Disruptive innovation as a term was first described by Clayton M. Christensen, an American academic and business consultant whom The Economist called “the most influential management thinker of his time.” Disruptive innovation describes the process by which a product or service takes hold at the bottom of a market and eventually displaces established competitors, products, firms, or alliances.
Aspect | Explanation |
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Concept Overview | Disruptive Innovation is a theory developed by Clayton Christensen that describes a process in which a smaller, often overlooked company with a simpler or lower-cost product or service gradually disrupts and displaces established market leaders. This theory challenges the conventional belief that market leaders always maintain their dominance. Instead, it suggests that disruptive innovations can create entirely new markets or change the dynamics of existing ones. |
Characteristics | Disruptive innovations often share specific characteristics: 1. Simplicity: They are typically simpler and more accessible than existing solutions. 2. Cost-Effectiveness: They offer a cost advantage, making them attractive to underserved or non-consumers. 3. Niche Focus: They initially target niche or underserved markets. 4. Performance Trajectory: Over time, disruptive innovations improve in performance, challenging incumbent products. 5. Market Reorientation: They may create new markets or shift the focus of existing ones. |
Examples | Notable examples of disruptive innovations include: 1. Personal Computers: PCs disrupted the mainframe computer market by offering affordable computing power. 2. Digital Cameras: Digital cameras disrupted traditional film photography. 3. Online Streaming: Streaming services disrupted the DVD rental and cable TV industries. 4. Electric Vehicles: EVs are disrupting the traditional automotive industry. 5. Mobile Phones: Mobile phones disrupted landline telephony and have evolved into smartphones, changing various industries. |
Implications | Disruptive innovations have significant implications: 1. Market Upheaval: They can lead to market disruptions, causing established companies to lose market share or even go out of business. 2. Business Model Innovation: Companies may need to adapt their business models to remain competitive. 3. Competitive Advantage: Embracing disruptive innovations can provide a competitive advantage. 4. Continuous Improvement: Incumbents must focus on innovation to stay ahead of potential disruptors. 5. New Opportunities: Disruptive innovations can create new opportunities for entrepreneurs and startups. |
Challenges | Challenges in dealing with disruptive innovation include recognizing it early, balancing investments in existing products and new innovations, and overcoming resistance to change within established organizations. Companies may also struggle to disrupt their own successful products, as it can involve cannibalizing existing revenue streams. |
Understanding disruptive innovation
Christensen first introduced the theory behind disruptive innovation in his 1997 book The Innovator’s Dilemma and a follow-up entitled The Innovator’s Solution.
In the books, he posited that there were two types of technologies businesses dealt with.
Sustainable technologies enabled a business to improve its performance over a predictable timeframe and remain competitive.
Disruptive technologies, on the other hand, were less predictable and potentially more devastating to industry competitiveness.
Disruptive innovation typically occurs when a product or service establishes itself at the bottom of a market.
This process is facilitated by the product being less expensive and thus more accessible than competitor products, which tend to be expensive, sophisticated, and accessible to relatively few consumers.
It’s important to note that disruptive innovations are not breakthrough technologies that turn good products into great products.
Instead, they are simply innovations that make products or services more accessible and affordable to a larger percentage of the population.
Why does disruptive innovation occur?
Disruptive innovation occurs because most companies tend to innovate faster than their customers’ needs evolve.
This causes a situation where the end product or service is too sophisticated, complex, or expensive for the majority of consumers in a target audience.
So why do companies pursue innovation?
Historically, innovation has been associated with success as it helps the business corner the higher end of the market with the most profitable products.
But this strategy leaves room at the bottom end of the market for a disruptive innovator to enter and potentially become a threat.
Disruptive innovators tend to operate in markets characterized by lower gross margins, smaller target markets, and simpler products and services.
These traits make the bottom end of the market unprofitable and undesirable for firms that have already developed sustaining innovations.
What are the ingredients for disruptive innovation?
In the previous section, we talked about the conditions necessary for a new company to enter the bottom end of the market.
Let’s now explain how this new company can become disruptive by looking at the required ingredients:
Enabling technology
Or technology that can significantly change or improve the way consumers do things.
The speed with which disruptive innovation can occur is a function of how quickly enabling technology is developed and improved upon for mass uptake.
