1. Great Lakes Herald Vol 5, 31 January 2014 Page 1
DRIVERS OF DISRUPTIVE INNOVATION IN PRODUCT, MARKET, CONSUMER
SEGMENT AND SERVICE CREATION
Devyani Kumar, Ishan Jain and B. Shrikant Soni
Great Lakes Institute of Management, Chennai
&
Prof. Easwar Krishna Iyer
Great Lakes Institute of Management, Chennai
Abstract. This paper provides a systematic framework to the businesses in the services and
product industry to find out strategic innovative business drivers that are of utmost importance
to sustain their businesses and to take it to greater heights. Our study intends to find out key
drivers that drive disruptive innovation to create a sustainable enterprise. Our study included
people with expertise from the industry and prominent professors from reputed universities with
at least 5 years of experience in their respective fields. The data obtained comprised of 298
responses inclusive of all the three industries – Academia, IT Services and manufacturing. The
three industries voted different factors as the drivers of innovation but the one common factor
that stood out among all three was mass customization of services and products.
In today’s business world, many companies are in search of an innovative strategy to
move in to a market where there is as yet no competition or if market exists, the companies want
to grab a greater market share. In view of that, many academicians and managers are trying to
find a systematic framework for strategic innovative business drivers that are of utmost
importance to sustain one’s business and to take it to greater heights. Our study would find gaps
in existing markets and find parameters that are required to create sustainable businesses.
Our study would identify the key drivers that drive disruptive innovation in product and service
industry. In order to do so, we would be reaching out to top academicians and industry experts,
2. Great Lakes Herald Vol 5, 31 January 2014 Page 2
in the IT services, academia and manufacturing industry, to participate in our study and find out
various factors that “lead to innovation” in a product-to-product and product-to-service
categories.
1. LITERATURE REVIEW
Theory and Hypothesis
Disruptive innovation is the introduction of new technologies, products or services in an
effort to promote change and gain advantage over the existing competition in the market. In this
context, the word disruptive does not mean to interrupt or cause disorder – it means
“Replacement”.
The pace of technological innovation over the past three decades is astounding. All
industries have radically changed over the due course of time. Wal-Mart and Target are
dominating traditional department stores. Apple captured music distribution with iTunes, and
Charles Schwab surpassed Merrill Lynch. Even in the rather staid realm of academia, there has
been the creation of mega-sized regionally accredited for-profit universities that enroll hundreds
of thousands of students. Harvard Business School educator and author Clayton Christensen
offers a way to understand these phenomena – Disruptive Innovation. In his book, The
Innovator’s Dilemma, Christensen describes two types of innovation: Sustaining and Disruptive.
Sustaining Innovations are oriented towards an organization’s primary business model.
These innovations improve performance incrementally and are focused on expanding the market
share. On the other hand, Disruptive Innovations are qualitatively different. They serve a market
segment that seeks much simpler, more affordable, and more convenient goods and services.
3. Great Lakes Herald Vol 5, 31 January 2014 Page 3
Initially, that market is small and not very profitable, but it soon expands with increase in
profitability as the product or service matures through process and technological breakthroughs.
In the enterprise, disruptive innovation can be risky because it requires employees to
embrace a radically different approach to product development or marketing. Often a product
of out-of-the-box thinking, disruptive changes can initially seem out of step with contemporary
preferences but prove successful in their ability to create new market opportunities where none
existed before. Modern examples of disruptive innovation include the development of mobile
cellular telephones, digital cameras and e-book readers.
Going towards a future market driven by innovations that affect consumer preferences
and consumer behavior or may even transform the entire market, we have identified the
following drivers that result in an innovation.
