Running head: THEORY OF DISRUPTIVE AND VALUE INNOVATION 1

Theory of Disruptive and Value Innovation

Assignment number 2a1

DB8004-section # 3

Trametria Austin

Capella University

[email protected]

Dr. James Morgan

Introduction

Despite the success of many companies, innovation remains to be to a struggle. The

pursuit of innovation can often fail leaving the business at risk and fighting to sustain its

performance. It can be very challenging to construct an effective innovation strategy. That

strategy consists of setting competitive goals and comprising effective behaviors and company

procedures to meet those goals. Effective company strategies promote alignment of all business

groups, clear objectives, and a strong support team. This team can include; marketing, finance

and operations.

Many businesses rarely can create strategies that align with the innovation process which

causes it to fail. This paper will discuss the different innovation theories and how they compare.

It will also discuss the Fortune 1000 company, Amazon who has been successful in innovation

and show how they achieved that success.

Theories of Disruptive and Value Innovation Defined and Explained

It can sometimes be a challenge for business leaders to differentiate between innovation

and disruption. As stated by Harvard Business professor, Clayton Christensen disruption

displaces an existing market, industry, or technology and while producing a more efficient

product or service (Christensen, Raynor & McDonald, 2015).

Theories of Disruptive and Value Innovation Compared

Disruptive Innovation disrupt an existing market and the value network of that market.

Disruptive innovation creates a new market and is described in business as an innovation that

hits the market by surprise with a new product or service. It’s about beating out the most

dominate competitors in the market and them not being prepared for the disruption. Although
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managers have tried to be strategic in predicting such disruption, many times they lack the

resource, business strategy and support to successfully do so. Disruptive innovation requires big

businesses to evaluate how they do business and discover whether they are meeting customer’s

needs. It also requires them to evaluate their business strategy and identify those overlooked

consumer markets. Studies show that disruptive products or services are typically less expensive,

simpler and overall more convenient for consumers. Disruptive technology starts to attract

customers that larger companies cannot acquire due to rising cost, poor quality products, and

failure to meet customer expectation.

Disruptive innovation is not a matter of competition but more of a new entrant tapping

into an underserved market. Typically, the new entrant is not competing to gain the business of

the major competition but to turn the non-consumers into a consumer. These types of innovations

are more affordable and may start out with a small business owner but drastically grow as

consumption increases. Let’s consider how important Laptops where 5 years ago. Everyone

owned one or needed one. Prior to that it was desktops and now its tablets and IPad. Now they

disrupted the market because as technology changed consumers needs changed. So, offering

consumers a cheaper and simpler way to access online content and handle day to day business

was smart, innovative and disruptive to that market.

Value Innovation is a principle of the blue ocean strategy (Kim & Mauborgne, 2004). It

is a business approach that focuses on creating a new market space. This is done by creating

products or service that has no direct competition. Many companies face issue with profit and

growth due to increased competition. Studies show that most high growth companies changed

their assumption on strategy and refocused their strategy through value innovation. Many of the

less successful companies took a more conventional approach which focused on beating out the
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competition (Kim & Mauborgne, 2004). Value innovators look for value and it differs from the

conventional ways management think. Value innovators think about how they can shape the

current industry there in, how big they can go to change the market while not focusing on

competition and total solutions for the customer.

Value innovation is about more ambition and discovering how customers are alike

instead of different. By doing this the business can evaluate the business opportunity without

bias. Understanding the total solutions and how they can benefit customers and attract customers

is key in value innovation. It assists in creating a higher value curve but once that value curve is

created the value innovator may face competition and to protect its business they can either fall

to conventional logic or continue to create value (Kim & Mauborgne, 2004).

Compaq is an example of value innovation because the company has stayed on top of the

server industry by following its first value innovation which was started in 1989 when the

company introduced its first server. After identifying customer’s needs and understanding how

they utilized the server, Compaq then launched another platform in 1992 which was a value

innovation. This gave users additional service space with twice the performance at a third of the

price. Compaq has continued to innovate on its servers which created an even bigger value curve

(Kim & Mauborgne, 2004).

Similarities/Differences

Disruptive and Value Innovation are both affordable and quality business strategies.

Disruptive Innovation focus on a mass market by providing them low cost alternatives. Value

innovation on the other hand focus on serving the needs of the existing customers by offering

them new product and or services in a different manner than that of the existing competition.
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Disruptive Innovation not only tap into the underserved market but also attract traditional

audiences as well. Value Innovation attracts new customers and markets as the innovation

expands. In some cases, both strategies can be combined after a company suffers a loss and

rebrands and remerge in the market.