Having said that, it should be noted that the speed of disruption is not the sole determinant of success.
Coherent value network
For disruptive innovation to occur, the network of suppliers, distributors, and partners must also benefit from the enabling technology.
It is not enough for consumers alone to benefit.
Innovative business model
This is simply a business model that targets consumers at the bottom end of the market with innovative products.
Since the model is characterized by low-profit margins and simpler product design, the solutions should be easy to use and economical to produce.
Examples of disruptive innovation
There are countless examples of disruptive innovation in business. In this section, we’ll take a look at some of the more interesting case studies.
Academia
Encyclopedia Britannica was a market leader in encyclopedias and had been printed for 244 years until the last copy was released in 2012.
Encyclopedia Britannica, Inc.’s publisher had cornered the high end of the market, with each edition selling for over $1000.
However, print encyclopedias were quickly usurped by free, digital versions such as Wikipedia.
Wikipedia offered an encyclopedia of unlimited size that was portable and updated constantly.
With its vast bulk and update cycles lasting more than a year, Encyclopedia Britannica was ultimately displaced by a disruptive innovator.
Media entertainment
At its peak, video and game rental company Blockbuster operated more than 9,000 stores and employed approximately 84,300 people.
Though video and game rentals were relatively cheap, increasing data speeds and bandwidth instituted a general shift toward video streaming.
Blockbuster was displaced by smaller players such as Netflix, who offered a cheaper and more convenient alternative.
Today, the company owns the rights to more than 13,000 titles, with prices starting at a mere $8.99/month.
Photography
Film companies such as Kodak enjoyed market dominance in the photography industry for decades.
The company’s photographic film products were synonymous with quality and professionalism, but Kodak was eventually displaced by digital camera manufacturers such as Canon, Sony, Pentax, and Nikon.
Digital photography disrupted film photography because it was more convenient and required less expertise to develop photographs.
Though digital cameras were relatively expensive when they first appeared, the number of digital photographs a consumer could take was not limited by the cost or restrictiveness of film.
Transportation
To date, Concorde is the only supersonic jet that has entered into commercial production.
High operating costs and limited seat capacity meant Concorde tickets were mostly purchased by the wealthy or super-wealthy.
Concorde services ended in 2003 due to high operating costs and a high-profile accident.
However, the rising affordability of small, private jets was also a contributing factor.
Though these jets did not travel at supersonic speed, their quieter operation meant they could fly routes off-limits to the extremely loud Concorde.
Many private jet owners also enjoyed flying between airports without having to move through the terminal with hundreds of commercial passengers.
Key takeaways
- Disruptive innovation describes the process by which a product or service takes hold at the bottom of a market and eventually displaces established competitors, products, firms, or alliances. The term was popularised by American academic and business consultant Clayton M. Christensen.
- Disruptive innovation occurs since most companies tend to innovate faster than their customers’ needs evolve. Innovation typically favors products or services that are too sophisticated, complex, or expensive for the target audience.
- For a market entrant to become a disruptive innovator, there are three crucial ingredients. Technology with the capacity to significantly improve the way consumers do things must first exist. This technology must also benefit suppliers and contractors. Lastly, there must also be a business model that targets consumers at the bottom end of the market with innovative products.
Key Highlights
- Definition and Origin: Disruptive innovation, coined by Clayton M. Christensen, refers to a process where a product or service starts at the bottom of the market and eventually displaces established competitors. Christensen is recognized as a significant management thinker.
- Types of Technologies: Christensen identified two types of technologies: sustainable and disruptive. Sustainable technologies improve performance predictably, while disruptive technologies are less predictable and can disrupt industry competitiveness.
- Process of Disruption: Disruptive innovation unfolds when a product or service gains traction at the market’s lower end. It is usually more accessible and affordable than existing products, which are often expensive and sophisticated.
- Not Breakthrough Technologies: Disruptive innovations differ from breakthrough technologies. They make products or services more affordable and accessible, rather than turning good products into great ones.
- Causes of Disruption: Companies innovate faster than customer needs evolve, leading to products becoming too sophisticated or expensive for the majority. This creates an opening for disruptive innovators to target the less-profitable bottom end of the market.
- Ingredients for Disruption: Three essential ingredients for a new company to become a disruptive innovator:
- Enabling Technology: Technology that significantly changes how consumers operate.
