Disruptive Innovation

In the new economic era, the dynamic and competitiveness of enterprise operating environment have been reinforced constantly. Customer demands, the technology evolution, the competitive interaction and cooperative connection among enterprises, the market regulation and the changes of the circumstances all make the enterprise falling into a maelstrom of uncertainty. These uncertain elements can bring greater opportunity for the enterprises as well as threaten the life and death of the enterprises. What the enterprises should do is to explore new wisdom of strategic logic (Amit & Schoemaker, 1993) . Christensen, professor from Harvard University, from the new perspective of seeking the exact places where the profit of enterprise lies, proposed the disruptive innovation theory which caused extensive attention and heated discussion of scholars and practitioners. In this essay, the concept of disruptive innovations will be further explored by using the model developed by (Christensen, 1997) . The evaluation of the emergence of electric vehicles, a disruptive innovation in Chinese automobile industry will be used. The reasons why considering this innovation as a disruptive one will be outlined. Then, the in the realm of automobile industry, the responses of the companies to this innovation will be assessed so as to ascertain the elements that influenced these responses. And the extent how far does this example fits with Christensen's model will be evaluated as well so that people can draw lessons and sum up the experience from any possible deviations.

2 Disruptive Innovation
(Christensen, 1997) first proposed the concept of disruptive innovation for describing the innovation that had destructive effect towards the competitiveness of the existing mainstream incumbent firms. He further studied the vicissitude of many industries like disc drive, mechanical excavator, iron and steel smelting; successfully mixed the technological innovation and market innovation together; thus proposed the theory of disruptive innovation. Based on the target market, he categorized innovation into two kinds, Sustaining Innovation and Disruptive Innovation. (Thomond, 2003) and some other people believe that disruptive innovation is the successfully developped process, technology, product, service or business model that can distinctly change traditional competitive rules, and the needs of existing market. In order to better distinguish the concepts of disruptive innovation, incremental innovation and radical innovation, they built the continuum model of the innovative concept. (Schmidt & Druehl, 2008) categorized the existing market and potential market into detailed five, and described the encroachment path of innovation market by means of the changes of consumer preference and consumer keeping pricing two-dimensional space model, i.e. 'Encroachment Patterns' which analyzed thoroughly and profoundly the mechanism of action of disruptive innovation. At the same time, the question that how the incumbent enterprised response the threat of the disruptive innovation becomes a widely-discussed issue in academic circles. From the perspective of cognitive theory and social psychology, (Gilbert, 2002) et al investigated the attitude and action of the enterprises towards disruptive innovation. They indicated that how the incumbent firms view disruptive innovation is the key point; this will affect the investment determination and business model in terms of disruptive innovation. 'Paap & Katz, 2004' et al made further supplement that disruptive innovation is not only a techonology of destructiveness, but also the overturn of former business model. The incumbent enterprised will lose the opportunity of the nest round of the competition when they can hardly adapt to the new model under the condition of oriented by the customers from mainstream market.

From the definition mentioned above, though the emphases are different, basically the main contents are similar:
(1) Disruptive innovation, based on new value structure, provides value experience which is different from the past for newly-developing customers or low-end customers in the non-mainstream market. (2) With deepening of the innovation, disruptive innovation will extend into mainstream market, gradually encroach the market shares, and replaced the former technology or business mode (3) Disruptive innovation change the business mode and rules of competition, so restricted by the guide of the customers, the incumbent firms have to adjust strategy timely. All of these lead to the exposure of the characteristics like strategic defeat from the perspective of market, and reflect the essence of disruptive innovation. However, this overlooks the inspection of innovative technology itself. The disruptive innovation is usually based on new technological trajectory adopting non-continuity technology with the demand of brand new capacity for enterprises.

In this essay, the writer cites example of Chinese electric vehicle market to elaborate disruptive innovation and its influence towards former industry, the following are the reasons:
(1) Disruptive innovation must be based on the innovation of new technological trajectory which shows faster performance of improving speed. Electric vehicle is different from traditional fuel cars with the characteristics of simple structure, less moving and driving parts, less workload of design, production and maintenance.

