What is Business Disruption vs. Innovation? 5 Examples

Business Disruption January 27, 2021

Chloe Henderson

Writer

Regardless of the market, businesses must be able to adapt to innovations that could potentially require a complete digital transformation. Otherwise, companies that refuse to evolve may lose their competitiveness and are often forgotten.

Within business, these innovations are known as business disruptions because they initially cause an upset before organizations become comfortable with the idea. By understanding the premise of a business disruption, companies are better prepared for market evolution and can improve their decision making.

What is Business Disruption?

Disruption is a term often used in business when companies are introduced to new technologies, business models, or service that seems unnecessary at first, but later becomes essential.

For example, software and management systems were first looked at as overkill because owners did not fully understand their purpose. Even those that did, many thought that the digital transformation they would have to undergo to adopt this new technology was too extensive for the return on investment (ROI).

Now, any business that still uses manual methods is unable to compete with the operational efficiency, accuracy, and yield that automation tools provide most modern companies.

In other words, business disruption is a misleading term that is often thrown around when non-conventional products enter a market and are met with questioning merchants but eventually replace the original models.

Only after the new business model has established itself do businesses begin calling it innovative. However, there is a difference between traditional innovation and disruptive innovations.

Disruptive Innovation refers to when new products start at the bottom of the existing market with a poor reputation but slowly gain appeal and replaces traditional methods.

Traditional Innovation, also known as sustaining innovations, is when businesses introduce new editions of a product to their customers to stay relevant in their market. This type of innovation actually tends to lose value with time as customers often find the new product too frivolous and expensive and seek more cost-effective options.

3 Examples of Disruptions

In business, the term "disruption" is often thrown around freely, making it hard to define exactly what it means and what it applies to. By looking at some real-world examples of business disruptions, companies can gain a better sense of the term.

Netflix

When streaming services, such as Netflix, first hit the market, they were a major disruption to the entertainment industry. At the time, consumers rented physical DVDs, so businesses did not understand the need for the service.

Of course, as Netflix started gaining immense popularity, other streaming services surfaced to offer other films and television shows. This led to the slow extinction of physical DVDs and movie rentals, as well as the declining subscriptions to traditional cable television.

Prior to streaming services, over-the-top (OTT) devices were placed above cable boxes to extend television access. This technology was a more cost-efficient option than standard cable television and gained almost immediate success when it entered the market. This opened up consumers' minds to streaming services and other ways to attain entertainment.

Wikipedia

Wikipedia was among the first centralized hubs for easy research on various topics. Prior to the internet, libraries held encyclopedias that offered limited insight into different subjects. Encyclopedias were written and rewritten regularly to include updates, creating a recurring expense for consumers.

When the internet was established, Wikipedia saw the opportunity to provide free, sustainable access to the newest information. While many scholars have a certain level of distrust for the data that Wikipedia provides, its initial success drove Encyclopedia Britannica to end their publications in 2012.

Skype

While video conferences are now common practice for many students and employees who work remotely, it was once a foreign concept. Skype introduced a new way that individuals could speak face-to-face internationally for free. While Skype's initial user base was relatively small, it quickly increased to around 40 million users.

When COVID-19 emerged, and many citizens were told to stay at home, the demand for Zoom, Google Teams, and other video tools skyrocketed, as peers still need to keep in contact with one another while working remotely.

2 Examples of Non-Disruptions

There are many inventions that are often considered disruptive when they aren't technically business disruptions, including-

Uber

At first glance, Uber seemed like a market disruption as it has almost entirely eliminated the need for taxi cabs and now grosses nearly $65 billion annually. Uber and other transportation services offer competitive prices that are significantly cheaper than traditional taxi fares.

However, Uber is not considered a disruption because it did not create a new market or take advantage of low gross margins.

At the time that Uber was introduced, the taxi industry was booming in major cities and was not worried about innovating to keep fleeting customers. In fact, the industry was relatively comfortable with their business when new transportation services hit the market.

Uber simply improved the customer experience by providing better prices, more convenient ordering, and better options.

Google

Since its birth, Google has entered many different technology fields and created disruptive products. However, its original introduction as a search engine is not a business disruption because it was not the first of its kind.

Google was one of the first companies that took advantage of all of the possibilities that the internet offered, primarily through search engine advertising. While this did create a completely new market, Google was not the very first search engine, it was simply the first popular internet search tool.

The company innovated the original model to create a convenient experience for the consumer while offering merchants new business opportunities.