There are 3 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.