(2) In terms of product performance, disruptive innovation does not ask for perfect technology comparing with the existing one or provides higher premium from the very beginning, but it must have the ability to provide new value structure valued by parts of customers. With the improvement of performance, new value structure gradually becomes new evaluation standard in industry, which gives disruptive innovation the chance to encroach the realm of old technology. Due to the rising oil price, and the increase of the emission pollution, environmentally friendly fuel-efficient are paid more and more attention by some customers.

(3) In the aspect of marketplace, disruptive innovation should have marginality in the initial phase, and the disruptive products should present in newly-developing or fringe markets in the first place. In such a market space, the incumbent firms will not pay much attention to it, and sometimes in order to enhance the whole level of enterprise's profit, they often give up fringe market of their own accord. Since customers form this kind of market is incapable or unwilling to pay for the mainstream products the prices which are more than expected. Although the gross profit rate of fringe market is relatively low, for the later-developing firms that adopt new technique process or business model, they still can gain the net margin of maintaining its survival and development and then lay the groundwork of destructive activity for the subsequent market.
From December 2013 on, the total sum of highway-capable plug-in electric passenger cars and utility vans around the world was more than 380,000, up from more than 180,000 units in 2012. In 2012, the situation was that plug-in vehicles represented 0.02% of the stock of total registered passenger cars.'International Energy Agency'2013)

3 Analysis of China's automobile market
3.1 Vigorous development of China's new energy automobile market
In the light of China Association of Automobile Manufacturers, China exceeded the America to become the world's largest automobile market in 2009, the record showed that there were 13.9 million vehicles sold in the country, while 10.43 million cars and light trucks sold in the United States. As more and more people in China can afford to buy cars, there is a quick growing demand for transport. In consideration of fulfilling its promise of encouraging electric-vehicle development, Chinese government will contribute 15 billion dollars to the industry. (Freidman 2010) They intend to create a pioneering industry that can provide works and exports as well as reduce the urban pollution and the decrease its dependence on petroleum. Previously, China announced that electric vehicles would be as part of government plans to manage pollution. And now China will give more subsidies for electric vehicles. (Cho, 2014) Government intends that five million battery-electric and plug-in hybrid electric cars will be put into use by 2020, while producing one million such vehicles per annum by 2020. (Yan& Wong, 2010)
Under such circumstances, some outstanding auto firms have grown up concentrating on the research of electric vehicles. Among them, BYD is the flagship.
Founded in 2003, following BYD Company's acquisition of Tsinchuan Automobile Company in 2002, BYD Auto Co., Ltd is a wholly owned subsidiary of BYD Company in Shenzhen, Guangdong Province. January 2010, pure electric vehicle E6 was approved by the government for launch; BYD has secured its leading status in the world new energy vehicle business.

3.2 Why China's new energy automobile company will pose a threat to traditional auto industry
From the three transfer in the development history of world automobile industry, the overlord status of America, Japan and Euro zone's automobile industry do share the same experience starting from the low-end car. Car appeared as a symbol of aristocratic luxury, while when it stepped on the American Continent, it was just the civilian off-road vehicle; energy crisis, popularization of cars and other needs made Japan, the country which is famous for energy saving and low price, prosper and thrive, thereby became the new-risen overlord in automobile industry. The international experience indicates that it is easier to foster the market, form the scale from low level, and it is more beneficial to cultivate independent innovation ability, complete the industry value chain structure and to optimize the technology innovation route to respond to the changes of market structure. Due to the low level of the absolute income of the residents of China and
The high price of new energy cars in international market, in addition, in terms of technology, the new energy automobile is immature, the market does not form scale, Chinese new energy automobile consumption is still in the primary stage of low level in aspect of purchasing power. Therefore, the international automobile industry is facing the opportunity of a new round of changes, either from the aspects of international experience or domestic economic condition and industry level, it is rational and realistic to take middle and low new energy automobile as the starting point of China's new energy automobile development strategy.
In general, the low-end market products of international brands from America, Japan and Euro-zone are relatively minority in current Chinese market, the main space of gaining profit is concentrated upon the high-end market. The production of Chinese new energy automobile are mostly produced by joint venture enterprises and emerging private enterprises. Objectively, traditional manufacturing level of vehicle is low and industrial chain is not complete, but the fact that the cost of labor is relatively low makes disruptive innovation routine more suitable for China, the market with huge potential and current under consumption, and fulfil the needs of low-end and mass market.