- Coherent Value Network: Suppliers, distributors, and partners must also benefit from the technology, not just consumers.
- Innovative Business Model: A model targeting the lower market end with affordable, easy-to-use solutions.
- Examples of Disruptive Innovation:
- Academia: Encyclopedia Britannica was displaced by Wikipedia’s free digital encyclopedia.
- Media Entertainment: Blockbuster lost to Netflix due to its failure to adapt to streaming trends.
- Photography: Kodak lost its film dominance to digital cameras.
- Transportation: Concorde faced retirement due to high operating costs and limited routes, while small private jets became affordable alternatives.
Case Studies
Company | Disruptive Innovation Strategy | Industry Transformation | Key Innovations and Disruptions | Market Impact and Growth |
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Apple | Transformative consumer electronics | Personal computing and mobile devices | iPhone, iPad, App Store ecosystem | Dominated the smartphone and tablet markets |
Amazon | E-commerce and cloud computing | Retail and web services | Online marketplace, AWS cloud services, Prime membership | Became the world’s largest online retailer and cloud provider |
Internet search and digital advertising | Online search and digital advertising | PageRank algorithm, AdWords, Android OS, Google Maps | Became the dominant search engine and digital advertising platform | |
Microsoft | Personal computing and software ecosystems | Software and business solutions | Windows OS, Office Suite, Azure cloud platform | Established a strong foothold in operating systems and cloud services |
Social networking and online advertising | Social media and digital advertising | News Feed, targeted advertising, acquisition of Instagram | Grew to billions of users and became a major advertising platform | |
Netflix | Streaming media and original content | Traditional TV and movie rental | On-demand streaming, original content production | Revolutionized the way people consume entertainment |
Airbnb | Peer-to-peer lodging and travel experiences | Hospitality and travel industry | Online platform for short-term rentals and unique stays | Disrupted the hotel industry and expanded global travel options |
Uber | Ride-sharing and on-demand transportation | Taxi and transportation services | Ride-sharing app, food delivery, and logistics services | Transformed urban transportation and delivery services |
Tesla | Electric vehicles and sustainable energy solutions | Automotive and energy industries | High-performance electric cars, battery technology | Pioneered electric vehicle adoption and renewable energy solutions |
SpaceX | Private space exploration and satellite deployment | Aerospace and space exploration | Reusable rockets, commercial space travel | Reduced space launch costs and expanded commercial space travel |
Airbnb | Peer-to-peer lodging and travel experiences | Hospitality and travel industry | Online platform for short-term rentals and unique stays | Disrupted the hotel industry and expanded global travel options |
Uber | Ride-sharing and on-demand transportation | Taxi and transportation services | Ride-sharing app, food delivery, and logistics services | Transformed urban transportation and delivery services |
Tesla | Electric vehicles and sustainable energy solutions | Automotive and energy industries | High-performance electric cars, battery technology | Pioneered electric vehicle adoption and renewable energy solutions |
SpaceX | Private space exploration and satellite deployment | Aerospace and space exploration | Reusable rockets, commercial space travel | Reduced space launch costs and expanded commercial space travel |
Airbnb | Peer-to-peer lodging and travel experiences | Hospitality and travel industry | Online platform for short-term rentals and unique stays | Disrupted the hotel industry and expanded global travel options |
Uber | Ride-sharing and on-demand transportation | Taxi and transportation services | Ride-sharing app, food delivery, and logistics services | Transformed urban transportation and delivery services |
Tesla | Electric vehicles and sustainable energy solutions | Automotive and energy industries | High-performance electric cars, battery technology | Pioneered electric vehicle adoption and renewable energy solutions |
SpaceX | Private space exploration and satellite deployment | Aerospace and space exploration | Reusable rockets, commercial space travel | Reduced space launch costs and expanded commercial space travel |
Related Concepts | Description | When to Apply |
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Disruptive Innovation | Disruptive Innovation refers to the introduction of a new product, service, or business model that significantly alters existing markets, often by addressing previously underserved or overlooked customer needs or by making products and services more accessible, affordable, or convenient. Disruptive innovations typically start as niche offerings but eventually gain traction and displace established competitors, leading to a reshaping of industry dynamics and market landscapes. They often emerge from outside the mainstream market and initially cater to overlooked or low-end segments before gradually expanding their market reach and disrupting incumbents. Disruptive innovations can create new opportunities for growth, challenge traditional business models, and drive industry transformation by leveraging technological advancements, changing consumer preferences, or addressing unmet market needs. Understanding disruptive innovation helps organizations anticipate market shifts, identify emerging opportunities, and adapt strategies to remain competitive in dynamic business environments. | – When identifying opportunities for innovation or market disruption in existing industries or markets. – Particularly in industries experiencing technological advancements, changing consumer preferences, or emerging market trends, where disruptive innovations have the potential to reshape industry dynamics and create new growth opportunities. Recognizing disruptive innovation enables organizations to proactively innovate, anticipate market shifts, and adapt strategies to capitalize on emerging trends or address unmet customer needs, fostering competitiveness and long-term sustainability in dynamic business environments. |
