Innovation Management: Applying Disruptive Theory to Amazon's Growth

This report examines Amazon's innovation strategies through the lens of disruptive innovation theory. It begins by defining disruptive innovation, contrasting it with sustaining innovation, and outlining its key principles and merits. The report then applies this theory to Amazon's historical development, highlighting how the company leveraged it to disrupt markets and achieve significant growth. A business model canvas is used to illustrate Amazon's current operations. Furthermore, the analysis extends to potential future development pathways for Amazon, suggesting how the company can continue to innovate and maintain its competitive edge. The report concludes by emphasizing the importance of understanding and applying disruptive innovation theory in today's dynamic business environment. The document is available on Desklib, a platform providing study tools and resources for students.

Amazon Managing
Innovation

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY ..................................................................................................................................1
Theory of Disruptive Innovation............................................................................................1
Application of disruptive innovation theory in historical development context of Amazon. 6
Application of disruptive innovation theory in future development context of Amazon.......8
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11
APPENDIX ...................................................................................................................................13

INTRODUCTION
In the modern business landscape where complexity in conducting operations and
disruptions originating from every aspect of the trade environment are at all time high,
innovation is a very crucial element in determining the success of a firm in it's target market.
Innovation refers to the process by which experimentation and research is conducted in order to
introduce new product lines and services to cater to new business markets or to reinvigorate and
repackage existing products to increase their public perception and overall quality (André, 2020).
The advent of sleek smartphones with no heavy buttons replacing Nokia's bricks, cloud storage
solutions and the immense growth of the global video game industry are all examples of
innovation that we see in our daily lives.
There are many models and theories pertaining to innovation which can be highlighted by
studying the various successful products and services around the world such as the disruptive
innovation theory which resembles the story of an underdog as it states the type of innovative
tendencies that make a small time firm enter the target market at a low level and makes it slowly
become a market leader by displacing top level firms and their products using hi-tech
technologies and competencies (McGurl, 2021).
MAIN BODY
Theory of Disruptive Innovation
Innovation is the driving force behind technological prowess that we get to see in our
surroundings and every business product that is an upgrade over the company's former offering
or is a brand new launch is subject to constant innovative processes. Due to the sheer amount of
innovative tools and techniques that are at a firm's disposal to gain a foothold in it's intended
market segments from smartphones and electronics to gaming consoles and IT solutions like
cloud, there are various approaches and types to this process which all have different principles,
applications and personalized lists of respective merits and demerits (Arnett, Goldfinch and
Chinta, 2018). Some of the most popular theories of innovation include theory of disruptive and
sustaining innovation to name a few. All these concepts are widely applied but all differ from
each other from a strategic point of view as disruptive innovation is concerned mainly with
development of new product cycles to upset the current market proceedings and to create new
markets to expand the business while sustaining theory of innovation works on the notion of
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improvement to an existing product in and established market where innovation fuels upgrades
rather than new value creation (Key Innovation Management Models and Theories, 2022). Best
example for sustaining innovation is cars as over the years, the features in auto-mobiles have
become very advanced by the basic functionality and utility of the vehicle has not changed.
Disruptive and sustainable innovation approaches are both valid and very effective in positioning
a product in the market and both of these concepts can be further broken down into either radical
or an incremental process. Radical type of disruptive innovations are very rare in the business
world and refer to the select few products which manage to shake up the dynamics of an entire
market and leads to either the instant creation of new market niches of closure of an existing
market segment (Brown, 2020). An example of a radical disruptive innovation can be SalesForce
which is a massively popular software and it led to creation of SaaS (software as a service)
business model which has since been adopted in various industries such as video gaming,
insurance and hospitality. Incremental disruption in terms of innovative measures refers to the
continuous step by step improvement which are done on established products to make them
better suitable for the current and future market needs.