3.3 Analysis of China's electric vehicle market by adopting Christensen Model and Encroachment Patterns
'Christensen & Raynor, 2003' categorized disruptive innovation into Low-end disruptive innovations and New-market disruptive innovations. The former lays particular emphasis on starting from the low en of the original value network, attacks the least profit and over-served consummer market. The latter aims at creating a new value network to acquaire non-consummer or potential consummer. In the research, 'Schmidt & Druehl, 2008'made further category based on the new market disruptive innovation mentioned by Christensen &Raynor, classified new market disruptive innovation into 'Fringe-market' disruptive innovation and 'Detached-market' disruptive innovation. The new Fringe-market consumers' preference has subtle difference from the low-end consumers of the existing market, and they are very sensitive to the price. The new Detached-market consumers' preference differentiates greatly from the consumers of the existing market, which means it is hard to attract such consumers by only discounting on a small number of goods. Due to the reason that the constant innovation and disruptive innovation focus on the influence the innovation brings to the existing market. In order to better understand the essence of the two kinds of innovations, the essay analyses the effects of electric vehicle innovation in the market by combining the concept of 'Encroachment Patterns' proposed by (Schmidt &Druehl, 2008) and the combination of cost-mainstream performance.

Electric vehicle, the disruptive innovation of the combination high cost and low performance
Combined with current situation of the development of China's electric vehicles, we can know that it belongs to the kind of disruptive innovation of the combination of high cost and low performance. The combination of high cost and low performance first appeared in Detached-market disruptive innovation which is detached from the old product market'Schmidt & Druehl, 2008'. The preference from new market and existing market are so different that it is hard to attract such consumers by only discounting on a small number of goods. Under such premise, disruptive innovation in Detached-market can rely on new performance features to confirm a high price despite the fact that in terms of mainstream performance, it is on the disadvantage side. For instance, the performance of electric vehicle at the stage is poor, time of endurance is short, and the price is high. And its sales target are those kinds''high income, regard of environment, strong desire to try fangle. Compared to the customers of traditional fuel vehicle market, they have totally different willingness-to-pay (Vona 2009) . In this sense, at this stage, the new market of electric vehicle is detached from the traditional fuel vehicle market. The customers of traditional fuel vehicle will preserve the habit of using fuel automobile. Therefore, in the disruptive innovation of high cost and low performance, the innovative product enters from the high end of Detached-market and then encroaches into the low end of the existing market, thereupon it will encroach the high end of existing market. In a sense, for the existing market, disruptive innovation of Detached-market still starts from the low end.

4 The response of the auto industry to the disruptive innovation

The essence of disruptive innovation strategy lie in rewriting the rules of survival in the process enterprise adapting the environment. The simple wish and realistic purpose for the enterprise to implement such strategy is to realize the goal of ' to live, live well, live long.'
Therefore, disruptive innovation strategy is not only the inter-temporal interaction between the incumbent enterprise and the newly-developing ones, but also the inter-temporal interaction of maintaining the sustaining innovation strategy. In essence, it is a differentiation competitive strategy, a strategic tool used to realize enterprise symbiosis service and not restricted by the subjective users.
The application of disruptive innovation strategy. How to realize the goal of ' to live, live well, live long.' This is a basic and eternal topic in strategic management. It can facilitate the enterprise to seek the balance between the current survival and inter-temporal development; between short-term interests and long-term survival.

