Disruptive Technology

Updated on March 19, 2024
Article byWallstreetmojo Team
Edited byWallstreetmojo Team
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Disruptive Technology?

Disruptive technology, in business, refers to an innovation that has the potential to replace existing technologies and systems. Such technology can drastically change market behavior, operations, and social or economic norms, which is why they are disruptive. Common examples include blockchain disruptive technology, smartphones, IoT, etc.

Disruptive Technology

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Disruptive technologies can be said to be time-relative. Some technologies might be revolutionary at some point in time, but at a later time, they might become the standard. Nevertheless, such disruptive innovations are essential for businesses that try to hold or gain a significant market share.

Key Takeaways

  • Disruptive technology refers to any product or service innovation that can alter the market to a great extent and bring revolutionary changes to consumer behavior and habits.
  • Major disruptive innovations have always taken over the market. However, such innovations are primarily associated with startups rather than established and reputed companies.
  • It has many advantages and disadvantages for both customers and disruptive technology companies. The main benefit is that it makes life easier for customers and helps increase companies’ profits. The disadvantage is that it can be risky and subject to security and safety concerns.

Disruptive Technology Explained 

Disruptive technology is like a powerful force or a blow in the market that replaces existing norms and practices. It is often considered revolutionary and is adopted by most people eventually. Some examples include smartphones, internet banking, etc.

Internet banking was initially subject to many security concerns, and many people were reluctant to use it. However, the norm has shifted to mobile banking, and many people have accepted it. But perhaps the most recent of the lot is the blockchain which is an emerging disruptive technology. It has facilitated anonymous transactions and formed the base for cryptocurrencies, another disruptive innovation during its launch.

Disruptive innovations are important because companies that do not adopt it will start losing the market and eventually have to shut down their operations. Also, interestingly, most disruptive technology companies are startups, which might be so because disruptive innovation can be a highly desirable market entry method.

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Characteristics

There are some special characteristics of the process of emerging disruptive technology as mentioned below.

  • Innovation – The entire process leads to innovation and identification of opportunities to entire the market is a small way and then gan broader acceptance as time passes by.
  • Replace existing methods – It rplaces the old metod and give rise to newer and more sophisticated ways to do things.
  • Cost reduction – The main aim of betterment of technology is cost reduction and maximization of utility and profits. This is due to performance upgradation and better use of resource.
  • New models – New business ideas and models come up, adding value to revenue generation, better product distribution and consumption methods and challenging the old norms.
  • Performance improvement – Upgradation of technology leads to boost in performance because more work in done in less time. There is a shift in the industrial ecosystem due to disruptive technology companies, attracting more customers, their expectations and relationships.
  • Uncertainty – There is always an element of uncertainty because of new innovation. Sudden changes may not be easily accepted by the society or may lead to negative effects.
  • User-Centric – The new technology introduced is usually designed for better user experience, thus, focussing more of user need and preference.

Types 

Disruptive technology can be classified based on its origin – low-end and new-market disruptions.

  • Low-end disruptions – They enter the market and initially target less profitable customers using a low-cost model. Gradually, they climb up the ladder and target the most profitable customers through disruptive innovation.
  • New-Market Disruptions – On the other hand, new-market footholds create a market themselves. They identify potential customers and their requirements and turn them into loyal customers. For example, before the introduction of blockchain, there wasn’t a medium to make anonymous transactions. Hence, a requirement was identified, and innovation was launched.

Examples 

Let’s discuss some examples of disruptive technology.

Example #1

Consider a hypothetical example of a tech startup, X. It partnered with a travel and entertainment company, P, to develop virtual reality (VR) software that allows people to visit any place around the globe in real time. VR is increasingly used for entertainment purposes – sports and games, meeting people online, etc. As a result, the partnership between X and P was seen as a disruptive innovation.

Example #2

Here’s recent news from Forbes regarding emerging disruptive technology and how employees cope with it. Loss of jobs due to technology disruption is prevalent among middle-level executives in companies. Automation, AI, IoT, etc., are some factors. But new studies show that even top-level executives are now in fear of being replaced. 

A new survey showed that 72% of executives in 2022, compared to 51% in 2021, worry about losing their jobs due to disruptive innovations. The stark increase in figures over one year may be a cause of concern for the workforce. 

Further, 94% of the executives surveyed plan to change their business model in the next three years. This is because of rapid technological shifts in the market. The companies have realized that it might be a loss to their businesses if they do not move ahead of the crowd.

Thus, the above examples clearly state the different types of situations where disruptive innovation takes place and their effect or the respective fields.

Impact

The concept has a very deep impact on the industrial front, fro individuals and overall society as a whole. Here are some key points to note.

