Innovation helps companies compete and in some cases to punch above their weight. But you don’t have to reinvent the wheel to get ahead. Sustaining innovation is about listening to your customers and using their feedback to continually make your product, service or user experience better and more suited to them.
But there’s also another way to use innovation to compete.
More than 20 years ago, Harvard’s Clayton Christensen coined the term “disruptive innovation,” to define an entirely different approach. His colleague, Richard Price, an associate at the Clayton Christensen Institute, offers insight into how you can differentiate between disruptive and sustaining innovation models to find what’s best suited for your business, and how both can help you to compete in global markets.
Q: Often when we talk about innovation in business circles, we use the term “disruptive” to describe it. Isn’t all innovation disruptive?
A: Nowadays everyone is using the term disruption to describe any breakthrough. But regardless of whether it’s an incremental or big breakthrough, more often what we see is sustaining innovation. For your business, this may mean coming up with a new way to use an existing product, an upgrade, or a patch to fix a bug. It could even be a leap ahead. But it’s not disruptive.
Everyone assumes that disruptive innovations are good and sustaining innovations are bad. That’s not necessarily the case. If you’re in an established market, trying to address customer needs, to make a product or service better, that’s sustaining innovation and it will help you compete. But it’s not truly disruptive if you’re serving the same customers you always have and using the same business model you’ve always had.
A: The definition of disruptive innovation is more rigorous and specific. Disruption is when you see there’s a product on the market that is inaccessible to large numbers of people. Or sometimes there are a lot of people using the product or service but they’re paying a lot of money for more than they actually need. Can your company take that product and adapt it to make it more widely accessible? That’s disruption.
Disruptive innovators make a product or service that’s available to a greater number of people and more affordable. The product you create may not be as good as what’s on the market, but it’s good enough, and excels on a different set of performance metrics. Ideally, if you’re looking to disrupt you’re not even going after the same customers as the incumbent. As a disruptor, you’re trying to figure out how to find net new users.
Q: Can you give an example of a disruptive innovation?
One of the best examples is the creation of the personal computer. Before PCs came along, the big product was minicomputers. They had tremendous computing power. But they were completely out of reach for a typical consumer. They were way outside our price range. They were too big and wouldn’t fit in our houses. When the PC was invented, it wasn’t as fast or as strong, but it was good enough to meet the needs of most consumers.
Keep in mind that the capabilities of the machine weren’t the primary concern of the disruptors. They were more worried about making it compact and affordable to appeal to a larger market of consumers, a completely different target market than makers of minicomputers. Disruptive innovation relies on trying to compete on different attributes and also to find new users.
Q: How can a dominant player be disruptive?
It’s really difficult for an incumbent to become a disruptor. But they can be innovative. As long as a company’s trying to continually improve its product or service and improve its market position, it’s going to be competitive. Sustaining innovations tend to get disrupted over time, but usually not by the dominant player in the market.
Q: Do new players or small companies have a competitive advantage when it comes to being disruptive?
Yes, disruptive innovation gives the little guys a chance to compete with big players. It comes down to the business model. If you think about the business model for the companies making minicomputers, it’s all about making a machine that’s bigger and more powerful. But that business model becomes an Achilles heel for established firms who want to disrupt.
You may have innovators in your company that say, ‘let’s create a little department that works on PCs’, but your business model doesn’t support making smaller, cheaper products that aren’t as good. At the end of the day, management will put resources into the established product, which starves out any attempt to compete as a disruptor.
A small company, on the other hand, can focus from the get-go on the end user. Your resources, time and entire business growth plan will be centered on creating a new product or process, something that’s going to help you create a new market for an established product.
Q: If an established company wants to be a disruptor, though, can they find a way to do it?
To be a disruptor, an established company has to do something dramatic like set up a new company that’s entirely focused on a smaller, cheaper product and a new set of customers. In some cases, setting up an autonomous unit is enough, but it must be distinct from the core business if you really want to create something new because disruption relies on a different business model, a different growth model.
