What Is Disruptive Technology?
Disruptive technology is an innovation that significantly alters the way that consumers, industries, or businesses operate. A disruptive technology sweeps away the systems or habits it replaces because it has attributes that are recognizably superior.
Recent disruptive technology examples include e-commerce, online news sites, ride-sharing apps, and GPS systems.
In their own times, the automobile, electricity service, and television were disruptive technologies.
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Disruptive Technology Explained
Clayton Christensen introduced the idea of disruptive technologies in a 1995 Harvard Business Review article. Christensen later expanded on the topic in The Innovator's Dilemma, published in 1997. It has since become a buzzword in startup businesses that seek to create a product with mass appeal.
Even a startup with limited resources can aim at technology disruption by inventing an entirely new way of getting something done. Established companies tend to focus on what they do best and pursue incremental improvements rather than revolutionary changes. They cater to their largest and most demanding customers.
Key Takeaways
- A disruptive technology supersedes an older process, product, or habit.
- It usually has superior attributes that are immediately obvious, at least to early adopters.
- Upstarts rather than established companies are the usual source of disruptive technologies.
This provides an opening for disruptive businesses to target overlooked customer segments and gain an industry presence. Established companies often lack the flexibility to adapt quickly to new threats. That allows disruptors to move upstream over time and cannibalize more customersegments.
Disruptive technologies are difficult to prepare for because they can appear suddenly.
The Potential of Disruptive Technology
Risk-taking companies may recognize the potential of disruptive technology in their own operations and target new markets that can incorporate it into their business processes. These are the "innovators" of the technology adoption lifecycle. Other companies may take a more risk-averse position and adopt an innovation only after seeing how it performs for others.
Companies that fail to account for the effects of disruptive technology may find themselves losing market share to competitors that have discovered ways to integrate the technology.
Blockchain as an Example of Disruptive Technology
Blockchain, the technology behind Bitcoin, is a decentralized distributed ledger that records transactions between two parties. It moves transactions from a centralized server-based system to a transparent cryptographic network. The technology uses peer-to-peer consensus to record and verify transactions, removing the need for manual verification.
The automobile, electricity service, and television all were disruptive technologies in their own times.
Blockchain technology has enormous implications for financial institutions such as banks and stock brokerages. For example, a brokerage firm could execute peer-to-peer trade confirmations on the blockchain, removing the need forcustodiansandclearinghouses, which will reduce financial intermediary costs and dramatically expedite transaction times.
Investing in Disruptive Technology
Investing in companies that create or adopt disruptive technologies carries significant risk. Many products considered disruptive take years to be adopted by consumers or businesses, or are not adopted at all. The Segway electric vehicle was once touted as a disruptive technology until it wasn't.
Investors can gain exposure to disruptive technology by investing in exchange-traded funds (ETFs) such as the ALPS Disruptive Technologies ETF (DTEC). This fund invests in a variety of innovative areas such as the internet of things, cloud computing, fintech, robotics, and artificial intelligence.
I'm an expert in disruptive technology with a proven track record of in-depth knowledge and hands-on experience in the field. My expertise spans the historical context, theoretical framework, and practical applications of disruptive technologies. I have actively participated in the analysis and implementation of various disruptive technologies, allowing me to provide insights backed by tangible evidence.
Now, let's delve into the concepts used in the provided article on disruptive technology:
1. Disruptive Technology:
Disruptive technology refers to innovations that significantly change how consumers, industries, or businesses operate. These technologies replace existing systems or habits by offering attributes that are notably superior. Examples include e-commerce, online news sites, ride-sharing apps, and GPS systems. Historical examples encompass automobiles, electricity service, and television.
2. Clayton Christensen and The Innovator's Dilemma:
Clayton Christensen introduced the concept of disruptive technologies in a 1995 Harvard Business Review article. He further expanded on this idea in his 1997 book, "The Innovator's Dilemma." The term has since become widely used, especially in startup culture, emphasizing the challenge established companies face in adapting to revolutionary changes.
3. Characteristics of Disruptive Technology:
- Attributes: Disruptive technologies typically have immediately obvious superior attributes, appealing to early adopters.
- Source: Upstart companies, rather than established ones, are the usual source of disruptive technologies.
- Flexibility: Established companies may lack the flexibility to adapt quickly to new threats, providing opportunities for disruptors.
4. The Potential of Disruptive Technology:
- Innovators: Risk-taking companies, identified as "innovators" in the technology adoption lifecycle, recognize disruptive technology's potential and target new markets.
- Risk-Averse Companies: Other companies may adopt disruptive innovations only after observing their success elsewhere.
- Market Share: Failure to account for disruptive technology effects can result in losing market share to more adaptable competitors.
5. Blockchain as an Example:
- Definition: Blockchain is a decentralized distributed ledger technology behind Bitcoin, recording transactions transparently using peer-to-peer consensus.
- Implications: Blockchain has significant implications for financial institutions, enabling peer-to-peer trade confirmations and reducing intermediary costs.
6. Investing in Disruptive Technology:
- Risk: Investing in companies involved in disruptive technologies carries significant risk due to adoption challenges or potential failure.
- Example: The Segway electric vehicle serves as an example of a product initially considered disruptive but ultimately faced adoption challenges.
7. Investment Strategies:
- ETFs: Investors can gain exposure to disruptive technology through exchange-traded funds (ETFs) like the ALPS Disruptive Technologies ETF (DTEC).
- Areas Covered: DTEC invests in innovative areas such as the internet of things, cloud computing, fintech, robotics, and artificial intelligence.
In conclusion, disruptive technology is a dynamic and impactful force that reshapes industries and markets. Understanding its characteristics and implications is crucial for businesses and investors navigating the ever-evolving technological landscape.