This report will focus on the theory of Disruptive Innovation which is the most
recommended and effective way of launching new products and changing the public perception
and competitive positioning of products by focusing on new value creation and upscaling the
business using smart strategies. As a simple definition, the process of disruptive innovation is a
market occurrence in which a small time firm enters a competitive industry or an established
company experiments in a new product market for the first time with limited scope or budget and
upscale their businesses overtime to disturb the market share and profits of the companies
operating at the top and become one of the major players of that business sector by doing so
(What Is Disruptive Innovation?, 2019).
Just like most theories related to business, disruptive innovation also follows a set process
which consists of some market conditions which align together resulting in companies
successfully changing the dynamics and product hierarchy of the chosen segment which is
described herein.
 Businesses which are already well set and established in a particular industry which are
also called 'incumbents' choose to design and upgrade their product lines to cater to the
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customer segment which provides them with the most money which leaves behind many
smaller market niches.
 The new company which aims to apply disruptive innovation in the market enters it and
caters to the niches left behind by incumbents by servicing them at a much lower cost
than it's competitors.
 The firms operating at the very top underestimate the new competition and do not
counteract them and instead choose to focus on designing products for the most profitable
section of their customer base.
 The new entrants gradually upgrade and enhance their product offerings and behind to
cater to the same demographic of customers that the market leading firms do along with
the section of customers they left behind.
 In the final step of this process, the company which entered the market late successfully
manages to convert and service a majority of the customer base of well established
business enterprises and manages to successfully disrupt the market.
This theory can also be demonstrated with the below given model in which the red line indicates
the different trajectory of companies in a given market as incumbents sustain the most profitable
segment available while new entrants claim ignored niches and target the same batch of
customers in the long run. The blue lines represent the extent to which consumers are willing to
spend to attain a specific service or product. In terms of the bigger picture, this model accurately
describes the process of disruptive innovation as the top companies overshoot the needs of lower
demographics which leaves an entry option for new firms with innovative market offerings.
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There are many principles which are related to this theory and provide a better insight into the
workings of firms and the way markets respond to getting disrupted such as:
1. The low income generating markets cannot sustain large or ambitious firms for a long
period of time which makes it a compulsion for them to upscale their businesses and
target a more profitable segment. New entrants can always find an opportunity to disrupt
the flow of any given market provided they have the creativity to do so.
2. Disruptions can occur at the lower end of the market where companies focus on serving
customers by making sub par services and new entrants cater to a section of customers
that are over-served. It can also happen in newly formed markets where new entrants
serve customers ignored by top firms from the very beginning.
3. The concept of disruption can be applied by and is applied to in return to both the
incumbents and the new market entrants which is why no party should feel safe or
alarmed at all times. Established firms do not need to respond in principle to every threat
or new competition in the market and likewise every new business should not aim to
disrupt the market without proper strategies and undercutting of rival products(Komatsu
Cipriani, and et.al., 2020).
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Illustration 1: Disruptive Innovation model

This popular approach of business innovation has worked like a charm for many companies in
the past and has taken start-ups and humble single room businesses and turned them into billion
dollar business establishments over a period of time. Some of the major merits of this theory for
enterprises is listed herein.
 Technological Prowess – By making constant attempts at disrupting the market, firms
constantly innovate and develop advanced and futuristic technologies which leads to the
overall growth and boost to quality standards of the respective industry (Carayannis, and
et.,al., 2019).
 Opportunity to make quick fortune - Many big companies recognize the smaller firms
which are practising successful market disruption which leads to an attempt at a
partnership or a flat out takeover or merger which can make short time entrepreneurs into
overnight millionaires.
 Expansion of market share – By successfully capturing the niche ignored customers
along with the creamy profiles of consumers of high end goods, a firm can drastically
increase it's reach in the industry and increase it's brand strength.
However in recent times, disruptive innovation has had numerous theoretic changes done to it's
basic concept which was coined in 1997 by Clayton M. Christensen and almost every firm tries
to apply it when it enters a new market or launches a new product without understanding it's fair
share of demerits such as:
 Existence of tough competition – Unless the product or service being used for
disruption is wholly unique, there is very less breathing room for small companies to
successfully capture large markets due to the sheer existence of rival business offerings
with much better brand recognition and goodwill.
