The Innovator’s Dilemma: Disruptive Versus Sustaining Innovation

By on March 31, 2016

ID1

The Innovator’s Dilemma explains how successful companies that dominate their industries fail in the face of disruptive innovation. It’s a message of caution for leadership teams at these companies, but also a message of encouragement for competitors venturing against these goliaths.

First, we’ll distinguish between sustaining and disruptive innovation. Then, we’ll discuss why it’s difficult for most companies to adopt disruptive technologies. Finally, what does it all mean for both large companies and startups?

There are two types of innovation: sustaining and disruptive. A company follows a path of sustaining innovation when it improves a product’s performance based on feedback from its best and largest customers. It’s usually about reducing defects and making something faster or more powerful.

ID2

In contrast, a disruptive innovation also involves lower performance in many of the key features valued by the market. It often means more defects and less speed or power. A disruptive product appears as if it’s done everything wrong! A large company with sophisticated and demanding clients can’t adopt such a technology.

And why would anyone want to focus on a disruptive innovation? The subtle but key difference is that sustaining innovation satisfies customers’ current needs, whereas disruptive technologies and business models evolve to meet customers’ future needs better.

These two types of innovation are at the core of the innovator’s dilemma. Following a sustaining innovation 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 it can be the future of the company.

Disruptive innovation is often born from a 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.

ID3

A great example is cameras and smartphones. Smartphones started with very poor camera capabilities that served only the lowest tier of customers. Initially, they were pretty useless as cameras, and few people would actually use them. But they’ve evolved in leaps and bounds, and now have successfully displaced cameras for many traditional uses.

Similar business model and technological disruptions appear all over the place: Wikipedia rendered encyclopedias extinct; Google Maps replaced expensive navigation systems; Netflix drove large video rental retail chains to bankruptcy; Skype dealt a big blow to phone companies; the Kindle is changing book publishing; Airbnb is driving hotel managers crazy; and Uber has taxi drives up in arms.

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 characteristics of a disruptive technology, a successful company can’t dedicate resources to small and unproven offerings.

What does this mean for large companies’ futures? 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. But they need to look at niche markets and how they use their products in order to identify potentially disruptive innovations, then embrace them.

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.

The Innovator’s Dilemma was published in 1997, but continues to be an extremely 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 can be the start of something really big!

Video, content and sketches courtesy of bookvideoclub.com.

Join Us in the Conversation...

We'd love to know your thoughts on this article.
Meet us over on Facebook, Google+ or Twitter to join the conversation right now!

Adam Toren

About Adam Toren

Adam Toren is an Award Winning Author, Serial Entrepreneur, and Investor. He Co-Founded YoungEntrepreneur.com along with his brother Matthew. Adam is co-author of the newly released book: Small Business, Big Vision: “Lessons on How to Dominate Your Market from Self-Made Entrepreneurs Who Did it Right” and also co-author of Kidpreneurs.