Innovation Theories: Airbnb's Disruptive and Blue Ocean Strategies

Desklib provides past papers and solved assignments. This report analyzes Airbnb's innovative strategies.

Managing Innovation
1

Executive Summary
Innovation allows business organisations to develop their market share in the competitive
market economy. There are numerous innovation theories that influence the business
operations of companies operating in the market economy. The effectiveness of incorporating
disruptive innovation and blue ocean strategy in business activities enable the companies to
develop their profitability in the competitive market economy. The study develops a brief
understanding of the innovative tactics that Airbnb implements in its business operations. The
study identifies the innovations that Airbnb implements in its business operations. Disruptive
innovation and blue ocean strategy are observed in the operations of Airbnb as observed in
the study.
2

Table of Contents
Introduction................................................................................................................................4
1. Describe in details one or more innovation theories of your choice......................................5
2. Apply each of the chosen theory or theories in explaining the historical development of one
or more products and/or services, and the possible future development pathways of your
products or services....................................................................................................................9
Conclusion................................................................................................................................13
Reference List..........................................................................................................................14
3

Introduction
Innovation can be referred to as the process of modifying a concept or an idea into goods or
services, which can either develop value or produce profit. Alternatively, managing
innovation can be defined as the method of dealing with a variety of activities that are needed
introducing new goods and services in the market. The different activities that are necessary
for managing innovation include developing new and fresh ideas, prioritising, along with
practical application of the ideas and concepts. These are the topic areas, which will be
focused on, in the context of the organisation named Airbnb, in this report. Additionally, two
different innovation theories will be explained in a detailed manner and applied to the
innovations of the selected company.
Airbnb is a multinational organisation that was established in the year 2008 in the month of
August. The headquarters of the hospitality business is situated at California, in the United
States of America. The company is well-known for providing hospitality services, which are
inclusive of quality tourism experience, home stay provisions, lodging facilities, along with
many others. The establishment has a global presence across 81,000 cities in 191 nations
(Press.airbnb.com, 2019). The yearly revenue generated by Airbnb stands around $3 billion.
4

1. Describe in details one or more innovation theories of your choice
There are various innovation theories, out of which two will be discussed in this report. These
two theories are Disruptive Innovation Theory and Blue Ocean Innovation Theory. The
descriptions of these theories are provided as follows.
Disruptive Innovation Theory
The theory of disruptive innovation develops new market along with value network, in order
to ultimately disrupt the market as well as the network value that currently exists, through
dislodging the leading organisations, goods, services, and alliances (Christensen et al., 2015).
The theory was created by Clayton M. Christensen, which was published in his book called
The Innovator's Dilemma that published in the year 1997 (Christenseninstitute.org, 2019).
The market trends along with the demands and requirementsof the customers keep on
changing with the passing of time, of which the organisations require being aware. The
theory of disruptive innovation can be helpful in addressing these transforming trends,
demands and requirements. This is done by developing products and services according to the
contemporary market trends along with the demands and needs of the customers (King and
Baatartogtokh, 2015). This particular theory has been utilised by various firms. The selected
organisation Airbnb expanded its business, as well as acquired competitive advantage in the
tourism industry through the implementation of this innovation theory. At present, various
establishments indulge in developing innovative concepts with the assistance of the
disruptive theory of innovation.
5

Figure 1: Disruptive innovation
(Source: Christensen et al., 2015)
Characteristics of the theory of Disruptive Innovation
 The theory suggests beginning innovation with a purpose along with a small issue, instead
of big concepts.
 The theory is founded on what individuals actually do, instead of what they claim to do.
 This theory enables businesses to tap into the dormant desires of their target segment.
 It also assists with developing value among the perception of the consumers.
 Implementation of the theory will help in creating cost effective products and service with
low investments.
Benefits of Disruptive Innovation Theory
Similar to other theories, the disruptive innovation consists of a number of benefits, which are
listed as follows:
 Application of this theory can be beneficial for an organization in terms of acquiring the
opportunity of penetrating a new market in a slow pace and obtain various new scopes.
 The theory can be helpful for market expansion through innovation with fresh as well as
existing goods and services.
 The existing operations might be revealed to the light of exigency, by assessing the areas
of structural and process enhancement.
 Implantation of this theory will assist companies to identify the present as well as future
leaders within the business.
 The theory can provide business opportunities to companies for the future.
Restrictions of Disruptive Innovation Theory
Apart from the benefits, which have been mentioned above, this theory possesses various
limitations, which are explained as follows:
 The new products or services developed through disruptive innovation theory already
exist in the market. Therefore, it can be stated that the solutions provided with the
application of this theory of innovation is not completely distinctive.
6