Independent Variables
1. Competition
2. Maturation
3. Shifting Consumer Taste/Preference
4. Technology
5. Miniaturization
6. Device Convergence
7. Business Model Convergence
8. Technology Convergence
9. Product-Service Continuum
10. Latent Need Analysis
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11. Outside-in Approach
12. Trend Analysis
13. Patency Protection
14. Mass Customization
15. Green Drive (Environment friendly Technology)
16. Uncertainty
17. Chance
18. Sustainability
19. On-the-go
20. Ease of Use
Dependent Variables
1. Product-to-Product Innovation
2. Product-to-Service Innovation
Hypotheses
Based on the independent variables and dependent variables identified, the null
hypotheses formed are:
1. H0: Disruptive Innovation is driven only by competition
H1: Disruptive Innovation is not driven only by competition
2. H0: Disruptive Innovation is dependent only on maturation
H1: Disruptive Innovation is not dependent only on maturation
3. H0: Disruptive Innovation is driven only by a shift in consumer taste/preference
H1: Disruptive Innovation is not driven only by a shift in consumer taste/preference
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4. H0: Disruptive Innovation is driven only by a change in technology
H1: Disruptive Innovation is not driven only by a change in technology
5. H0: Disruptive Innovation is driven only by miniaturization of products
H1: Disruptive Innovation is not driven only by miniaturization of products
6. H0: Disruptive Innovation is driven only by device convergence
H1: Disruptive Innovation is not driven only by device convergence
7. H0: Disruptive Innovation is driven only by business model convergence
H1: Disruptive Innovation is not driven only by business model convergence
8. H0: Disruptive Innovation is driven only by technology convergence
H1: Disruptive Innovation is not driven only by technology convergence
9. H0: Disruptive Innovation is driven only by product-service continuum
H1: Disruptive Innovation is not driven only by product-service continuum
10. H0: Disruptive Innovation is driven only by a change in the latent needs
H1: Disruptive Innovation is not driven only by a change in the latent needs
11. H0: Disruptive Innovation is driven only by an outside-in approach
H1: Disruptive Innovation is not driven only by an outside-in approach
12. H0: Disruptive Innovation is driven only by a change in market trends
H1: Disruptive Innovation is not driven only by a change in market trends
13. H0: Disruptive Innovation is driven only for patency protection
H1: Disruptive Innovation is not driven only for patency protection
14. H0: Disruptive Innovation is driven only to account for mass customization
H1: Disruptive Innovation is not driven only to account for mass customization
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15. H0: Disruptive Innovation is driven only due to advent of green initiative(eco-friendly
technology)
H1: Disruptive Innovation is not driven only due to advent of green initiative (eco-
friendly technology)
16. H0: Disruptive Innovation is driven only due to uncertainty
H1: Disruptive Innovation is not driven only due to uncertainty
17. H0: Disruptive Innovation is driven only by chance
H1: Disruptive Innovation is not driven only by chance
18. H0: Disruptive Innovation is driven only to sustain the current standing in the market
H1: Disruptive Innovation is not driven only to sustain the current standing in the market
19. H0: Disruptive Innovation is driven only by factors on-the-go
H1: Disruptive Innovation is not driven only by factors on-the-go
20. H0: Disruptive Innovation is driven only to cater for ease of usability
H1: Disruptive Innovation is not driven only to cater for ease of usability
Reference Citations in Text
Early research found that effective organizations in environments with substantial
technological, legal or social uncertainty tend to undertake re-orientations or quantum
innovations that include disruptive innovation (Tushman and Anderson, 1986).
A disruptive technological innovation is a fundamentally different phenomenon from a
disruptive product innovation or a disruptive service innovation. Lumping all types of disruptive
innovations into one category simply mixes apples with oranges, which has serious implications
on how we study disruptive innovations in the future (Henderson and Clark, 1990).
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As suggested by studies from the literature, we could not emphasize more the importance
of carefully finding the emerging market and deeply understanding the customer’s latent needs,
because a firm’s disabilities in finding new markets for new technologies maybe it’s most serious
innovation handicap (Christensen and Bower, 1996). Next, the question becomes: how does a
firm find the emerging market and understand the potential customers’ needs?
A disruptive innovation is an innovation that helps create a new market and value
network, and eventually goes on to disrupt an existing market and value network over a few
years or decades, displacing an earlier technology or idea. Christensen (1997) focused primarily
on technological innovation and explored how new technologies came to surpass seemingly
superior technologies in a market. It is interesting to compare how different contextual factors
may influence the disruption process.
Chesbrough’s empirical research (1999) has shown that the disruption of hard disk drives
in the US did not happen in Japan, mainly because the regulations and culture of Japan did not
encourage entrepreneurship, and the financing system was inefficient to support the development
of disruptive ideas. There is an insightful case study on the Personal Hand-phone System (PHS),
which shows that the PHS failed in Japan, yet later became a successful disruptive innovation in
China. The economic conditions and entrepreneurial culture explained the distinctive results.
These studies indicate that the success of disruptive innovation also depends on the variation in
some contextual factors such as, regulation, entrepreneurship culture and economic conditions of
different countries.
Danneels (2002) proposed that a second-order marketing competence is the ability to add
new customers to address new markets.
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Over time, Christensen widened the application of the term to include not only
technologies but also products and business models. For example, Christensen and Raynor
(2003) listed disruptive innovations as; such disparate things as discount department stores; low-
price, point-to-point airlines; cheap, mass-market products such as power tools, copiers, and
motorcycles; and online businesses such as bookselling, education, brokerage, and travel agents.
