This diagram shows how “disruptive innovation” products gradually replace “sustaining innovation” products but that’s not all. More importantly there’s an invisible force on this diagram. This force is hiding in the top right corner of the diagram so it’s also called the “Northeast Corner Traction.” It’s this “mysterious” force that pulls innovation.
Why do we have to keep innovating why can’t we just buy a product developed once and for all? Obviously it’s because of demand – users have a demand for new products. It’s also because users need products with better performance that companies have to keep innovating. But product performance demand actually has a range and there’s a difference between “high-end users” and “low-end users.” So who is pulling innovation? If we think carefully about this question we’ll find that for “sustaining innovation” products it’s the demand of “high-end users” that pulls innovation. Why do computer manufacturers put the latest chips into computers? It’s because of those “high-end users” such as large software companies video editing merchants for movies and advertisements or bitcoin miners. They need this stronger computing power to help them improve efficiency and win in competition.
For large companies especially market-leading companies they often have a “sustaining innovation” product with a high market share. Since these products are aimed at “high-end users.” And “high-end users” can recognize the value brought by “sustaining innovation” and are willing to pay a high price to buy this extra value so companies can often get high profits from them.
But when “disruptive innovation” first enters the market its performance will be relatively backward. On the one hand limited performance creates limited value for users. On the other hand this performance is far from meeting the needs of “high-end users” so these products can only target the “low-end user” group at this time. For “low-end users” at this time the value created by “disruptive innovation” products measured in monetary terms is limited. That is user value recognition is also relatively low. So these users usually buy products because they are cheap. This means that whether it’s the value actually created by disruptive innovation products or the user’s purchasing power or user value recognition they’re all relatively low which leads to low revenue for disruptive innovation products and often very limited profits for companies.
For leading companies in the context of their internal “sustaining innovation” products constantly creating huge wealth for the company how much motivation is there to develop a new product aimed at “low-end users” with meager revenue and even initially unprofitable from a profit perspective? We know that if a company has resources to make five new products but they have ten innovative product ideas. If you spread five product resources evenly over ten ideas each idea will not have enough resources. As a result none of the ideas will succeed even if all ten ideas were originally good ideas.
Therefore in large corporate product management there is a separate category called “product portfolio management.” In the past the core work of “product portfolio management” was to ensure that if we have resources for five new products we only do five ideas and the other five must be abandoned. This was seen as key to corporate and product success. Under such a “product portfolio management” system suppose there are two new products facing the same market competing for resources within the company. One is aimed at “high-end users” contributing a lot of revenue and profit to the company; The other is aimed at “low-end users” with unreliable technology and meager revenue. If you have to choose one which project should management cut?