When it came to the development of PCs, for example, IBM set up a unit that was completely separated from their minicomputer unit. Management said you are going to be distinct from our primary business and you’re going to operate with complete autonomy to develop a new business model.
Q: The original Disruptive Innovation Theory doesn’t prescribe how companies can innovate in practice. But are there ways for firms to make sure innovation is at the heart of their business models?
For innovation to give you a competitive edge, you really have to understand something we call Jobs Theory. The theory says consumers make decisions around what products or services to buy based on the “job” they’re hiring the item to do to make progress in their lives. One of my colleagues wrote about a fast food chain that realized milkshakes were becoming a popular morning purchase. Rather than pushing to make their milkshakes creamier or sweeter, they looked at how they could make a milkshake a popular alternative to bagels, cereal or other convenient breakfast foods. It completely flipped their product development and marketing on its head. Companies looking to disrupt need to get into the heads of their current and potential clients, seeking feedback and finding ways to create a new product or service that responds to market demand.
More than just feedback, however; Sometimes customers don’t know what the “job to be done” is. They may have been asking for more chocolate or more caramel, but until the company asked the right questions, they didn’t realize that they were really looking for a breakfast alternative.
We’ve written a lot at the Institute about a corporate theory called discovery-driven planning. Traditional project planning funds a project in its entirety and anticipates a positive outcome regardless of the approach. Discovery-driven planning is more agile. It allows for continual experimentation and incremental improvements. You start with your desired target, outcome or goal, and create a hypothesis around how to achieve that. You then set up a way to test your hypothesis as cheaply and quickly as you can. If the outcome is positive, you can continue and execute on your strategy. But if your basic assumptions are proven false during the test, you have to be prepared to shift gears. This is particularly important for disruptors. Because they’re not going after the same market at established firms, they need to be prepared to test and fail and continually adjust, with a commitment to a growth and marketing strategy that emerges over time.
6 questions to determine your disruptive potential
1) Consumer market
Does the product or service target people whose only alternatives are to buy nothing at all (non-consumers), or to target people who are over-served by the existing product, such as people that don’t want to pay for more than they need?
2) Quality offering
Is your product or service inferior to existing offerings on current, established measures of performance? “In the ‘80s, minicomputers were powerful machines,” says Price. “Personal computers couldn’t compete on performance. They were disruptive because they would compete on entirely different measures.”
Is your innovation more convenient or more affordable than what’s currently on the market? “Having something cheaper or more widely-available means you’ll be going after different customers,” says Price.
4) Scale-up potential
Does the product or service have a technology that enables it to improve continuously or move up market? “Often a new technology is impressive or cutting edge and can experience a surge in the beginning,” says Price. “But if the company stays there and doesn’t do anything to continuously improve its product, it won’t be a true disruptor. Paradoxically, for that to happen, the disruptor will eventually need to go through its own sustaining innovations. And ideally it will eventually eat into the incumbent’s slice of the pie.”
5) Business model
Is your new offering paired with an innovative business model that allows it to be sustainable over time? “Eventually, if you’re not bringing in more money than you’re using, your innovation will cease to exist,” says Price. “Your business model requires that you lower costs of production over time, and this may mean having a very different business model from incumbents.”
6) Asymmetric motivation
Are you motivated to target consumers that established players in the market are motivated to ignore? For example, selling many small PCs with lower profit margins to low-end users is quite different than minicomputer makers selling fewer computers at a much higher price with much bigger profit margins to premium users. “If the incumbent looks at your innovation and says, ‘they’re no threat to me’, that is the sweet spot for a disruptive entrant,” says Price. “If it comes down to the incumbent and the newcomer fighting it out on the incumbent’s turf, the incumbent generally has the advantage, with more money, more brand awareness and a better product. But if you come at it with an entirely different motivation, the incumbent says, ‘yeah, let them do it,’ and eventually you’ll get to the point where you do start infringing on their market share.”