We had another knowledge session at our office. The theme of the session was Disruptive Business Models, and was hosted by our colleagues Wendy Heesbeen, Floor van de Vaart, Gaby Baas and David Olthof. This article briefly explains the theory and describes how we applied it into practise.
What is a disrupter?
Today, many new entrants are seen as disruptors: Uber disrupted the taxi industry, Airbnb the hotel industry, Facebook the advertising industry and Netflix the video rental industry. But, are these companies disrupters? According to Christensen, professor at Harvard Business School and expert on the topic, do only Netflix and Airbnb meet the requirements for being a classic disrupter. Christensen states that many people describe disruption as “a process whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses” (Christensen, 2015). He disagrees with this interpretation and formed a theory based on his research. In his theory he distinguishes disruptors from non-disruptors based on one of these two criteria:
- Disrupters start in the low-end foothold of the market
The process starts with a small niche at the low-end of the market. These users are looking for a simple product with a budget price. This group of users is ignored by the big incumbent companies since the profitability is low.
This creates a gap for new entrants which are able to fulfil these needs using different technologies. Due to technological developments overtime, the disrupter is able to upgrade its product, while maintaining the low price. This makes the disrupter appealing to the mainstream market, which results in fast, exponential growth and damages the market leaders. The big incumbent companies did not react since they do not acknowledge the threat until it is too late.
- Disrupters start a new-market foothold
Disrupters in this category turn non-users of a service or product into users of that same service or product. This process is also initiated by the incumbents. Typically, incumbents innovate by listening to their existing customers and upgrading their existing products or services. They forget (or simply choose not to) to examine other segments’ needs and possible barriers. A disrupter develops a proposition which fulfils these needs or takes away barriers for groups forgotten/ignored by incumbents. After gaining a sufficient users community, the disrupter will develop its portfolio in a way it becomes appealing for the mainstream consumer in that market. Again, the disrupter surprises and overtakes the incumbent companies due to its exponential growth.
When a company used one of the two strategies mentioned above, it can be called a disrupter, and the classic path of business disruption took place.
Alternative definition of disruption
Besides the theory and definition of Christensen, there is another, wider definition of disruption. It follows the statement mentioned above: “where a smaller company with fewer resources is able to successfully challenge established incumbent businesses”. In this definition fit multiple modern business models. What is interesting is that when examining these business models, five main shared components are identified, namely;
- They respond and anticipate on developments and trends in society and forecast future needs;
- They grow exponentially;
- They are revolutionary in their way of thinking;
- They use innovative, new technologies;
- They outperform their competitors.
Theory into practise
As always, we ended the knowledge session with an assignment to bring the theory into practise. The consultants were divided into different teams and were given the assignment to come up with a disruptive idea for a specific company. Each team designed a creative framework by using the theory and five shared components. Adding an out-of-the-box business model to these frameworks formed exciting, new value propositions. By pitching the ideas and discussing them in the group we completed an amusing and informative evening.