Towards a theory of informal disruption

Abstract

What are the implications of disruption originating in firms using illegal practices, which we refer to as informal firms? Since its development by Clayton Christensen, there has been increasing interest in disruptive innovation theory among innovation and management scholars. Yet, the disruptive power of informal firms remains understudied. We theorize informal disruption, which we define as the process through which entrepreneurs engage in business model innovation based on new technology and avoidance of regulation. Institutional voids and institutional incongruence facilitate scaling of such new business models. We offer a process model of informal disruption emphasizing business model formalization as a key strategy for informal disruptors and non‐market strategies such as collective lobbying and consumer education as incumbent strategies when competing with informal disruptors. Our process model highlights the role of formal and informal institutions during informal disruption, which can both facilitate informal disruptors' scaling and limit incumbents' adaptation strategies. We discuss the implications of studying informal disruption for disruptive innovation, business model, and informal economy research.