​Inspired by Cathie Wood's ARK Disruptive Innovation ETFs , Capsquare asked Wright to build a similar portfolio that invests in Disruptive Innovation but in India. The idea was that company's that are creating disruptive innovations will become the leaders of the future.

As Cathie Woods herself says:

“Disruptive innovation is often not priced correctly by traditional investment strategies because people may not understand how big the ultimate opportunities are going to be. They aren’t sizing the opportunity and they aren’t analyzing the disruption.”

Innovation follows a saddle curve, and if you adopt to innovators early you will capture disruptive growth in prices as the market recognises the potential.

What Is Disruptive Innovation?

Disruptive innovation, a term pioneered by thought leaders like Cathie Wood and actively embraced in our Wright Innovation investment strategy, signifies a revolutionary paradigm shift within industries. It denotes the groundbreaking changes introduced by companies that possess the vision and dynamism to challenge prevailing norms, paving the way for the redefinition of entire sectors. In the Indian landscape, disruptive innovation entails a meticulous process of identifying and investing in companies that spearhead transformative changes, propelling them to the forefront of their respective industries.

In the rapidly evolving landscape of the Indian market, disruptive innovation becomes a strategic imperative for investors and businesses alike. The goal is not merely to adapt to change but to proactively seek out and support companies that have the potential to reshape industries, disrupt conventional practices, and emerge as the trailblazers of the future.

4 Stages of Disruptive Innovation

Understanding disruptive innovation necessitates a comprehensive grasp of the four distinctive stages through which it typically evolves:

Introduction:

In this initial stage, innovative concepts are introduced to the market, often targeting specific and sometimes niche segments. Companies embark on a journey to address unmet needs or inefficiencies, laying the foundation for their disruptive presence.

Growth:

As market acceptance gradually expands, the disruptive innovation enters a phase of growth. Adoption rates increase, and the innovation gains momentum as it captures the attention of early adopters. Companies may witness accelerated expansion and heightened visibility during this phase.

Maturity:

Widespread acceptance marks the maturity phase, where the disruptive innovation becomes a mainstream force. The market recognizes its value, and the innovation secures a significant share, potentially reshaping industry dynamics and norms.

Decline:

Inevitably, disruptive innovations face the prospect of saturation or replacement by newer disruptions. As the market continues to evolve, companies must navigate this stage by either reinventing themselves, exploring new avenues, or paving the way for the next wave of innovations.

Navigating through these stages requires a keen understanding of market dynamics, consumer behavior, and the competitive landscape. Investors and businesses must stay agile and responsive to ensure sustained success in the dynamic realm of disruptive innovation.

How Does Disruptive Innovation Work?

Disruptive innovation functions as a catalyst for change by challenging traditional business models and established market leaders. Companies at the forefront of disruptive innovation are characterized by their proactive approach to displacing industry incumbents, enhancing operational efficiency, and securing a majority market share. The pivotal element in this process is the emphasis on early adoption—an imperative strategy to capitalize on the subsequent growth as the broader market begins to recognize the innovation's transformative potential.

The mechanism involves a strategic blend of vision, adaptability, and calculated risk-taking. By identifying opportunities to revolutionize existing practices, disruptors not only redefine their industries but also position themselves as pioneers capable of shaping the future landscape. This early adoption strategy positions companies to capitalize on the unique advantages offered by disruptive innovations, contributing to their sustained success and influence in the ever-evolving business ecosystem.

Types of Disruptive Innovation

Wright's carefully curated portfolio mirrors a diverse spectrum of innovative companies, each playing a pivotal role in reshaping distinct sub-segments within the Indian market. These sub-segments represent critical arenas where disruptive forces are driving transformative changes:

1. Electric Mobility:

In the realm of electric mobility, disruptive innovation manifests in companies revolutionizing transportation through innovative solutions like electric vehicles, sustainable energy sources, and smart mobility infrastructure. These ventures contribute not only to environmental sustainability but also to the evolution of transportation systems.

2. Biotech:

Within the biotech sector, disruptive innovators are leveraging cutting-edge technologies to redefine healthcare, agriculture, and environmental sustainability. From advanced pharmaceuticals to genetic engineering, these companies are pioneering breakthroughs with the potential to transform the fundamental fabric of industries.

3. Ecommerce:

Disruptive innovation in e-commerce is evident in companies that are redefining the online retail landscape, from enhancing user experiences and supply chain efficiency to exploring new models of digital commerce. These innovations redefine how consumers engage with products and services in the digital age.