 Companies on the utilization of this innovation theory can be prevented by the leading
organizations in the market form succeeding.
 Organisations might not be able to cope with the technological innovations, transforming
customer demands and market trends even following the implementation of the disruptive
innovation theory.
Recommendations regarding implementation
 The most appropriate manner of applying the disruptive innovation theory in an
organisational context is through involving the latest technologies.
 Organisations that are capable of coping up with the transforming marketing trends,
customer demands and technological advancements can succeed with the application of
disruptive innovation theory.
Blue Ocean Strategy
The Blue Ocean Strategy is a theory related to marketing which was devised by W. Chan
Kim, along with Renée Mauborgne. The strategy revolves around in search of a business
where only a limited number of companies operate and lacks pricing pressure
(Blueoceanstrategy.com, 2019). The strategy can be referred to as a market for goods, in
which there is zero to minimal rivalry. It has six different principles which are listed as
follows:
 Reconstructing the market boundaries
 Concentrating on the big picture instead of the numbers
 Going beyond the current demand
 Forming the strategic sequence in the right manner
 Overcoming the key hurdles within the organisation
 Developing execution into strategy
The theory can be implemented in different kinds of businesses. When there is restricted
room for expansion, organisations attempts to search for avenue or verticals of finding fresh
business in which the companies will be able to enjoy market shares uncontested in nature.
Implementation of this theory can help organisations acquire opportunities for higher profit
due to minimal or irrelevant competition. The aim of the blue ocean strategy is capturing
latest demand along with making rivalry irrelevant through introduction of a good or service
possessing superior features (Kim and Mauborgne, 2014). In addition to that, the strategy
7

assists organisations in acquiring huge amounts of profits since the goods or services can be
priced higher than usual due to its distinctive features.
Figure 2: Blue ocean strategy
(Source: Blueoceanstrategy.com, 2019)
Characteristics of the strategy of Blue Ocean
The key traits of the Blue Ocean theory are explained as follows:
 The strategy states that although there is requirement for competitions, organisations must
concentrate resources in exploring or forming new demands as well as new markets.
 Three traits are used by this strategy for determining whether a strategy is viable or not.
These three traits are divergence, focus, along with a tagline that is compelling in nature.
 The main focus of this theory is on creation of value.
 It also concentrates on identifying as well as attracting the potential future customers.
Benefits of Blue Ocean Innovation Strategy
There are various benefits that organisations can acquire on the implementation of this
theory, which are listed as below:
 The blue ocean strategy assists with creating a market space that is uncontested in nature
 It transforms the competition into irrelevant.
 The strategy is advantageous in terms of creating as well as capturing the new demands of
the consumers
8

 The blue ocean strategy assists with aligning the entire system of an organisation’s
activities in order to pursue differentiation along with low cost.
Limitations of Blue Ocean Innovation Strategy
In contrast to the benefits, the Blue Ocean Innovation Theory possesses a number of
limitations that are described as follows:
 The implementation of this theory will not help an organisation to come up with most
suitable innovation strategy as which new market is to be selected can become confusing.
 Application of this theory can result in penetrating a new market in a stage too early. The
customers might not be capable of comprehending the products or services sold by an
organisation.
 Penetration of a new market can be difficult. Along with the application of the innovation
theory, the companies require being smart regarding identification of customers, as well
as which requirement of the customers is being solved by them.
Recommendations regarding implementation
 Companies during application of the blue ocean strategy must concentrate on the value of
the products or services that they are selling in order to make it unique.
 Organisations must also develop a pricing strategy that will align with the value created
by their products or services during the course of implementation of the above-mentioned
strategy or marketing theory.