Disruptive Innovation (Wessel & Christensen, 2012) focuses on competitive strategy. It

is not technology specific but is a wider approach to expand to new markets by offering a

product or service at an affordable price to a large market share. Although the focus is on low

cost it is does not degrade quality or customer accessibility. The overall objective is to gain the

competitive advantage by finding new customers, lowering prices, and tapping into underserved

markets.

Value Innovation is more focused on increased satisfaction for existing customers and

optimal delivery. Kim and Mauborgne (2004) discuss how the Belgian movie Bert Claeys

created a new value innovation by improving the views, enhancing the quality of sound and

offering no cost parking for customers. Due to the location being outside of the city the company

could save on construction cost and due to the community being small utilized word of mouth for

marketing. Bert Claeys had no competitor because the company differentiated its business

strategy.

Brief Description of Amazon

Amazon was known for being one of the world’s largest online book retailer and is now

known as one of the largest online retailers that sell everything you can imagine. The company

was founded by Jeff Bezo’s when he decided to start the business out of his garage. The

company has been in operations for over 20 years and has continued to expand. Over 60% of
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Amazon’s 2015 sales where in North America with the other 40% being globally because of the

company serving customers in over 200 countries.

Amazon’s products make up for 75% of its sales but the company also offer subscription

services, shipping services and web services which account for the other 25% of its profit.

Bezos’s is strongly involved in the business operations and strongly pushes innovation. In order

to sustain such innovation, Amazon has focused on the customer experience by offering

customers low prices, convenience, and a wide selection of merchandise. The corporate culture is

customer focused and utilize current assets and information to turn them into new and improved

business opportunities.

Capacity for Strategic Foresight

Compared to its competition Amazon is one the most innovative online retailers. The

company was first to market and sell books on the internet which gave it a competitive

advantage. The company also focuses on value added for customers by enhancing customer

ecommerce experience which include 1-click shopping, user-contributed reviews and displaying

related items based on recent purchase. The company has in house distribution channels to

provide customers with safe and quick delivery.

Opportunities for Disruptive Innovation and Value Innovation

Amazon displays value innovation because the company has differentiated itself in the

market while offering lower cost (Kim & Mauborgne,2004). Amazon has been well known as a

disruptor in retail for over 20 years. While it started will the retailer offering lower cost and a

wide variety. The company continues to be innovative and differentiate itself from brick and
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mortar retailers and other online retailers. In 2014 the company released several new innovative

products and service options for customers.

Although very successful there is always room for improvement and innovation comes at

a cost. The company has incurred significant cost in developing its technology and building the

necessary infrastructure to continue to provide the best customer service and improve its value

proposition. These costs affect the bottom line but the company is expected to have a revenue

increase of 20% every year for at least the next 2 years compared to that of competitors such as

Wal-Mart who is expected to only see a 2-4% growth. Many investors do avoid Amazon because

they are afraid of the risk and want to see the company generate higher earnings

(Bacheldor,2004).

With the global market changing every day Amazon needs to continuously evaluate the

market and create that special something to stay ahead of the game. The company must predict

the customer’s needs beforehand and continue with technology advancements such as the new

Drone delivery system which is stand out amongst its competitors.

Conclusion

In conclusion, Amazon’s innovation strategy has greatly contributed to its success. The

company has changed its strategy over time which has contributed to its long-term plan. Amazon

is the ultimate retailer. This paper has discussed the theories of innovation and how they apply to

a business and their overall business strategy. Amazon has displayed how value innovation

works in a constantly changing market and how it can lead a company to great success.

Innovation can be viewed in many ways and whether a Disruptive Innovator or a Value
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Innovator a business must take risk to receive a bigger reward. Even though taking risk can be

scary, companies like Amazon prove that it is possible to take risk and still succeed.
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References

Bacheldor, B. (2004)" From Scratch: Amazon Keeps Supply Chain Close to Home"

InformationWeek

Christensen, C. M., RAYNOR, M., & MCDONALD, R. (2015). WHAT IS DISRUPTIVE

INNOVATION? Harvard Business Review, 93(12), 44-53.

Christensen, C. M., & Overdorf, M. (2000). Meeting the Challenge of Disruptive Change.

Harvard Business Review Mar/Apr2000, 78(2), 66–76.

Kim, W. C., & Mauborgne, R. (2004). Value innovation. Harvard Business Review, 82(7/8),

172–180.

Pan, S.L & Lee, J. K. (2003)” Using e-CRM for a unified view of the customer”

Raynor, M. E. (2011). Disruption theory as a predictor of innovation success/failure. Strategy &

Leadership, 39(4), 27–30.