  • It has the ability to totally transform the industrial landscape by introducing new models for running a business, encouraging competition and bringing a revolution to the entire process of manufacturing, delivering and consuming goods and services.
  • In creates new possibilities of innovation in various fields, be it transporation, healthcare or communication.
  • The job environment can be replaced with something better, easy to handle and perform or convert manual to automated process. New job creation takes place with proper upskilling using the latest technology.
  • It leads to replacement of old services and products with updates ones that are more user friendly.
  • Economic growth is accelerated, creating new entrepreneurial initiative, leading to job opportunities and industrial development. It creates new possibilities for growth and expansion.
  • This technology gives access to better information, upgradation in the field of education and services by creating better learning platform and content, and the opportunities to reach areas of places which are remote and not easily accessible.
  • It also helps create customised and useful solutions of products and services for people that can cater to their needs better. This also helps in reaching out to a higher number of customers, thus increasing the customer base for higher sales and revenue generation.
  • The disruptive technology in healthcare industry benefits a lot from such development in technology because of improvement in method of diagnosis and treatment.
  • International trade, communication, social media, etc gets a big boost. It becomes easy for people to connect to each other from far off places, share information and exchange culture globally within a short span of time.
  • However, privacy and security are a huge concern in this field. Technology upgradation also gives rise to cybersecurity threats and unauthorized use and access to private and sensitive information.

It is to be noted that the impact can be either positive or negative or both, depending on the type of change in technology, how fast it is adopted and regulatory requirements.

Advantages And Disadvantages 

Disruptive technology can benefit both the consumers and the companies introducing them. The same goes for demerits too. Let’s discuss these in detail.

Advantages

Emerging disruptive technology makes the life of consumers easier. It makes daily tasks faster, efficient and reduces the effort required. For example, online banking enables people to transfer and receive money anytime. Some technologies even reduce the cost involved.

It can help companies profit, gain market share, and enhance customer loyalty. Especially for startups, disruptive innovations can do business and increase their valuation. The producers of existing tech can also take a moment and analyze measures to improve their products.

Disadvantages

The main disadvantage of disruptive innovation is that it might become controversial and have security or safety concerns. For example, critics argue that VR technology might make it difficult to differentiate between the real and virtual worlds. Another example is blockchain technology which powers the dark web.

As for businesses, such innovations can also break a business. Introducing a whole new system can be risky. And except for a few early adopters, the innovation might not be welcomed or have a late pick-up. But by then, if it’s too late, the business would’ve already made a loss. Another demerit is that there are fears of job losses due to disruption.

AdvantagesDisadvantages
Make life easier and more efficientSecurity or safety concerns
Help companies make a profitCan negatively affect existing businesses
Enhance customer loyaltyCan be risky
Existing tech can introduce improvementsFear of job losses

It is always a good idea to weigh the pros and cons of any new model before its implementation and execution. It helps policymakers, individuals, and businesses make the transformation process into disruptive technology in healthcare or any other field smooth and easy. This will lead to positive results and growth.

Disruptive Technology Vs Sustaining Technology

Before differentiating between new disruptive technology and sustaining technologies, let’s first understand the latter. Sustaining technology is employed by businesses that want to offer their highly-profitable customers the best products or versions of existing products. The primary motivation behind this is to earn higher profits and hence, a loyal customer base.

Sustaining innovation, thus, is aimed at customers who do not mind spending more for a better-performing system, whereas disruptive innovations are aimed at the market as a whole. Again, it is a section of early adopters who popularize an innovation. 

Also, the business models of these two types of innovations are significantly different. The sustaining technology is built on a high-profit and possibly high-cost model, while the new disruptive technology is built on comparatively low-cost, low-profit models.

Frequently Asked Questions (FAQs)

1. What are disruptive technology examples?

Popular disruptive innovations include the blockchain, the internet of things, internet and mobile banking, artificial intelligence, voice assistants, etc. Since such technologies are time-relative, even televisions and computers were disruptive when they were first introduced.

2. Why was the first smartphone considered a disruptive technology?

Smartphones are an excellent example of disruptive innovations, as they improve navigability, accessibility, and connectivity to a level never imagined before. GPS, video communications, and 24X7 networking are some features that make the smartphone disruptive.

3. Why is the IoT considered a disruptive technology?

The IoT, or the internet of things, is a perfect disruptive innovation as it is changing dimensions and crossing many technological borders. Therefore, it has wide applications and is especially useful in virtual healthcare.

4. Is disruptive technology good or bad?

The nature of a disruptive technology depends on its applications and the attitude of its user. It has many benefits, and its purpose is to make our lives easier. But at the same time, it is prone to misuse and can be used in undesirable and unethical ways.

This article has been a guide to what is Disruptive Technology. We explain it with examples, types, advantages, disadvantages, differences with sustaining technology. You can learn more about it from the following articles –

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