Chapter 8: Part 2 – The innovator’s dilemma

“Sustaining innovation” is actually quite common in business – we often keep improving our original products. These improved products are usually still aimed at the original market or value center mainly providing higher value to customers through technical improvements to existing products. These improvements include appearance functional features user experience or cost etc. Typical “sustaining innovations” include Microsoft releasing a new version of its operating system almost every 18 months back in the day. And Intel did the same back then. In fact most companies are delivering new products to the market in this form.

“Disruptive innovation” is a new concept proposed by Christensen. He believes that not all innovations are “disruptive” even those that seem very different to the public eye. In a 2015 article Christensen himself said that although his theory has been hugely successful it has also led to its biggest crisis.

Due to the huge success of this theory many media many people are using the term “disruptive innovation” rashly. Many people haven’t read relevant literature or really understood this term many researchers authors and consultants whenever they encounter an industry on the brink of crisis or when originally successful businesses encounter difficulties they invariably describe it as “disruptive innovation.” This kind of usage is really too rampant.

Christensen has a clear definition of “disruptive innovation” – it usually helps create a new market or new value network. And the so-called “new value network” usually takes the form of low prices. Therefore the key to “disruptive innovation” is “business model” rather than a technology. It’s new “business models” that lead to disruptive results. And it’s often overlooked by market leaders in its early stages.

The initial focus of “disruptive innovation” is a small but influential target market usually a “niche market.” Its products often have significant new features or functions but these features may not yet be fully developed so the initial performance of “disruptive innovation” products is often not as good as existing “sustaining innovation” products on the market.

This means that at first “disruptive innovation” products can only attract some low-end users who don’t have high performance requirements by relying on low prices. But with technological improvements and based on the influence in the initial target market low-priced “disruptive innovation” products will gradually erode the market share of original “sustaining innovation” products and eventually cause original “sustaining innovation” products to disappear from the market. So “disruptive innovation” products aren’t technologically advanced – on the contrary most such products’ early performance isn’t as good as existing “sustaining innovation” products on the market. “Low price” is often the main feature of “disruptive innovation” products. Personal computers are a disruptive innovation for servers and workstations although their early performance was far inferior to servers. But a very important point is that their price was much lower than servers or workstations. Similarly smartphones and tablets are disruptive innovations for PCs although their early performance wasn’t as good as PCs either. But these devices were much cheaper than PCs. And Android is a disruptive innovation for iOS devices – again Android phones’ early performance wasn’t as good as iPhones but they were usually much cheaper. These products all have one thing in common: they adopted different business models and were cheap.

Image: Sustaining Innovation and Disruptive Innovation

So how exactly do “disruptive innovation” products defeat “sustaining innovation” products? Christensen used this diagram to explain the whole process. The horizontal axis is time and the vertical axis represents product performance. There are two intersecting black diagonal lines in the diagram – the one on the left represents sustaining innovation products which enter the market first. The one on the right is “disruptive innovation” which enters the market later. As time goes on the performance of both types of products will gradually improve.

The two parallel gray dashed lines represent user demand. Demand is an interval. The top dashed line represents the demand of high-end users who have relatively high performance requirements. The bottom dashed line represents the demand of low-end users who have relatively low performance requirements. User demand for performance will also increase over time.

There are three very important points on this diagram. The first point is called Point A which represents that the performance of “disruptive innovation” products can meet the needs of the lowest-end users. Although it came in late because of its low price those low-end consumers began to abandon more expensive original products. This means that “disruptive innovation” products are starting to enter the market.

The second point is Point B. Point B refers to when the performance of “sustaining innovation” products exceeds the needs of high-end users. This is an important discovery by Christensen. He found that the development speed of demand and technology are not synchronized. And as technology development speeds up more and more fields are experiencing a phenomenon where technology development speed exceeds demand development speed.

Take mobile hard drives for example – mainstream capacity is currently between 1 and 6TB. In fact hard drive manufacturers can technically do much larger but the problem is that for consumers these capacities are already sufficient. For example designers are traditional buyers of mobile hard drives – they often need to save design files and vector libraries on mobile hard drives. But even so TB-level capacity has long been enough for them.

The third point is Point C. Point C represents that the performance of “disruptive innovation” products is also constantly improving and one day its performance will also be able to meet the needs of even the most demanding consumers. At this point because “disruptive innovation” products are cheaper they will replace traditional “sustaining innovation” products thus completing their destruction of the original market.

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