4. Digital Revolution:

Companies leading the digital revolution focus on disrupting traditional business models through advancements in areas like artificial intelligence, blockchain, and cybersecurity. This category encapsulates innovators pushing the boundaries of technology to reshape industries and societal interactions.

5. Fintech:

In the financial technology sector, disruptive innovations are transforming the way financial services are delivered and accessed. From decentralized finance (DeFi) to innovative payment solutions, these companies are challenging traditional banking systems and democratizing financial services.

Identifying disruptors in these sectors requires a meticulous evaluation of factors such as technological prowess, market penetration, and the ability to adapt to evolving consumer needs. Wright's approach involves recognizing and investing in companies that exhibit a clear vision for disrupting their respective sectors, contributing to the evolution of India's business landscape.

Differentiating Disruptive and Radical Innovation

Distinguishing between disruptive and radical innovation is essential for understanding the nature and impact of transformative changes within industries:

Disruptive Innovation:

Disruptive innovation challenges existing norms within established frameworks. It involves incremental changes and improvements that gradually redefine industries. In the context of Wright's portfolio, this could include companies introducing novel approaches within familiar sectors, leveraging existing technologies to bring about significant shifts.

Radical Innovation:

On the other hand, radical innovation is more revolutionary, involving entirely new concepts and technologies. It disrupts industries by introducing unprecedented ideas and approaches, often creating entirely new markets. While disruptive innovation builds on existing foundations, radical innovation seeks to rewrite the rulebook and reshape entire industries from the ground up.

Understanding this distinction is crucial for investors and businesses alike, as it informs strategic decisions related to market positioning, risk management, and long-term planning.

Disruptive Innovation vs. Sustaining Innovation

Distinguishing between disruptive and sustaining innovation sheds light on the diverse approaches companies take to evolve and compete within their industries:

Sustaining Innovation:

Sustaining innovation focuses on improving existing products or services, maintaining market equilibrium. Companies engaged in sustaining innovation seek to enhance features, efficiency, or user experience without fundamentally altering the industry landscape. This type of innovation is integral for companies looking to stay competitive in established markets.

Disruptive Innovation:

In contrast, disruptive innovation aims to create entirely new markets or transform existing ones. It often involves challenging the status quo, displacing established players, and introducing novel approaches that redefine industry norms. Disruptive innovation has the potential to reshape the competitive landscape and is characterized by a focus on long-term transformation rather than incremental improvements.

For investors, understanding these distinctions is vital for making informed decisions about where to allocate resources and how to navigate the dynamic landscape of innovation. Wright's emphasis on disruptive innovation in its portfolio reflects a strategic commitment to identifying and investing in companies that have the potential to reshape industries and drive sustained growth.

Requirements for Disruptive Innovation

The success of disruptive innovation hinges on a strategic blend of vision, adaptability, and a willingness to embrace uncertainty. Wright recognizes the essential requirements that pave the way for transformative changes within industries:

1. Market Understanding:

Disruptive innovators must possess a profound understanding of the market landscape, identifying underserved or overlooked segments ripe for transformation. This requires a meticulous analysis of consumer needs, pain points, and emerging trends. By pinpointing gaps in the market, innovators can position themselves strategically to cater to unmet demands, laying the foundation for disruptive success.

2. Agile Strategy:

Adaptability is a cornerstone of disruptive innovation. Companies need to develop agile strategies that enable them to respond swiftly to evolving market dynamics. This involves staying attuned to technological advancements, consumer behavior shifts, and regulatory changes. An agile approach allows innovators to capitalize on emerging opportunities and navigate challenges effectively, ensuring sustained relevance and growth.

3. Risk Appetite:

Embracing uncertainty is inherent in the disruptive innovation journey. Successful disruptors exhibit a healthy risk appetite, taking calculated risks to challenge the status quo and introduce groundbreaking solutions. This involves venturing into uncharted territories, experimenting with novel ideas, and having the resilience to learn from failures. A willingness to take calculated risks positions companies to seize opportunities that others might shy away from, fostering innovation that reshapes industries.

Wright's commitment to disruptive innovation is underscored by its recognition of these essential requirements. By prioritizing market understanding, maintaining an agile strategy, and embracing a calculated risk appetite, Wright aims to identify and invest in companies that possess the intrinsic qualities needed to drive transformative change.

Examples of Disruptive Innovation

Wright's India-focused Innovation portfolio stands as a testament to the identification and support of companies exemplifying disruptive innovation across various sectors. The portfolio includes rising stars in key domains, reshaping industries and challenging established norms:

1. Electric Mobility:

Companies within the electric mobility sector are introducing disruptive innovations, from electric vehicles to sustainable energy solutions. Notable examples may include companies that redefine transportation paradigms, contributing to environmental sustainability and transforming how people commute.