 Possibility of counter attack – Market leading corporates are financial juggernauts with
millions of dollars and top market experts sitting at their disposal which makes swift
response to threats of disruption a common sight in many industries. Big companies can
bury small time firms under lawsuits, price differentiation tactics and patent and
copyright laws (Choi, Ahn and Woo, 2020).
 Risky endeavour – Although disruption is very popular, it seldom works in the modern
business landscape and requires an extensive amount of creative brainstorming, market
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research and promotion tactics. Cost and technical barriers prevent many firms from
entering their desired market in the first place.
Application of disruptive innovation theory in historical development context of Amazon
Amazon is synonymous with the biggest corporate giant that exists on our planet today
and it in currently primarily an online e-commerce platformer which specializes in providing a
wide range range of products with a special emphasis on procuring and selling books
electronically. The current market endeavour of Amazon consists of various types of products
such as books, music, movies, toys, merchandises, video games and lifestyle offerings over the
internet which has made it the go to online solution for most of the needs of the general public
apart from food retail and grocery which Amazon has also recently expanded in. Amazon uses
variety of business models in it's extensive range of operations which is explained below with the
help of a business model canvas that is a strategic management tool used to determine the current
existing business models in play and analyse future models that can be applied for better
performance of business (Jelassi and Martínez-López, 2020).
Key Partners
Logistic Firms
Third-party
applications
Key Activities
Supply Logistics
Online Platform
development and
maintenance
Value
Proposition
Platform based
service
Easily accessible
marketplace with
millions of active
Customer
Relationship
Automated
through smart AI
Dedicated support
helplines and
channels
Customer
Segments
Buyers
Sellers
Business
developers
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users
Customer comfort
by quick delivery,
affordable cost
and huge
diversity of
products
Key Resources
Technologically
advanced
platforms
Brand Strength
Storage Facilities
Channels
Amazon website
and apps
Affiliate network
system
AWS.com and
API
Cost Structure
Warehouses
Human Resource
Digital Infrastructure
Revenue Streams
One time sales, subscriptions and prime
Commission and affiliate programs
Pay-Per-Use charges and support subscriptions
From the above analysis, it is clear that Amazon employs a broad network of different business
models integrated across it's service dimension including internet based model for e-commerce
activities and a robust subscription model which has made it's premier offering, The Amazon
Prime one of the most lucrative deals in the market consisting of free and faster shipping,
premium low cost gaming and quality video streaming. The company has managed to disrupt
and give tough competition to corporate giants using this model such as Netflix and Disney Plus.
The major leaps that this company has made can be judged from a simple fact that in 2012, a
whopping 1% of all the internet traffic generated in the North American continent passed
through or was the result of activity done through data centres of Amazon. The achievement list
of Amazon is probably the most impressive among corporates active today in any industry but
the beginnings and the story of how it became the empire it is today is equally impressive as
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Amazon is one of the biggest examples of the potential and application of Disruptive innovation
and technology.
Amazon was incorporated in 1994 by Jeff Bezos who was a former corporate worker
with experience in managing hedge funds with the basic business idea behind it being that books
are an essential need of the general public that transcends domestic borders and can be sold to
any person sitting anywhere in the country (Amazon.com, 2022). Amazon was one of world's
first modern market disruptor and also the most successful one when looking at the greater
picture as Jeff realised that the number of books that can be sold over the internet can easily be a
more convenient service for the general public compared to physical stores fixed at a single
location. Amazon managed to disrupt the market right from it's onset as during 1994, a book
store in Silicon Valley called 'Computer Literacy' got upstaged by Amazon as it delivered books
from it's stores to affluent customers but Amazon within a few months was delivering books to
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Illustration 2: Amazon's growth over the years

most parts of the country while gaining a huge customer base. The continued growth of the
company till the late 90's also resulted in major physical outlets for books and literature like
Borders and Barnes and Nobles bow down to the sheer amount of customers Amazon was
serving through the internet boom including their own.
