoint of existing value networks, AND offer lower margins to those vendors. The application, from existing value networks’ perspective, should not satisfy their customers’ needs and not be attractive from a financial point of view due to the lower margins and smaller markets.
But is “low margin” really a necessary part of the equation? Or can the definition of a Disruptive Innovation be even more pure without it? Also, there are some anomalies that may explain why Christensen got it wrong in some instances due to the “low margin” requirement being part of it.
Christensen talks about how different value networks value different product attributes. So while value network 1 may value attributes a and b, value network 2 may value attributes c and d.
So a disruptive innovation may be one where it has attributes c, d, and over time develops a and b, thus starting in value network 2 and over time invading value network 1.
I don’t think that the “low margin” part of this is a necessary condition for an innovation to be disruptive.
It seems to me that the products sold in value network 2 can have fantastic profit margins, but still be difficult and uninteresting to pursue for vendors in existing value network.
Why?
A) Their customers still won’t be interested in it.
B) The cost structures necessary to deliver both products with maximum efficiency would be mutually exclusive (if anything, this should in fact be the defining condition of a disruptive innovation, and to try to do this would fit well with Porter’s definition of “straddling”).
Case in point being Tesla. Not a disruptive innovation by Christensen’s standards since they didn’t target a low margin market (sports cars), but disruptive in the pure value network definition above.
Tesla’s Roadster was not attractive to traditional car manufacturer’s customers. They didn’t want a small sports car that could not easily be charged, could not drive long distances, and which cost a lot of money. Tesla had to sell the Roadster to current non-consumers (hipster tech people with a lot of money who wanted a cool techie car of the future), through a completely new value network (direct to customer) that they themselves invented as they went along, with a different type of cost structure that simply cannot be mimicked by existing car manufacturers if they want to keep selling efficiently to their existing value networks.
Today, the technology seems to be advancing at a pace set to deliver what traditional car customers want: long distance, ease of refuelling, low cost. Thus, Tesla seems set to invade existing car manufacturers’ value networks with a soon superior product that can’t be mimicked by existing competitors.
This is a classic description of a disruptive innovation. The only ingredient missing is “low margin”. So does an innovation really need to be low margin in order to be disruptive?