Innovator’s Dilemma | Innovator’s Dilemma is a concept that describes the challenges faced by established companies when responding to disruptive innovations. It suggests that successful organizations often focus on sustaining innovations that cater to existing customers’ needs and preferences, overlooking disruptive innovations that target underserved or overlooked market segments. The Innovator’s Dilemma arises when companies prioritize short-term profitability and incremental improvements over long-term innovation and fail to recognize or adequately respond to disruptive threats to their business models. Addressing the Innovator’s Dilemma requires organizations to balance investments in sustaining innovations with exploratory initiatives that foster experimentation, agility, and adaptability to emerging market trends and disruptive forces. | – When evaluating strategic decisions or investment priorities in response to disruptive threats or emerging market trends. – Particularly in established companies or industries facing disruptive innovations, where there is a need to balance short-term profitability with long-term innovation and adaptability to remain competitive. Recognizing the Innovator’s Dilemma prompts organizations to reassess their innovation strategies, foster a culture of experimentation and risk-taking, and allocate resources effectively to sustain growth and competitiveness in dynamic business environments characterized by disruptive forces and market uncertainties. |
Technology Adoption Lifecycle | Technology Adoption Lifecycle is a model that describes the stages through which individuals or organizations adopt new technologies over time. It categorizes adopters into segments based on their willingness to try new innovations, ranging from innovators and early adopters to early majority, late majority, and laggards. The model suggests that different adopter groups have distinct characteristics, motivations, and preferences regarding technology adoption, influencing the pace and diffusion of innovations in the market. Understanding the technology adoption lifecycle helps innovators and marketers tailor their strategies to target specific adopter segments, accelerate adoption rates, and overcome barriers to adoption by addressing adopters’ unique needs, concerns, and preferences at each stage of the adoption process. | – When introducing new technologies or innovations to the market and planning adoption strategies. – Particularly in industries or markets characterized by rapid technological advancements or disruptive innovations, where understanding adopter behaviors and preferences is critical for accelerating market adoption and gaining competitive advantage. Applying the technology adoption lifecycle model enables innovators and marketers to identify target segments, tailor messaging and incentives, and develop adoption strategies that resonate with different adopter groups, ultimately accelerating technology diffusion and market penetration while addressing barriers to adoption and resistance to change. |
Open Innovation | Open Innovation is a collaborative approach to innovation that involves leveraging external ideas, resources, and partnerships to accelerate the development and commercialization of new products, services, or technologies. It emphasizes the importance of sharing knowledge, collaborating with external stakeholders, and integrating external inputs into the innovation process to drive creativity, efficiency, and competitiveness. Open innovation practices encompass various strategies, such as crowdsourcing, technology scouting, strategic partnerships, and collaborative R&D initiatives, to tap into external expertise, access complementary capabilities, and exploit market opportunities more effectively than traditional closed innovation approaches. Embracing open innovation enables organizations to access a broader pool of ideas, reduce R&D costs, mitigate risks, and expedite time-to-market for innovations while fostering a culture of collaboration, entrepreneurship, and continuous learning within and beyond organizational boundaries. | – When seeking to accelerate innovation, access external expertise, or exploit market opportunities more effectively. – Particularly in industries or organizations facing technological disruptions, resource constraints, or market uncertainties, where open innovation approaches offer strategic advantages in tapping into external knowledge, accessing complementary capabilities, and driving collaborative problem-solving and innovation. Adopting open innovation practices enables organizations to leverage external networks, share risks and rewards, and capitalize on emerging opportunities by fostering collaboration, agility, and adaptability in the innovation process, ultimately enhancing competitiveness and resilience in dynamic business environments characterized by rapid change and disruption. |
