Co.Design

There Are Three Types Of Innovation. Here's How To Manage Them

By tailoring the product development process for different kinds of innovations, a firm can give itself the opportunity to generate immediate new product revenues while cultivating future opportunities.

Whether they’re dealing in cars or cookies or computers, companies typically struggle with how to effectively and reliably create innovative products and services. Often, they discover that the greatest challenges aren’t in coming up with big ideas but in the organizational and management issues that these new ideas present.

Clayton Christensen at Harvard Business School has done some phenomenal work on disruptive innovations and how they differ from sustaining offerings. At Jump, we have built on this foundation, developing a framework to help folks figure out how to bring new ideas to market, create more realistic testing and growth expectations, and better manage their innovation pipelines. This requires identifying what types of innovations you have, what you need, and how to nurture and grow them all.

The Three Types of Innovations

Sustaining products and services are the kinds of innovations companies often need to develop just to stay in the game. These incremental innovations can be thought of as variations on a theme. For example, in the category of household cleansers, a sustaining innovation might involve making the cleaning agent 10% stronger or pairing it with a new scent.

Breakout offerings are those that significantly up the level of play within an existing category. The sleek Motorola Razr, with its boundary-pushing design, was a runaway success for Motorola. Seeing it, customers couldn’t help but want it—over time making it the best-selling line of clamshell phones ever. That said, it was still a clamshell phone, sold and used in much the same way as previous cell phones.

Disruptive innovations are the sort of big ideas that many of us have in mind when we think about an innovation. They are called disruptive because they disrupt the current market behavior, rendering existing solutions obsolete, transforming value propositions, and bringing previously marginal customers and companies into the center of attention. The iPod, which radically changed the way we listen to and buy music, is one such innovation.

To help explain the difference between these three types of innovations, let’s look at the coffee industry. When Maxwell House came out with a dark roast version, it introduced a sustaining innovation. While a new flavor, it was only a variation on their existing products that customers could instantly understand. A breakout innovation was General Foods’ line of International Coffees, which added gourmet flavors to the instant coffee category and elevated the at-home coffee experience. And Starbucks has obviously been a disruptive innovation, turning coffee into a destination experience worth paying a lot more for.

Note that in a given category, disruptive innovations often come first and are then followed by a series of incremental innovations, with sporadic breakout hits interspersed. Eventually, the market is disrupted once again, starting the cycle anew.

Not All Innovations Perform the Same.

Because disruptive innovations have the potential to yield the greatest benefit to a company, firms often make the mistake of thinking that disruptive products should lead to immediate market success. Even worse, some firms unwittingly begin to classify their products purely on the basis of their immediate market forecast, calling likely big hits "disruptive." In fact, the opposite is true. Because disruptive offerings differ significantly from the status quo, they often test poorly and require time to gain market acceptance. Indeed, one should actually be suspicious of so-called disruptive innovations that show immediate widespread success.

The typical profile of revenue performance is:
Sustaining: Immediately moderate, then tapering off.
Breakout: Rapidly strong, then quickly dropping to a lower level.
Disruptive: Longer gestation period leading to exponential growth.

Managing Different Forms of Innovation


Too often, work on a disruptive innovation gets bogged down in a system that is optimized for the creation of sustaining offerings. The success of the project comes to depend less on the quality of the innovation and more on the quality of the deals the team can cut. Such projects demonstrate the importance of establishing different metrics and procedures in advance of each project so that teams know the goalposts they’re aiming for and can tailor their approaches accordingly.

For disruptive endeavors, success typically requires different development processes, different approval and funding mechanisms, and different performance expectations.

Diversifying Your Portfolio: Managing Risk and Reward


By tailoring the product development process for different types of innovations, a firm can give itself the opportunity to generate immediate new product revenues while still nurturing future opportunities. To support that goal, companies should classify each of its new product concepts within the framework of sustaining, breakout, or disruptive. This allows a company to manage risk and reward at a portfolio level.

For instance, some companies seek to develop a healthy balance of all three in order to meet the needs of today and tomorrow. In other cases, companies are able to focus their innovation efforts by clearly stating that they are prioritizing the development of breakout products and consciously minimizing the exploration of disruptive opportunities.

Categorizing innovations using this framework is an effective way to help ensure that target outcomes are in line with early expectations, and that any firm seeking to innovate has an effective system for doing so.

Conrad Wai is CEO of Jump Ventures, a unit he co-founded to help startups and spinouts grow. While at Jump, he has also led strategic client engagements to create new business platforms in a variety of industries, from consumer electronics to consumer packaged goods to automotive. He’s spoken at conferences like Persuasive Technology and Designing for User Experience and has written for publications such as the Design Management Review and The Economist. Conrad has a master’s from Stanford University in human computer interaction, a multidisciplinary program that combines computer science, social research, and design.

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8 Comments

  • sventured

    Beth,
    That is definitely a great topic for follow-on conversation. As you note, expectations and timeframes will inevitably vary -- but I would argue that meaningful metrics and decision-making frameworks are still possible. Having them be part of the initial conversations around mandate and goals will help align different parties. And this is true in the venture world as much as in large companies.

  • Beth Kellett

    An interesting follow-on article might be how long should a disruptive innovation be given to prove its success? What are realistic expectations and timeframe? At what point should investment and support be discontinued because it is never going to be embraced or adopted? All these things likely vary from one endeavor to the next, making definition of meaningful metrics or a framework for decisions extremely difficult.

  • sventured

    Rick,
    Great comments. I think many people confuse Breakout offerings with Disruptive innovations. It's easy to spot in "other people's industries" (Furbies are breakout "fads"), but it gets harder the closer we are to the product. Distinguishing these two very different growth trajectories was one big goal in creating 3 categories.

    The exact term is something that we've experimented with. Where we landed is that, despite the differences, it was more important to acknowledge Christensen than to create new lexicon for these nuances.

    And finally, I totally agree with your last point. Being "disruptive" far from guarantees success. In fact, pulling far-out concepts closer in, and easing adoption, is a key challenge that we try to work with companies to overcome.

  • Rick Mueller

    Conrad,

    Whereas Christensen divided innovation into Disruptive and Sustaining at least partly to provide a contextual indicator of the likelihood of success and long term structural advantage associated with a given innovation,  I'd be curious to know what made you feel that sustaining innovation needed to be redivided into yet another variant.

    Also, one of the key parts of Chistensen's findings is that the key technologies used to initiate Disruption come from outside of the industry about to be Disrupted and as such, the context is very different than the context in which you would find (or expect success from) either type of Sustaining Innovation.

    Finally (and Christensen doesn't really cover this in depth, but) most entrants (potential Disruptors) will fail even though their product/service may be based on the Disruptive Technology which is destined to become dominant. This can and does happen frequently because they didn't have the right business plan, or they were outcompeted by other entrants, or they were just at the wrong place at the wrong time. Outlasting those types of problems is what allows entrants to become incumbents, so understanding what the nature of your particular innovation is and should be is just the very first of many critical steps to become a successful startup.

    Rick Mueller
    http://www.linkedin.com/in/dec...