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CONTEMPORARY ISSUES IN BUSINESS AND MANAGEMENT
Disruptive innovation is a term of much importance in the market of companies. It is a driving factor for shaking up the market and creating different opportunities with the help of new markets, change in the behaviour of the consumer and categories. It is also an infrequent innovation. It may occur in less number throughout the lifespan of any company. For a product portfolio to be healthy, it is needed (Bessant, 2009).
The following writing has a discussion on the meaning of disruptive innovation, the relation of disruptive innovation with the bottom of the pyramid, and a case study where the effect of disruptive innovation on a company is discussed. The company chosen is Tata group of companies that is the manufacturer of Nano cars.
The Tata group of companies was founded in the year 1868 by Jamshedji Tata. This group of companies has become a global enterprise having the headquarters in India. It has about 100 companies operating below it spanning 100 countries and six continents. The revenue was around $103.27 billion for the year 2014-2015. It has a market capitalisation of $150 billion. The companies with significant impact include Tata Motors, Tata Steel, Tata Powers, Tata Communications. Tata Motors are one of the top commercial vehicle producers of the world. It has local investments of great impact. Multinational business are being built by Tata throughout the years. This company tries to make a mark by innovation, trustworthiness, customer-centricity, business operations that are value-driven. The interest of stakeholders including employees and shareholders are well balanced by the company (Mahata, 2012).
Disruptive innovation is a tool for creating value network and the new market by innovation. Disruption occurs in the existing market and the earlier technology is displaced. In business and literature of technology, we use this term. It describes the innovations that contribute to the improvement of service or product. The way in which it is done is unexpected by the market. This is the significance of it. The design of it is targeted for a new set of people who are consumers of the new market and then the price is lowered in the market that already existed. It creates new markets and value network. Thus, changes are made (Pinkse, Bohnsack and Kolk, 2013).
Disruptive innovation is the service or product made for a completely new set of customers. They are straightforward technologically. Off-the-shelf components are consisted in it that is put to it. Product architecture is maintained that is simpler when compared to the previous approaches. A different attribute package is offered that has value in markets that are emerging. Well-managed organisations are hurt by such disruptive innovation. These organisations have good development and responses from customers. The companies that are susceptible to innovations are ignored by such companies. This is because the markets carry a tight margin of profit. Moreover, the markets cannot give a proper rate of growth. Disruptive innovation is an example when strategic counter-productivity can apply to the advice of the companies about focusing on the customers (Christenseninstitute.org, 2015).
In disruptive innovation, there is an integration of new, existing, forward-thinking innovation. Improvement of economic benefits can happen of those companies that are well managed (Christensen et al., 2011). Many a times the companies try to innovate their products in a faster pace than the needs of the customers. The result is that products are very expensive, complicated and sophisticated. At higher ties of the markets, the innovations that are sustaining are pursued by the companies. The reason behind it is the success of the company. The most sophisticated and demanding customers are charged the highest price to get good profit. By following this path, the companies pave a way for disruptive innovations placed at the bottom of the market. Such a change brings about the incidence of access of a product by a new group of consumers (Guttentag, 2015). Features of disruptive business are gross margins that are lower, target markets that are smaller, simpler services and products that are not attractive as the existing ones. Lower gross in margin is created in the market. This results in unattractiveness to companies that are growing in the present market. Space is created for many other disruptive competitors at the bottom of the market (Lawton, 2012).
Critical discussion of how disruptive innovation helps the bottom of the pyramid:
Companies innovate continuously to serve the market of millions of consumers present at the bottom of the pyramid (BOP). Another reason is the desire of the companies to be multinational and to grow in terms of profit. The vulnerability is indicated by the tendency of companies to not consider the bottom of the pyramid market and to focus on the markets that are existing already. It also indicates that disruptive innovations will not be considered in precious time as a choice for a counter measure. The existing large companies have the focus on market and customer with innovations. This leaves new emerging companies that have undeserved bottom of the pyramid market to be experimented with (Witkkin 2009).
Companies that have a lead in the industry with good market share can sometimes lose their position in the market. This gradual loss can be due to innovation they had ignored. The innovation can take away the market and hamper the future of the business. This is a common scenario of disruptive innovation (Vachani& Smith, 2008).
Christensen et al. (2001) point out that such disruptive innovations induce the reshuffling of positions of the companies in different sectors. It is seen but many a times underestimated due to the offerings not suiting the market demand. This is because of the fact that the start is done with unstable, cheap and poor quality innovations. According to Prahalad and Hammond (2002), BOP is featured as a circumstance when capabilities of innovation are ignored and there is thriving of cheap innovations that has inferior offerings. The market segment consists of low-income people getting less than 2000 dollars in a year.
There is a contradiction on whether BOP innovations can be disruptive or not. If so, the factors that make disruptive innovation needs to be identified. According to (Prahalad, 2011), innovation can be considered as disruptive when a company regards an innovation as unsuitable and unfit for the existing customers but it causes the disruption of business model of the companies. A simple application in the bottom of a market is begun for such innovations and gradually surging is achieved for up-market. There is a potential the displace the established market competitors.
(Fischer et al., 2013) Lays out the attributes that qualify BOP innovations as disruptive. Firstly, starting cheap is a factor. Innovations for BOP should logically come out from the requirement of meeting the peculiarities of a target group. The low-income factor of BOP demands innovations that results in some challenges in cost and has offerings of cheap services and goods. BOP fits well in the definition of disruptive innovation that it starts with the focus on a market that is undeserved. It is an indicative that potentials of BOP innovations will be disregarded. Services and products whose impact in the market is difficult to predict are promoted by disruptive innovations. Large companies focus on the main markets that leave new entrants in BOP market to be experimented.
There are different areas from where such disruptive innovations come from. The companies listen to the main customers so that their BOP innovations are not considered as disruptive. There are many points that fit within BOP and concept of innovation. They include cheap, ignorance, mainstream (Landrum, 2007).
Discuss of the effect of the topics above on a chosen company:
The chosen company is the Tata groups of the company. The car Nano is one of the classic examples of disruptive innovation that was done keeping BOP in mind. The main element of its design, business model and development was affordability. The BOP innovation in the making of the car had many factors in it. They included reduction of the cost of the structure elements of the car, preparation to gross margins that may be lower than the standard, aim of selling the car in huge quantities (Wentz, 2010). For achievement of this there was re-engineering of designing, production and distribution of the car to meet the market of BOP. The strategy of the supplier that is employed for outsourcing was also redefined. By following this method, Tata unfolded a strategy that brought a car that could have remained a product of luxury to consumers of the middle-income group. In this way, Nano became the product of choice for millions of people who are buying cars for the first time as it became very affordable.
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