Although, we agree that all of these innovations are disruptive to incumbents, treating them all as
one and the same has actually confused matters considerably.
The key to avoiding the negative effects of disruptive technologies is to focus on what is
happening with customer and operational needs. Govindarajan and Kopalle found that the higher
an SBU’s emerging customer orientation, the more disruptive the innovations it developed would
be (Govindarajan and Kopalle, 2004).
In fact, many of the examples of disruptive innovations that Christensen and Raynor
(2003) use in their book (e.g., Black and Decker power tools, Honda motorcycles, Canon
copiers, Seiko watches) are really examples of companies scaling up a niche market into a mass
market. Therefore, if established companies want to achieve this kind of disruptive innovation,
the way to do it is not as described in Christensen and Raynor (2003). Markides and Geroski
(2005) described how established companies could exploit such disruptive product innovations.
2. COMPLETE DATA COLLECTION
Method
The empirical study is targeted at identifying the key drivers that drive disruptive
innovation in a product and/or service industry. To do so, we reached-out to top academicians
9. Great Lakes Herald Vol 5, 31 January 2014 Page 9
and industry experts, in the IT Services and Manufacturing Industry, to participate in our survey.
The survey comprised of various questions on the factors that “lead to innovation” in a product-
to-product and product-to-service scenario. Thus, we collected survey responses based on the
following two sectors (where and industries innovate):
o Product-to-product Innovation
o Product-to-service Innovation
In today’s business world, many companies are in search of an innovative strategy to
move on to a market where there is as yet no competition or if market exists, the companies want
to grab a greater market share. In view of that, many academicians and managers are trying to
find a systematic framework for strategic innovative business drivers that are of utmost
importance to sustain one’s business and to take it to greater heights. Our study would find gaps
in existing markets and find parameters that are required to create sustainable businesses. For
example: iPod is a great example of an innovative product where the manufacturer benefited
from low competition, high market share, and high profit return.
The data obtained comprised of 110 responses inclusive of all the three industries –
Academia, IT Services and Manufacturing. Out the total responses obtained, 26 were from the
Manufacturing and Academics vertical while 58 were from the IT services industry. The survey
included responses based on a five-point scale (1=strongly disagree, 2=disagree, 3=neither agree
or disagree, 4=agree, 5=strongly agree). Data collection of analysis of the major drivers for
innovation was collected through the survey (appendix 1) was targeted at the following
audiences:
o Academicians
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o IT Services Industry
o Manufacturing Industry
With the data obtained, we firstly found out the correlation amongst all the independent
variable. In our case, there existed significant correlation as a result of which we, then carried out
Factor Analysis on the data obtained. By doing this, we could eliminate significant amount of
correlation amongst the variables and extract factors for further analysis. Finally, we performed
Regression on the factors extracted to make comparisons between the received responses to find
out the commonalities between drivers causing product-to-product and/or product-to-services
innovations.
3. RESULTS
The means, standard deviations and cronbach alpha for the three vertical are reported in the
Table1.0
Table 1.0 Descriptive Statistics and Correlations
Mean Standard Deviation Cronbach Alpha
1. Competition 4.27 0.88 (0.86)
2. Maturation 3.83 0.85
3. Shift in Consumer
Taste
4.01 0.80
4. Change in
Technology
3.93 0.93
5. Miniaturization 3.64 0.87
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6. Device
Convergence
3.57 0.87
7. Business Model
Convergence
3.56 0.80
8. Technology
Convergence
3.87 0.80
9. Product-Service
Continuum
3.72 0.89
10. Latent Needs 3.79 0.86
11. Outside-in
Approach
3.55 0.86
12. Change in Market
Trends
3.88 0.80
13. Patency Protection 3.58 0.93
14. Mass
Customization
3.55 0.88
15. Green Initiative 3.52 0.97
16. Uncertainty 3.38 0.90
17. Chance
Occurrences
3.51 0.89
18. Sustainability 3.79 0.84
19. On-the-Go 3.72 0.87
20. Easy to Use 3.81 0.81
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)
Q3 .045 .144 .045 .311 .757
Q4 .316 .152 .503 2.076 .043
Q5 -.069 .120 -.117 -.574 .568
Q6 -.034 .091 -.066 -.378 .707
Q7 -.046 .092 -.073 -.503 .617
Q8 -.430 .162 -.726 -2.650 .011
Q9 .016 .196 .027 .084 .934
Q10 -.141 .096 -.230 -1.463 .150
Q11 -.067 .102 -.136 -.654 .516
Q12 .017 .164 .028 .106 .916
Q13 .255 .256 .484 .998 .323
Q14 .153 .177 .234 .862 .392
Q15 .361 .143 .624 2.532 .014
Q16 -.606 .154 -.996 -3.938 .000
Q17 .117 .111 .210 1.060 .294
Q18 -.107 .107 -.185 -.996 .324
Q19 .117 .116 .173 1.010 .317
Q20 -.370 .110 -.566 -3.355 .002
Q21 .527 .128 .766 4.105 .000
Q22 .261 .185 .334 1.407 .166
a. Dependent Variable: Q2
4. DISCUSSION
Academicians. On the basis of the data analysis for this category of respondents, the major
factors that were found to be significant in driving innovation in the market, consumer segment
and/or any industry (product/service) are:
o Technology Convergence – As the trends in the technology advances in time, industries
upgrades themselves in order to be in tune with the latest and no lag behind. To keep up
the pace, an industry – a product manufacturer or a services provider, generally tends to
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merge their existing technology base with the latest and so in the process innovate
services and/or products.
