Disruptive vs. Sustaining Innovations

Sustaining innovation

This occurs when a company creates better-performing products to sell for higher profits to its best customers. Typically, companies already successful in their industries use sustaining innovation. The motivating factor in sustaining innovation is profit; by creating better products for its best customers, a business can pursue ever-higher profit margins.

Disruptive innovation

This is the second type and the force behind disruption—it occurs when a company with fewer resources moves upmarket and challenges an incumbent business. Disruptive Innovation causes the incumbent company—which relies on sustaining innovation—to retreat upmarket rather than fight the new entrant. This is because the entrant has selected a segment (either at the bottom of the existing market or a new market segment) with relatively low profit margins. The incumbent company’s innovation strategy is driven by higher profit margins, causing it to pull out of the segment in question and focus on those with even higher profit margins.

As the entrant’s product offerings adapt and improve, it strategically moves into segments with higher profit margins. Once again, the incumbent company is motivated to retreat upmarket rather than fight for the lower-profit market segments. Eventually, the entrant pushes the incumbent out of the market altogether, having improved its product so much that it claims all existing market segments or renders its products obsolete.