Clayton Christensen Disruptive Innovation | Sustaining and Disruptive Innovation

Clayton Christensen Disruptive Innovation

In the 1990s, Professor Clayton Christensen from the Harvard Business School wrote the book, The Innovator’s Dilemma to understand how innovation works and how companies of all sizes can learn to do it better.

In his book, Clayton Christensen explains the disruptive technology theory and how successful companies that dominate their industries fail in the face of disruptive innovation.

Christensen’s Innovator’s dilemma was published in 1997 but continues to be an incredibly insightful approach to innovation, explaining why market leaders can’t afford to ignore innovations that cater to niche markets.

While startups perhaps don’t need to worry too much about their larger competitors, a small target market could be the start of something massive.

It’s a message of caution for big companies’ leadership teams and a message of encouragement for competitors venturing against these Goliaths.

Christensen Disruptive Innovation Theory

In every market, there’s a trajectory of performance improvement that customers can make use of. But where this trajectory lies is different from one customer to the next. Some customers could be satisfied with very basic levels of performance.

Some others are very demanding and will only feel satisfied by very high-performance levels from a technology.   In Christensen’s book, two types of Innovations serve this market. Namely;

1. Sustaining technologies /innovations.
2. Disruptive technologies / innovations.

Sustaining Innovation/Technology

A company follows a path of sustaining innovation when it improves its performance based on feedback from its best and largest customers. It is usually about reducing defects and making something faster in are more powerful way.

Sustaining innovation improves established products. Think of this like faster processing speed on a computer or better fuel efficiency on existing cars.

Christensen Disruptive Innovation/Technology

Disruptive innovation creates new markets. Disruptive technologies enter the market, offering deficient performance, but their performance steadily improves. In the early days of disruptive technology, most of the latest innovation market is considered not good enough. But it seems perfectly acceptable to those customers that never really asked for more.

This small group of customers might be attracted because this barely good enough technology is less expensive or offers them a bit of new functionality that the old technology simply didn’t provide.  These technologies are generally cheaper, simpler, smaller, and frequently more convenient to use.

How do disruptive technologies cause market leaders to fail?

Everybody knows why poorly managed businesses fail. But what’s more interesting is how companies like Kodak or Nokia seem to do everything right and still didn’t survive.

Most established companies face little to no market for disruptive technologies at first, so it’s hard to make a business case for investing in him.

The problems often begin for industry incumbents when their first assessing a potentially disruptive innovation entering their sector.

The company’s biggest customers are telling it at that point that the new technology simply doesn’t meet their needs. So they apply the usual business logic and rationally conclude that they should stick with the technology they already have.

But here’s the thing. The new technology that started as low quality still gets adopted in an undemanding corner of the market and steadily improves until it is good enough to meet even the most demanding customers’ performance expectations.

By this time, however, it’s usually too late for the incumbent to do much about it because they failed to develop the required capabilities and linkages to leverage the latest technology.

Word Processor and Typewriter / Sustaining and Disruptive Innovation Examples

Christenson frequently uses the advent of the word processor as an example.

Many people who use them in the 1990s probably remember being frustrated because the computers sometimes struggled to keep up with your fingers as you were typing.

Demanding customers like professional secretaries would have been horrified by the latest technology. A typewriter company would have rationally listened to these customers and decided that they should continue to stay focused on improving typewriters.

Despite their unsatisfactory performance, however, these early word processors had tremendous appeal for one customer group.

People who didn’t type very well and who loved being able to fix their mistakes quickly. This group was willing to forgive the lack of speed in exchange for this new functionality.

But as computers got better and faster, word processors steadily improved until even the fastest, most demanding typists were satisfied with the latest technology.

Disruptive Technologies of the Future

Disruptive potential right now is like three-D printing. At the moment, three-D printers for home use produced relatively low-resolution fused deposition model plastic compound artifacts. But give it a few years and think about the number of objects you would love to print.

One of the interesting things about disruptive innovations is that they tend to have almost nothing to do with how revolutionary the new technology is.

Instead, what makes a technology disruptive is the fact that it isn’t sustaining, which means that it isn’t based on the same markets and value networks as what’s already available.

In that regard, the emergence of disruptive innovations is almost as much of a management phenomenon about the technology in and of itself.

Disruptive innovations get a lot of attention in the business press because of the seismic shifts they can deliver in industries.

In this way, disruptive innovations are sometimes a force for renewal in the marketplace. While they are responsible for large companies’ failures, every one of these fatalities in the business world tends to be a new entrepreneur’s success story.

