Towards a Theory of Informal Disruption

Abstract

What are the implications of disruption originating with firms using illegal practices, to which we refer as informal firms? Disruptive innovation has been an important subject for strategic management and innovation scholars since the development of the theory by Clay Christensen. Academics and practitioners discuss digital piracy as a disruptive force, yet it is not part of the disruption theory. We aim to better understand informal disruption, defined as the process during which entrepreneurs develop new value propositions based on technological changes, business model innovations, and regulation avoidance, taking advantage of institutional voids and incongruence. Our analysis suggests that informal disruption constrains adaptation response of incumbents. Yet they can leverage political power through non-market responses. We discuss implications of studying informal disruption for disruptive innovation, incumbent adaptation, and informal economy research.