9

2. Apply each of the chosen theory or theories in explaining the historical development
of one or more products and/or services, and the possible future development pathways
of your products or services.
Airbnb is a multinational organisation that is based in the United States of America. It
provides hospitality services along with operating an online marketplace.
Implementation of Disruptive Innovation Theory on Airbnb
The company of Airbnb has applied the theory of disruptive innovation in order to penetrate a
new market that is the travel and tourism industry. In addition to that, it can be stated the
business model of the concerned company has been developed with the implementation of
the theory mentioned above (Varma et al., 2016). The application of disruptive innovation
has helped Airbnb to develop its entire businesses based on the modern internet technologies.
The distinctive attractiveness of the firm is founded on various aspects, for instance, cost
effectiveness, household facilities, as well as the scope of having an authentic local tourism
experience (Guttentag, 2015). The company was established as a result of initiation of three
friends. These individuals with the application of the disruptive innovation theory have
transformed their start up to the organisation that Airbnb is at present. Therefore, it can be
said that this particular theory of innovation has helped the concerned organisation to disrupt
the exhibiting industry of travel and tourism that offered the tourists with services such as
accommodations, travel experiences and many others.
The founders of Airbnb, Brian Chesky, Nathan Blecharczyk, and Joe Gebbia created a new
market for a specific target segment of travellers by concentrating on their demands and
requirements (Inc.com, 2017). Thus, it can be declared that with the application of this
strategy, the establishment of Airbnb has been able to not only penetrate a new market, but
also acquire a competitive advantage. The disruptive innovation theory has help Airbnb to
develop the services that it provides. For instance, the organisation allows the hosts to upload
pictures of their homes, cottages, apartments and others as such on its website, so that the
renters can avail these apartments or cottages on rent (Biber et al., 2017). In additions to that,
the travellers can find accommodations of all sort sorts of prices starting form low to high.
The tourists can select accommodations based on location, along the costs they can afford.
10

Figure 3: Airbnb usage of disruptive innovation model
(Source: Karjalainen and Gang, 2016)
Airbnb has become a tough competitor to all the businesses belonging to the industries of
travel and tourism, along with hospitality (Guttentag et al., 2018). These existing companies
are not being capable of coping up with the innovation of Airbnb. Moreover, it can be stated
that the concerned organisation has been well-known all across the globe due to its
innovations. The company has allowed travellers from all types of income groups with the
different provisions mentioned above at comparatively low rates. As a result, the business did
not need hiring staffs for executing the different operations of the business. Hence, it can be
said that the theory of disruptive innovation has enabled the organisation to create solutions
that are cost effective in nature for the travellers with a low value. However, it has to be
mentioned that, the popularity of the establishment has developed due to the implementation
of the blue ocean strategy (Vakhariya, 2017). This has allowed Airbnb to develop the quality
of the services, which they provided.
Therefore, it can be observed that, through the application of the disruptive innovation theory,
the concerned organisation of Airbnb has been capable of creating a market that is completely
new. This brand new market did not actually subsist in the past. The selected target segment
of the firm, which is traveller interested in renting accommodation form the regional and
local host community during holidays, has been in existence previously. Nevertheless, the
11

fact that this particular market for the travellers was not there in the past cannot be avoided.
The disruptive innovation theory has made it possible for the concerned company of Airbnb.
Implementation of Blue Ocean Strategy on Airbnb
Considering Airbnb’s business development in the global business environment over the
years, it can be stated that the company implemented value innovation efficiently (Bashir and
Verma, 2016). The concept of providing residential services to tourists in various locations
through social network enabled the organisation to succeed in the competitive market
economy. The company, in their business development strategy, develops the core concept of
value innovation by engaging with the host community (Guttentag, 2015). The business
model followed by Airbnb in catering to the specific need of the customers is evidenced by
the company’s ability to integrate the local host community with the guests (Camilleri and
Neuhofer, 2017). The company’s growth in the hospitality industry is traced back to the
development of their business model using shared economy as a tactic.
The company generates revenue by providing the tourists with housing in different tourist
destinations through social media. The company does not avail any property but collaborates
with the host community of different regions in order to generate a sustainable business
model for the hospitality industry. The ability of the company to develop the tourism and
hospitality business environment through effective value and process innovation enabled the
company to succeed in the competitive business environment. The value of the service that
Airbnb provides to their customers resides in the fact that the company is able to provide their
customers with authentic tourist experience (Guttentag and Smith, 2017). The company
performs this by incorporating the host community with the tourist community. This ensures
sustainable growth and development of the tourism industry of the destination as well.
The growth of Airbnb in hospitality and tourism sector through Blue Ocean Strategy in their
business planning can be examined through the additions the company has integrated in their
service providing activities (Karjalainen and Gang, 2016). Airbnb provides residential
activities to the tourists in a variety of areas using a shared economy business model that is
innovative in the hospitality industry. By providing the host community with a platform to
communicate directly with the tourists, Airbnb enabled the tourism industry to generate
sustainable tourism plan for the destination (Oskam and Boswijk, 2016). The effectiveness of
the blue ocean strategy that Airbnb incorporated in their business model would prove
12