Difference Between Sustaining and Disruptive Innovation

The subtle but critical difference is that sustaining innovation satisfies customers’ current needs, whereas disruptive technologies in business models evolved to meet customers’ future needs.

Following a sustaining innovation, the path makes a lot more sense in the short term but can ultimately doom the company to failure.

On the other hand, dedicating valuable resources to a niche and unproven opportunity doesn’t make sense but can be the company’s future.

In contrast, disruptive innovation often involves lower performance in many of the critical features valued by the market. It usually means more defects and less speed or power.

A disruptive product appears as if it’s doing everything wrong. A large company with sophisticated and demanding clients cannot adopt such technology. 

Disruptive innovation is often born from the need that exists in a niche market that’s neglected by current market offerings that small market segment may not care about traditional performance features.

Disruptive Innovation Example & Sustaining  Innovation Examples

A great example of disruptive /sustaining innovation is cameras and smartphones.

Smartphones started with inferior camera capabilities that served only the lowest tier of customers. Initially, they were pretty useless cameras, and few people would use them. But they evolved in leaps and bounds and now have successfully displaced cameras for many traditional uses.

Similar business models and technological disruptions appear everywhere.  Some of these example of sustaining and disruptive innovation include; 

• Wikipedia rendered encyclopedias extinct.
• Google maps replaced expensive navigation systems.
• Skype dealt a big blow to phone companies.
• Netflix drove large video rental retail chains to bankruptcy.
• Kindle is changing book publishing.
• Airbnb is driving hotel managers crazy and
• Uber has taxi drivers up in arms.
• Think of this like what the iPod did for the music market and  Tesla is doing right now in the car industry.

The question is, why are large, well-resourced companies often caught asleep?

Why aren’t they at the forefront of disruptive innovation?

Given the small market size and unappealing disruptive technology characteristics, a successful company can’t dedicate resources is too small and unproven offerings.

What does this mean for large companies’ future?

Even though disruptive innovations may not make sense in the short term, they simply can’t be ignored. Companies need to listen to their customers in order to continue successfully with their sustaining innovations.

They need to look at niche markets and how they use their products in order to identify potentially disruptive innovations and embrace them.

Christenson suggests that the solution for this is to create a separate organization, as a startup, to experiment in as many ways as possible to find out what works. 

For startups, it’s all good news, as long as their innovation has the potential to improve performance rapidly. It’s actually a good thing that their initial market is small. This gives them more time to fine-tune their technology.

Many startups have been and will continue to be surprised by their much larger competitors’ indifference.

Disruptive Innovation Process

History is littered with successful businesses disrupted by new technologies and upstart companies who redefined markets and deliver value in new ways.

For example, Kodak, and BlackBerry, are just a few iconic companies that have been disrupted in recent years.

But disruption is not new. It’s been around for generations. While disruptions vary in timing and intensity, they tend to follow similar patterns.

The Incubation Era

Everyone remembers Apple’s iPod, but they tend to forget the hundreds of digital music players that came before.

Disruptive innovations have an incubation period that is often characterized by the entry of a large number of entrepreneurial ventures, as well as incumbent firms vying for dominance in the marketplace.

Improvements in innovation may be slow at first but eventually accelerates as more and more experimentation occurs.

The Shakeout 

As a disruptive innovation finds traction in the market, a competitive shakeout occurs. A dominant product design or business model emerges—the numerous players in the market decrease.

Ventures go out of business. Established businesses give up on the new market. Mergers and acquisitions bring together former competitors. When the dust clears, there may only be a few significant players left.

Uber Disruptive Innovation

Think Apple and Samsung with smartphones world and Uber for on-demand passenger services.

End of Growth.

Over time, the innovation matures, and growth slows. The market becomes saturated.

Each incremental innovation requires more and more effort. This is usually the time when things get interesting again. Entrepreneurs start experimenting with radically different concepts.

Innovators and established businesses or entrepreneurs invest in next-generation technology. A new disruption may be just around the corner.

Tesla Disruptive Innovation

For over 50 years, the auto industry was relatively stable. Suddenly, Tesla reinvigorates electric vehicles, and Google and others start testing driverless vehicles. The markets suddenly flushed with radical innovations as the process of disruption begins again; disruptive innovation needn’t be scary.

By understanding these three patterns, you can enhance your chances of being the disrupt door rather than the disrupted.

Clayton Christensen Disruptive Innovation Theory