Lean Startup Methodology | Lean Startup Methodology is an approach to entrepreneurial innovation that emphasizes rapid experimentation, iterative product development, and customer feedback to validate business ideas, minimize risks, and optimize resource allocation. It advocates for building minimum viable products (MVPs) to test hypotheses, gather customer insights, and validate market demand before scaling operations or investing significant resources. The Lean Startup Methodology emphasizes a cycle of Build-Measure-Learn, where startups iteratively develop, test, and refine their products or services based on continuous feedback from customers and stakeholders, enabling them to adapt quickly to market dynamics, pivot as needed, and achieve product-market fit more efficiently. Adopting Lean Startup principles enables entrepreneurs and organizations to validate business concepts, iterate product designs, and optimize business models iteratively while maximizing learning and innovation outcomes and minimizing the risks associated with traditional business ventures. | – When launching new ventures, products, or services and seeking to validate business concepts or minimize risks. – Particularly in startup environments, innovation initiatives, or product development projects, where there is uncertainty about market demand, customer preferences, or product-market fit. Implementing Lean Startup Methodology facilitates rapid experimentation, customer validation, and iterative development processes, enabling entrepreneurs and organizations to optimize resource allocation, accelerate learning cycles, and increase the likelihood of success by validating hypotheses, mitigating risks, and aligning product offerings with customer needs and market opportunities more effectively than traditional business approaches. |
Agile Development | Agile Development is an iterative approach to software development and project management that emphasizes flexibility, collaboration, and responsiveness to changing requirements or customer feedback. It involves breaking down projects into small, manageable tasks or iterations, known as sprints, and continuously delivering incremental improvements or updates based on evolving priorities and stakeholder inputs. Agile methodologies, such as Scrum or Kanban, prioritize customer value, teamwork, and adaptability, enabling cross-functional teams to collaborate closely, respond to feedback rapidly, and deliver high-quality products or services more efficiently than traditional waterfall approaches. Adopting Agile Development practices fosters transparency, accountability, and innovation while reducing development cycle times, enhancing product quality, and increasing customer satisfaction by aligning development efforts with evolving market needs and customer expectations. | – When managing software development projects or product development initiatives and aiming to increase agility, responsiveness, or collaboration. – Particularly in dynamic environments or industries characterized by rapidly changing requirements, emerging technologies, or evolving customer preferences, where traditional project management approaches may be too rigid or slow to adapt. Implementing Agile Development methodologies empowers teams to prioritize customer value, embrace change, and deliver incremental improvements iteratively, enhancing efficiency, quality, and innovation outcomes while maximizing stakeholder satisfaction and adaptability to changing market dynamics and competitive pressures. |
Blue Ocean Strategy | Blue Ocean Strategy is a strategic framework that advocates for creating uncontested market space and making competition irrelevant by pursuing innovation, differentiation, and value innovation. It involves identifying and capitalizing on untapped market opportunities, known as blue oceans, where demand is not yet satisfied, and competition is minimal or non-existent. Blue Ocean Strategy encourages organizations to shift focus from competing in crowded markets, known as red oceans, where competition is fierce and differentiation is challenging, to creating new market spaces or redefining industry boundaries through innovative value propositions, business models, or market segmentation strategies. By adopting a blue ocean mindset, organizations can unlock new growth avenues, attract non-customers, and capture value by offering unique value propositions that resonate with unmet customer needs or preferences, ultimately reshaping industry landscapes and achieving sustainable competitive advantage. | – When formulating business strategies or seeking to unlock new growth opportunities in existing markets or industries. – Particularly in competitive markets or industries facing saturation, commoditization, or declining margins, where traditional competitive strategies may yield diminishing returns or limited differentiation. Applying Blue Ocean Strategy principles enables organizations to identify untapped market spaces, differentiate their offerings, and create new demand by innovating value propositions, business models, or market boundaries, ultimately reshaping industry dynamics, outperforming competitors, and achieving sustainable growth and profitability by making competition irrelevant and capturing new value from non-customers or underserved market segments. |
