What is Disruptive Innovation in Business: Your 2025 Guide

While disruptive innovation in business can vary in timing and intensity, it tends to follow similar patterns. Today we’ll define disruptive innovation, talk about how it occurs, and how your company can use it to disrupt markets and find new ways to succeed.

What Is Disruptive Innovation?

Joseph L. Bower and Clayton M. Christensen introduced the theory of disruptive innovation in a 1995 paper. According to them, disruptive innovation describes the process of how a smaller company can challenge larger, more established ones by appealing to markets the established companies are neglecting.

The term “disruptive innovation” gets thrown around a lot, but not all innovation is disruptive. Disruptive innovation in business specifically refers to what happens when established businesses are so focused on their target market segment that other customers fall through the cracks. Disruptive innovators identify these customers and find new ways to meet their needs.

The Stages of Disruptive Innovation in Business

Though disruptive innovation affects all industries and can vary in scope and scale, the process does tend to follow a pattern. Disruptive innovation in business usually goes through three distinct stages, which are:

1. The incubation phase
2. The shakeout phase
3. The saturation phase

Stage One: Incubation

The first stage of disruptive innovation in business is an incubation period. In this stage, the disruptive idea is still being fine-tuned, and there are often many entrepreneurial ventures as well as intrapreneurial initiatives at established businesses competing for dominance. Improvements may be slow at first, but they accelerate as companies experiment and find out what the market really needs.

ready for an example? Everyone remembers the Apple iPod, but when it was first released, hundreds of digital music players were directly competing with it. The first mp3 player actually came out five years before the iPod. During that time and until the iPod rose to complete market dominance, competing companies experimented with all kinds of features and marketing techniques to sell their music players. But it was Apple that truly identified and understood its target market, which helped it nail the aesthetic and functionality its customers wanted.

Stage Two: The Shakeout

As a disruptive innovation finds traction in the market, the next phase is a competitive shakeout in which a dominant product or business model emerges—the iPod, for example. In this stage, the number of players in the market decreases as new ventures go out of business and established companies give up on the new market. When the dust settles, there may only be a handful of major players left.

Apple was the clear winner of the digital music player shakeout. Everyone remembers the iPod, but virtually every competing product was lost to history. Remember the Microsoft Zune? Probably not. When it was introduced, Apple already had the mp3 market in a Chuck Norris headlock, and everyone knows that NOBODY is beating Chuck Norris.

A few years later, smartphones would be the next big disruptive innovation. As was the case with digital music players, many companies tried to develop smartphones during the incubation phase, including established mobile phone makers like Nokia and startups like Handspring. Now, smartphones are a mature technology, and a few brands like Apple and Samsung dominate the market.

Stage Three: Saturation

Over time, the once-disruptive innovation matures and stops growing. The market becomes saturated as the major players in the industry settle into standard offerings. Improvements are still made, but they are less dramatic as each incremental innovation requires more and more effort.

This is when things start to get interesting again. Once the innovation is mature and the market is saturated, innovators start identifying the next market segment ready for disruption, drawing a clear line between disruptive innovation and sustaining innovation. Companies invest in technology and explore new concepts, and when a promising innovation emerges, a new incubation period begins. The cycle of disruptive innovation in business continues.

Tesla is an example of a new disruptor in a saturated market. For the better part of a century, the auto industry was relatively stable. A few major automakers dominated the market, and advancement was mostly limited to incremental (or sustaining) innovation. Then, in the early 2000s, Tesla entered the stage and reinvigorated electric vehicles. This led to a whole new incubation period in which other startups and established market players joined the EV race. Now, the market is flush with disruptive innovations as the cycle of disruption begins again.

How to Harness the Power of Disruptive Innovation

Disruptive innovation doesn’t have to be scary, but by understanding the patterns of disruptive innovation in business and using the right tools to pursue it, you can improve your chances of being the disruptor rather than the disrupted.

Fostering a culture of disruptive innovation isn’t easy—but it’s worth it. Those who disrupt drive their companies and industries into the future, while those who don’t get left behind. Take advantage of tools and methodologies like the modular innovation management solutions by rready, and you’ll encourage disruptive innovation in business that drives success both now and in the future.

rready provides innovation leaders with all the tools they need to encourage disruptive innovation in business. Inspire your team members by bringing them into the innovation process and letting them unleash their creativity.