Executives must answer three sets of questions to determine whether an idea has disruptive potential. The first set explores whether the idea can become a new-market disruption. For this to happen, answers to at least one and generally both of two questions must be positive:
- Is there a large population of people who historically have not had the money, equipment, or skill to do this thing for themselves, and as a result have gone without it altogether or have needed to pay someone with more expertise to do it for them?
- To use the product or service, do customers need to go to an inconvenient, centralized location?
If the technology can be developed so that a large population of less skilled or less affluent people can begin owning and using, in a more convenient context, something that historically was available only to more skilled or more affluent people in a centralized, inconvenient location, then there is potential for converting the idea into a new market disruption.
The second set of questions explores the potential for a low-end disruption. This is possible if the answer is yes to two questions:
- Are there customers at the low end of the market who would be happy to purchase a product with less performance if they could get it at a lower price?
- Can we create a business model that enables us to earn attractive profits at the discount prices required to win the business of these overserved customers at the low end?
Often, the innovations that enable low-end disruption are improvements that reduce overhead costs, enabling a company to earn attractive returns on lower gross margins, coupled with improvements in manufacturing or business processes that turn assets faster.
Once an innovation passes the new-market or low-end test, there is still a third critical question:
- Is the innovation disruptive to all of the significant incumbent firms in the industry? If it appears to be sustaining to one or more significant players in the industry, then the odds will be stacked in that firm’s favour, and the entrant is unlikely to win.
If an idea fails what Christensen and Raynor refer to as these litmus tests, then it cannot be shaped into a disruption.
Source: Innovator’s Solution