Innovation is important in keeping a business relevant in the market. Innovation also breeds loyalty among employees who want to be a part of an organization that's a game-changer. Yet innovation doesn't come easy; not only does it take ideation, it takes anticipation, observation, planning and resources.

This week, Promotional Consultant Today is featuring a three-part series on types of innovation and how they fit into an overall business strategy. We started with breakthrough, then new market and today we end with disruptive innovation, as explained by innovation expert and founder of TheInnovationManager, Jake Nielsen.

Disruptive innovation was first defined by Harvard Business School professor Clayton Christensen, who described disruptive as, according to Nielsen, " … the idea that startups are able to gain significant market acceptance for their products through simplifying the user experience, lowering the cost and reducing the number of features in a product to a degree that allows a large group of consumers to adopt the product."

According to the professor's research, the mistake most companies often made was adding too many features to their products—so many that the products became too complicated for their customers to use. Because of this, these incumbent organizations would eventually succumb to serious challenges from smaller, nimbler firms that offered a much simpler product with far fewer features at a dramatically lower cost.

These emerging products first appealed to less sophisticated (and in most cases, less profitable) customers within a narrow niche. Eventually, however, these products would gain traction by appealing to more sophisticated customers who recognized that they didn't need all the performance they were paying for with the incumbent provider. After some time the startup would capture a large portion of the market and effectively displace the incumbent company as the new leader.

Key factors when developing a disruptive concept:

  • Look for competitors that have over-served their customers to the point where the solution is far more advanced (and expensive) than it needs to be in order to accomplish the main job to be done for that product.

  • Focus on one job to be done rather than several. Disruptive innovation is all about simplification and removal, the polar opposite of breakthrough innovations.

  • Remove as much cost as possible to make the end price affordable for most users. This includes product changes and distribution layers that can add a price burden to the product.

  • Observe the industry trends regarding vertical integration. Disruptive innovation is usually most successfully done during times of vertical dis-integration—for example, at times when companies and products are becoming more modular and less reliant on their own in-house resources for building the entire solution.

Nielsen shares an example of this using Dell Computers. When Michael Dell was a college student he realized that he could order parts, assemble computers on his own and ship them directly to his customers over the internet cheaper than he could buy a computer at retail store. This insight led him to create a new business model (disruptive) for selling computers—order online directly from Dell and have it shipped within a few days to the customer. The cost savings were substantial simply because Dell was able to cut out the retailer in the channel. The benefits for the consumer were also slightly higher because it allowed them to customize their computer to meet their exact specifications.

This model ushered in an era of dis-integration for the computer industry. Dell was technically not a manufacturer of the computer components but rather an assembler of other outsourced components into a final product. This led to further modular designs in computers and to further modularity in the computer industry.

However, Dell has had its struggles. Where the company once enjoyed the success of its disruptive business model, the computer industry—led by Apple's efforts in creating breakthrough innovations such as the iPad—shifted demand. In other words, it wasn't that Dell had stopped making good computers that led to their decline, it was the fact that the company only knew how to make computers that became the major problem.

As you look to expand your business, consider these three innovation strategies. With the right ideas, timing and business focus, you can achieve newfound success.

Source: Jake Nielsen is the founder of TheInnovativeManager.com, which includes the tools and trade secrets great innovators, entrepreneurs and thought leaders have used throughout history to change the world. He is also a contributor to Innovation Excellence, an online home of the global innovation community, building upon a rapidly growing network with thousands of members from over 175 countries.