2. Biotech:

In the realm of biotechnology, disruptive innovators are pioneering breakthroughs in healthcare, agriculture, and environmental sustainability. Examples could encompass companies leveraging advanced technologies for genetic engineering, pharmaceutical advancements, and transformative solutions that redefine the boundaries of these industries.

3. Ecommerce:

Wright Innovation recognizes disruptive innovation in the e-commerce sector, where companies are redefining the digital retail landscape. Examples may include those introducing innovative payment solutions, enhancing user experiences, and reshaping supply chain dynamics to meet the evolving needs of consumers in the digital age. Understanding its impact on the current market can help you identify promising e-commerce stocks for investment.

4. Digital Revolution:

In the digital revolution category, Wright Innovation portfolio features companies leading the charge in areas like artificial intelligence, blockchain, and cybersecurity. These innovators play a crucial role in disrupting traditional business models and fostering advancements that redefine industry standards.

5. Fintech:

Within the fintech sector, Wright Innovation identifies disruptors that are transforming financial services through decentralized finance (DeFi), innovative payment solutions, and novel approaches to democratizing access to financial tools.

The portfolio's inclusion of these examples signifies Wright Research's commitment to supporting companies that not only embody disruptive innovation but also have the potential to redefine their respective sectors. By investing in these rising stars, Wright Innovation aims to contribute to the evolution of India's business landscape and foster sustainable growth in disruptive technologies.

Why Innovation?

• Innovation companies should displace industry incumbents, increase efficiencies, and gain majority market share.
• Opportunities resulting from disruptive innovation often are underestimated or misunderstood by traditional investment managers.
• Disruptive innovation can help transform and solve some of the world’s most persistent problems.

How we built this portfolio?

We looked at innovative companies in the following sub-segments:

• Electric Mobility
• Biotech
• Ecommerce
• Digital Revolution
• Fintech

To be honest, finding innovators in the Indian public markets is much tougher than in the US, where you have the Teslas and the Googles of the world. But we did our best in identifying the companies leading the charge of disruptive innovation. This portfolio has a higher bias towards smaller firms.

As this is an advisory basket and we wanted to keep the minimum investment size, we haven't included the stocks with share price more than 2000. Here's how the allocation looks like.

Wright Innovation Performance

This portfolio went live in the end of March 2021. The innovation portfolio is leading the benchmarks massively since the launch. The portfolio is up 12.68% since inception, while the equity index is only 1.12% up.

This is a monthly rebalanced portfolio and constructing it required a broad based research across the market. If the reader would like to suggest any companies missed by us they can write to us at info@wrightresearch.in or tweet at @ResearchWright

FAQs:

1. What are the 2 types of disruptive innovations?

The two types of disruptive innovations are:

• Low-End Disruption: Targets customers at the lower end of the market with a more affordable and simplified alternative.

• New Market Disruption: Introduces a product or service in a completely new market, often appealing to non-consumers or underserved segments.

2. What are the characteristics of disruptive innovation?

Characteristics of disruptive innovation include:

• Lower cost and accessibility: Often starts by serving a niche market with more affordable and accessible solutions.

• Technological advancements: Leveraging new technologies to create innovative products or services.

• Market redefinition: Challenges existing norms, leading to a redefinition of industry landscapes.

• Initially lower performance: May begin with lower performance compared to established solutions but evolves rapidly.

3. What is disruptive innovation theory?

Disruptive innovation theory, introduced by Clayton Christensen, explains how new technologies or business models disrupt existing markets. It emphasizes the role of innovation in challenging established players and reshaping industries by starting in niche markets and gradually moving up to mainstream acceptance.

4. What are the benefits of disruptive innovation?

Benefits of disruptive innovation include:

• Market growth: Creates new markets and expands opportunities.

• Efficiency improvements: Encourages more efficient and effective business practices.

• Increased accessibility: Makes products or services more accessible to a broader audience.

• Competitive advantage: Positions innovators as industry leaders.

5. What are the challenges of disruptive innovation?

Challenges of disruptive innovation include:

• Resistance to change: Existing players may resist adopting disruptive technologies.

• Uncertain outcomes: The unpredictable nature of innovation can lead to uncertain outcomes.

• Resource allocation: Allocating resources for innovation while maintaining existing operations can be challenging.

• Regulatory hurdles: New and disruptive technologies may face regulatory barriers.