o Latent Needs of Consumers – To make a customer/consumer a repeat customer and build
loyalty towards the service/product, the industry needs to ramp-up and come out with
new and innovative products/services to serve the latent needs of the consumers better
and more effectively.
o Miniaturization – Combining numerous features into one product/service also lets an
industry innovate either in the process of putting in all the features together or in
implementing a single technology to miniaturize all the features into one.
o Outside-in Approach – This approach lets an industry understand their consumer better in
terms of what the consumers’ needs and desires. Thus greater the understanding greater
are the chances to innovate.
o Mass Customization – Customizing an existing product/service to serve a huge base of
customers’ leads to innovation as it includes a diversified base of needs of a number of
customers.
o Uncertainty – At times, innovations take place by-chance in any industry.
o Chance Occurrences – At times, innovations take place by-chance in any industry.
o On-the-go – Innovation may also happen while a product/service is in the process of
development and/or customization.
Manufacturing (Product Industry). On the basis of the data analysis for this category of
respondents, the major factors that were found to be significant in driving innovation in the
products market, and the product industry are:
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o Maturation – As the product industry moves towards stagnation (maturation) the industry
needs to either re-design the existing product in the market or needs to introduce a
completely new product. In both the scenarios, the product may go through the process of
innovation.
o Device Convergence – Converging features of different devices into one device make
lead to a completely new product, not only having the good feature of the two parent
products but also a new and different additional feature. Thus innovation can take place.
o Patency Protection – A patented product also needs to be re-invented over time. This
happens because there may be new competing products that enter the market or the
technology of manufacturing the product may change (eg. A newer technology on
implementation may enhance the existing product’s performance). As a result, innovation
is vital to hold-on to the current market position.
o Mass Customization – Customizing an existing product/service to serve a huge base of
customers’ leads to innovation as it includes a diversified base of needs of a number of
customers.
o Pressure to sustain Market Share – As the product industry moves towards stagnation the
industry needs to either re-design the existing product in the market or needs to introduce
a completely new product in order to maintain the market share it has captured over the
years. In both the scenarios, the product may go through the process of innovation to
avoid loss of the industry’s (product’s) current market share.
o On-the-go – Innovation may also happen while a product/service is in the process of
development and/or customization.
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IT Services (Services Industry). On the basis of the data analysis for this category of
respondents, the major factors that were found to be significant in driving innovation in the
products market, and the product industry are:
o Competition – Existence of competition in the IT industry results in innovation. For
instance, Infosys came out with a banking solution which had multiple additional features
in comparison to its competing softwares, Finacle 11E. The competition led Infosys
employees to think over and innovate the whole base product into a new one.
o Shift in Consumer Tastes/Preferences – Changing preferences of the IT services users
leads the IT industry to continuously innovate their current offering and avoid losing out
to their competitors.
o Outside-in Approach – This approach lets an IT industry understand the consumer better
in terms of what the consumers’ needs and desires. Thus greater the understanding
greater are the chances to innovate.
o Change in Market Trends – Changes in what the target market needs or desires causes
innovation in the IT services. As the industry has to replicate these changes in the trends
to keep with their customer base and also give competition to the other IT firms.
o Mass Customization – Customizing an existing product/service to serve a huge base of
customers’ leads to innovation as it includes a diversified base of needs of a number of
customers.
o Chance Occurrences – At times, innovations take place by-chance in the industry.