Design Thinking | Design Thinking is a human-centered approach to innovation that emphasizes empathy, creativity, and iterative problem-solving to address complex challenges and uncover unmet user needs. It involves understanding user perspectives, ideating innovative solutions, prototyping concepts, and testing assumptions iteratively to co-create value with end-users. Design Thinking leverages interdisciplinary collaboration, user-centricity, and iterative experimentation to generate breakthrough ideas, refine designs, and deliver user-centered solutions that resonate with user preferences and behaviors. Adopting Design Thinking methodologies empowers teams to challenge assumptions, explore diverse perspectives, and innovate collaboratively to create meaningful and impactful solutions that address real-world problems and enhance user experiences in various domains, including product design, service delivery, process improvement, and social innovation. | – When tackling complex challenges, exploring new opportunities, or developing innovative solutions to user problems. – Particularly in product development, service design, organizational change, or social innovation initiatives, where user-centricity, creativity, and collaboration are critical for generating breakthrough ideas and delivering meaningful outcomes. Implementing Design Thinking methodologies enables teams to empathize with users, generate insights, and prototype solutions iteratively, fostering creativity, innovation, and user-centeredness while addressing unmet needs and driving positive change in diverse contexts by challenging conventions, exploring possibilities, and co-creating value with stakeholders. |
Platform Business Model | Platform Business Model is a strategic approach that leverages digital platforms to facilitate interactions and transactions between producers and consumers, enabling value co-creation and ecosystem growth. It involves creating digital infrastructure, such as online marketplaces, social networks, or software platforms, that connect multiple stakeholders, facilitate exchange, and enable participants to interact, transact, or collaborate effectively. Platform business models unlock network effects, economies of scale, and innovation potential by fostering ecosystem dynamics, where platform owners, producers, and users contribute complementary resources, generate network effects, and share value within the platform ecosystem. Adopting platform business models enables organizations to create scalable, resilient, and adaptive ecosystems that drive innovation, capture value, and sustain competitive advantage by fostering collaboration, openness, and participation among diverse stakeholders in digital marketplaces or ecosystems. | – When developing digital business strategies or launching platform-based initiatives to facilitate interactions or transactions between stakeholders. – Particularly in digital markets or industries characterized by network effects, ecosystem dynamics, or platform-based competition, where traditional linear business models may be less effective in capturing value or fostering innovation. Embracing platform business models enables organizations to create digital platforms, build ecosystem partnerships, and harness network effects to scale operations, foster innovation, and capture value by facilitating interactions, transactions, or collaborations among diverse stakeholders within platform ecosystems, ultimately driving ecosystem growth, user engagement, and competitive advantage in digital markets. |
Corporate Entrepreneurship | Corporate Entrepreneurship refers to the pursuit of entrepreneurial activities and behaviors within established organizations to drive innovation, growth, and value creation. It involves fostering an entrepreneurial mindset, culture, and initiatives that encourage employees to identify opportunities, take calculated risks, and pursue innovative ideas or ventures that align with organizational goals and strategies. Corporate entrepreneurship encompasses various activities, such as internal ventures, intrapreneurship programs, corporate incubators, and strategic alliances, aimed at fostering innovation, agility, and competitive advantage within the organization. Embracing corporate entrepreneurship enables organizations to tap into internal talent, leverage existing resources, and adapt to changing market dynamics by fostering a culture of experimentation, collaboration, and continuous learning that fuels innovation, resilience, and long-term competitiveness in dynamic business environments characterized by uncertainty and disruption. | – When fostering innovation, agility, or growth within established organizations or corporate environments. – Particularly in large enterprises, established companies, or traditional industries facing market disruptions, where there’s a need to cultivate entrepreneurial behaviors, encourage risk-taking, and drive innovation to sustain competitiveness and adaptability. Embracing corporate entrepreneurship involves creating an enabling environment, supporting intrapreneurial initiatives, and empowering employees to experiment, collaborate, and pursue innovative ideas or ventures that drive value creation, growth, and differentiation within the organization, ultimately fostering a culture of innovation, resilience, and long-term success in dynamic business landscapes characterized by rapid change and technological disruptions. |
What are the four points to disruptive innovation?
The four points of disruptive innovation are:
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