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What’s Your Innovation Sweet Spot?

It is fashionable among innovation writers to scorn Sustaining Innovation (what this blog calls Organic Growth) – the kind of incremental product changes that allow ads to scream “New! Improved!” These writers generally applaud Apple’s ability to create new markets via Disruptive Innovation, conveniently forgetting that Apple is also masterful at Sustaining Innovation.

We have argued that the only rational innovation strategy is to balance effort behind both organic sustaining growth ¬†and disruptive innovation. However, Clay Christensen, Harvard’s innovation theorist, points out that companies have a greater chance of success by specializing in one or the other. Specifically, he argues that market leaders do best by focusing on sustaining innovations, while newcomers should focus on being disruptive.

Why? He says about sustaining innovation in The Innovator’s Solution:

“Because this strategy entails making a better product that they can sell for higher profit margins to their best customers, the established competitors have powerful motivations to fight sustaining battles. And they have the resources to win.”

In the battles for the heart of the market, the incumbent can win and must win. By fighting and winning them repeatedly, they continuously strengthen their position within the status quo. You want to take on Tide? Good luck, buddy. You cannot begin to match their brand power, technological prowess, or power with retailers. And with each year’s product improvement, they keep getting more formidable.

But because the leaders are so highly motivated to maintain the status quo, they do not have strong incentives to disrupt it. That creates the opportunity for small competitors, or would-be competitors, to change the game.

Christensen argues that disruptive technology usually starts at the low end of performance, and is not good enough for the heart of the market. However, it is generally less expensive and maybe more convenient, and so attracts a new set of consumers to the market.¬†Think of Honda’s first motorcycles in the early 60′s. They did not in the least threaten the rough tough kings of the black leather motorcycle market. But they were cheap and fun and small enough to not be threatening, and so encouraged young suburbanites in letterman jackets to buy their first motorized two wheelers.

Could Harley or other incumbents have successfully marketed such small bikes? Unlikely. Even if they had been able to see the market potential, their management teams would have been ill prepared for the challenges of high volume low margin production, and the new low performance products would have diluted their brands’ equity.

But equally, has Honda or any of the other Japanese motorcycles seriously threatened Harley’s hold on the hog market? Of course not. Harley focused on organic growth, and after some early bumps, emerged stronger than ever.

What Christensen misses is that the incumbents, while using sustaining innovation in their core markets, can still be disruptive by extending their brand. So Harley innovated by embracing licensing. Tide learned the value of liquids and pens and stain-release packs. Conversely, every disruptive newbie who changes the game soon has to shift into sustaining mode – think of that when you switch on your iPhone 4.

It’s still about balance. But Christensen is right: focus on the type of innovation that best enables you to win.

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