Through the analyses of automobile industry and its response to the disruptive innovation strategy are as following:
1. Continue to invest traditional fuel vehicle neglecting innovation
The means of sustaining innovation is to intrude the market from high end. If the new entrant product encroaches from high end, the incumbent firms usually guard its market quickly, because in the realm of proposed framework, the incumbent firms lose the high-end customers who have the uppermost willingness-to-pay, the potential of acquiring high profit will be melted. Thus, the incumbent firms will most possibly intrude the high-end market by sustaining innovation to release its new product. Although this means its existing old product market will be encroached. Like what we find in the Fringe-market or Detached-market disruptive innovations, the new product does not take any market shares from the old product market at first stage, but sells facing a new segment market. Even if in the low-end disruptive innovation, the sales of incumbent firms will be influenced, however, the new product of disruptive innovation's aimed low-end customers has low willingness-to-pay. It is difficult to raise great attention from the incumbent firms. The cost will increase, the profit decreases if the incumbent firms invest disruptive innovation. Thus, many incumbent firms may neglect such innovations.

2. Emphasize the development of traditional fuel vehicle, small part of investment on the research of the electric vehicle.
This is the most common response from the incumbent firms.
From the research above, we can find that the pattern of encroachment of electric vehicle into traditional fuel vehicle market is in essence from the low end. When a new entrant releases a new product with potential that can encroach from the low end, the incumbent firms may have every reason to view such a product as non-threat, but it is not the fact. Usually, we link sustaining innovation with incumbent firms, disruptive innovation with new entrants, but this doesn't mean the new entrants are not able to release sustaining innovation and intrude the high-end market of incumbent firms, or the incumbent firms are not capable of releasing disruptive innovation extending to low-end market. In fact, more and more incumbent firms come to realize the impact of innovative products and start to choose and utilize strategies that can provide uppermost profit.
Before the implement of disruptive innovation strategy, the incumbent firms will experience a strengthening period of sustaining innovation strategy. When the momentum of the new entrant firms trying to compete for the market shares against the incumbent firms is relatively faint and its damage is not strong, the incumbent firms still can satisfy the needs of the customers from the mainstream market, and then constantly intensify the entry barrier of the existing market which is able to resist the damage of the new entrant firms. When the advantages of new entrant firms' erosion from the low-end market have been strengthened, the market segment will continuously extend. And when the competition expands to the neighbour market of the incumbent firms' existing market, the incumbent firms start to realize the disruptive power of the new entrant firms. They will constantly improve the technology, product, service and business mode to better satisfy the needs of customers from the mainstream market, at the same time, to realize the value extension through promoting the perceptive value of the combination of the existing market value and utilize their own reputation and brand effect. By doing this, the incumbent firms can successfully encroach into the high-end market, resist the damage of new entrant firms positively, and make efforts to expand the positive buffer against the competition.
The pioneering market-developing behaviour of incumbent firms will win themselves one-upmanship in the process of battling for new market and rebuilding their own dominant status. The incumbent firms' implementing disruptive innovation strategy timely can launch fierce attack against the new entrants, block new entrants' encroach route created by disruptive innovation and submerge them into the condition of passively outpacing, force them to seek new breach and then expand new competition.
The data collected by the author indicate that apart from some super sports car makers, most of the traditional fuel vehicle makers have started to and been interested in the research of new energy vehicles.

3. Alter former traditional product strategy, investment most or all of the capital into the research and popularization of the electric vehicles.
Abandon the existing strategies and processes; accept the disruptive strategic innovation without any reservation. This concerns not only mimic innovation, but also expanding and growing it to a mass market.

5 conclusion
This essay narrates the recent studies about disruptive innovation and indicates its characteristics in the first place. Then take China's electric vehicle market as an example to explain how the disruptive innovation works. Next part the essay introduces China's automobile industry and the present situation of the development of electric vehicle industry. The following part is the analysis of China's electric vehicle market from the perspective of Christensen Model and Encroachment Patterns, elaborates the danger caused by disruptive innovation of electric vehicle to traditional fuel vehicle industry. At last, the essay analyses how traditional fuel vehicle industry deals with disruptive innovation of electric vehicle.

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