In Common. On comparing all the three categories – Academia, Manufacturing (Product)
Industry and the Services (IT) Industry, we could find one innovation driver to exist in all the
three – “Mass Customization”. On the basis of this observation (based on the data analysis), we
18. Great Lakes Herald Vol 5, 31 January 2014 Page 18
can infer that customizing the present offering in order to cater to the mass of customers, leads to
innovation in any industry. This is because, mass customizations result in an offering that has a
variety of vital features, as one feature may satisfy one type of customer and the other feature
may satisfy another customer. The whole process may either end-up with a new offering or a
new technology to combine all the features. Either ways, innovation happens irrespective of the
industry.
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5. REFERENCES
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Adner, R. (2002). When are Technologies Disruptive? A Demand-Based View of the Emergence
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APPENDIX 1
Survey Questionnaire
1. You broadly belong to academia/product industry/service industry
o Academia
o Product Industry
o Service Industry
2. Competition plays a major role in driving innovation.
o Strongly disagree
o Disagree
o Neither agree nor disagree
o Agree
o Strongly agree
3. Maturation of industry is causing companies to innovate their products/services offerings.
o Strongly disagree
o Disagree
o Neither agree nor disagree
o Agree
o Strongly agree
4. Shift in consumer taste/preference is driving innovation.
o Strongly disagree
25. Great Lakes Herald Vol 5, 31 January 2014 Page 25
o Disagree
o Neither agree nor disagree
o Agree
o Strongly agree
5. Change in technology plays a role in innovation.
o Strongly disagree
o Disagree
o Neither agree nor disagree
o Agree
o Strongly agree
6. Requirement for miniaturization is leading to innovation (Service sector industries are
advised to mark “Neither agree nor disagree” for this question).
o Strongly disagree
o Disagree
o Neither agree nor disagree
o Agree
o Strongly agree
7. Device convergence leads to innovation
o Strongly disagree
o Disagree
o Neither agree nor disagree
o Agree
26. Great Lakes Herald Vol 5, 31 January 2014 Page 26
o Strongly agree
8. Business model convergence leads to innovation.
o Strongly disagree
o Disagree
o Neither agree nor disagree
o Agree
o Strongly agree
9. Technology convergence leads to innovation.
o Strongly disagree
o Disagree
o Neither agree nor disagree
o Agree
o Strongly agree
10. Product-service continuum leads to innovation.
o Strongly disagree
o Disagree
o Neither agree nor disagree
o Agree
o Strongly agree
11. Taking care of latent needs of consumers leads to innovation.
27. Great Lakes Herald Vol 5, 31 January 2014 Page 27
o Strongly disagree
o Disagree
o Neither agree nor disagree
o Agree
o Strongly agree
12. An outside-in approach drives innovation.
o Strongly disagree
o Disagree
o Neither agree nor disagree
o Agree
o Strongly agree
13. Change in market trends takes industries to innovation.
o Strongly disagree
o Disagree
o Neither agree nor disagree
o Agree
o Strongly agree
14. Patency protection plays a role in bringing in innovation.
o Strongly disagree
28. Great Lakes Herald Vol 5, 31 January 2014 Page 28
o Disagree
o Neither agree nor disagree
o Agree
o Strongly agree
15. Mass customization acts as a factor in driving disruptive innovation.
o Strongly disagree
o Disagree
o Neither agree nor disagree
o Agree
o Strongly agree
16. Advent of green initiative forced companies to think of innovation.
o Strongly disagree
o Disagree
o Neither agree nor disagree
o Agree
o Strongly agree
17. Uncertainty acts a driver of disruptive innovation.
o Strongly disagree
o Disagree
29. Great Lakes Herald Vol 5, 31 January 2014 Page 29
o Neither agree nor disagree
o Agree
o Strongly agree
18. Chance occurrences lead to innovation.
o Strongly disagree
o Disagree
o Neither agree nor disagree
o Agree
o Strongly agree
19. The pressure to sustain market share leads to innovation.
o Strongly disagree
o Disagree
o Neither agree nor disagree
o Agree
o Strongly agree
20. A fast paced life demands innovation on-the-go.
o Strongly disagree
o Disagree
o Neither agree nor disagree
30. Great Lakes Herald Vol 5, 31 January 2014 Page 30
o Agree
o Strongly agree
21. Producing products/services that are easy to use leads to innovation.
o Strongly disagree
o Disagree
o Neither agree nor disagree
o Agree
o Strongly agree
22. Innovation will play a significant role in the emergence of both products and services of
tomorrow.
o Strongly disagree
o Disagree
o Neither agree nor disagree
o Agree
o Strongly agree
