No industry is safe from Disruption. Disruption can be born from a number of sources–e.g. new technology, regulatory changes, or a global pandemic, to name a few.
In a 2017 PwC survey of 1,379 CEOs around the world, 60% said their market has already changed or completely reshaped in the past 5 years and over 75% anticipate they would by 2022.
Research has found that Disruption follows a 4-stage evolution.
- Disruption of Incumbent
- Rapid and Linear Evolution
- Appealing Convergence
- Complete Reimagination
1. Disruption of Incumbent
At this initial stage, the Disruptor introduces a new offering with a distinct point of view, knowing it does not solve all the needs of the entire existing market. However, the offering provides a better solution and will advance the state of the art in technology and/or business.
At this point in time, the existing offering is widely used and a satisfactory solution. As such, the Incumbent dismisses the new product or service as something that is not relevant to existing customers or market. In other words, the Incumbent is in a state of denial that the Innovation poses an existential threat, as that truly appears to be the case.
Furthermore, it is not a good business decision to bet on an emerging, unproven technology with an unproven product-market fit. For the Incumbent, there is tremendous risk to bet on a new technology, while it already has a successful existing offering.
The very nature of disruption is such that Incumbents see more downside risk in betting the company than they see upside return in a new technology. This is known as the Innovator’s Dilemma, as coined by Clayton Christensen. As such, Disruptive Innovations are typically driven by new, startup companies–due to this risk-reward ratio.
2. Rapid and Linear Evolution
In the second stage, the Disruptor begins to build out the offering through rapid Innovation. It also captures the Early Adopters. It completes the Customer Value Proposition after initial traction with early customers.
The Incumbent begins to compare its full-featured offering to the new offering and show deficiencies. In other words, the Incumbent begins to recognize and validate the legitimacy of the Innovation as a potential threat.
3. Appealing Convergence
By this stage, the Disruptor has reached the Early Majority market on the Consumer Adoption Curve and is directly competing against the Incumbent.
The Incumbent considers cramming some element of disruptive features to existing product line to sufficiently demonstrate attention to future trends, while minimizing interruption of existing customers.
4. Complete Reimagination
At the final stage, the Disruptor approaches a decision point, as new market entrants can benefit from all that its product has demonstrated, without embracing the legacy customers (as done in the previous stage). The question now becomes: Do we embrace the legacy market more, or keep pushing forward?
At this point, the Incumbent is too late to respond.
Interested in gaining a deeper understanding about Innovation and Disruption? Take a look at our framework, the 4 Stages of Disruption. Understanding this 4-stage framework will help us understand what design choices to prioritize and when. At any given time, different products and organizations are likely to be at different stages relative to local “end point” of Innovation.