Another major example in Amazon's history of using disruptive innovation to gain
market stronghold can be observed by analysing Kindle, which was launched by the firm in 2007
by Lab126, a trusted subsidiary with the sole purpose of cornering the e-reading market which it
was successful in doing so. With the help of Kindle, Amazon effectively undercut and disrupted
physical sellers and other platforms where e-books were available by promoting self publishing
and digitally empowering people by making the kindle fire tablets act like a huge library of
books in their pockets which facilitated easy sharing. Amazon undercut physical publishers and
disrupted the entire e-book industry at the same time as the company has also been publishing it's
own content through Kindle with critical acclaim.
Application of disruptive innovation theory in future development context of Amazon
Amazon has always positioned itself as a business which is a technological solutions
provider rather than a simple e-commerce operator and this organizational vision has allowed it
to gain rapid strides in many major industries. The future of Amazon holds limitless potential
and avenues for expansion and growth as it has a large magnitude of resources and strategic
plans to enter and dominate major markets and disrupt many of it's potential rivals which have
already succeed in the sector that Amazon is looking to target. Some of the major future
developments of Amazon which will lead to major market disruptions are described herein.
 Pharmaceuticals – Amazon has had lucrative ambitions of becoming a major player in
this sector which was evident as it bought a large share amount to 40% of drugstore.com
which was a drug supplier but it was not until 2018 where it acquired PillPack, a large
scale online medicine and drugs supplier with license and permits in many states in
America for 750 Million when it's pathway for the future became clear (The 9 Industries
Amazon Could Disrupt Next, 2021). There is a great opportunity for Amazon to dominate
this segment as general public of US has been facing problems of rising cost of medicines
due to existence of a large number of middlemen who inflate costs at every turn which
can be disrupted and easily removed from the market by the extensive and transparent
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supply chain of Amazon. Traditional pharmacies and sellers of medicines are subject to
intense disruption by Amazon in the future and the day might be near where the company
uses it's AI, Alexa to offer medical diagnosis and recommend medicines based on
symptoms spoken by users.
 Financial lending – Amazon has quite a few things going for it to establish itself as a
major market force when it comes to commercial lending and sanction of loans to small
and medium business enterprises which face trouble and intense regulations when
procuring the same from large banks and private institutions. The company can disrupt
banks and commercial lending firms in the future as it has an extensive partnership and
goodwill with a huge number of sellers on it's e-commerce platform and has been
providing them with financial aids for inventory management. Unlike banks and
traditional lenders, Amazon does not need complex background checks and formalities
from it's clients as it already has immense data on businesses that it partners with an they
accept all kinds of business models unlike banks.
 Video Gaming – This industry has the potential for must disruptions by Amazon as it is a
highly lucrative sector with constant growth and it only has a few major players
dominating the scene, mainly Sony's PlayStation and Microsoft's Xbox and both
companies have left sufficient customer segments behind which Amazon has started to
develop plans to cater towards. Xbox gaming has struggled to provide a decent story
driven game with satisfactory gameplay mechanics to the general public and PlayStation
despite being the market leader has also failed to deliver quality multiplayer games which
people can enjoy together. After a decade of failed attempts at gaining relevancy in this
industry, Amazon finally had a hit game in the form of 'New World' which was a
MMORPG (Massive Multiplayer Online Role Playing Game) which took the industry by
storm and it's peak numbers on the popular gaming marketplace Steam, made it one of
the most played games of 2021(Amazon’s ‘New World’ is already Steam’s most-played
new game of 2021, 2022). More future attempts at disruptive innovation are in place as
the company is also developing a new multiplayer co-op game with Glowmade studios to
further corner Sony and Microsoft.
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