Every day we use numerous products. We observe that some products are continuously improving. On the other hand, we also observe that a different type of product is replacing some products. For example, the digital camera replaced the film camera. Similarly, people are looking for smartphones with better cameras as opposed to buying a standalone digital camera. The first one is known as Incremental Innovation, and the latter is called Disruptive innovation. Both of these changes are innovations. But the purpose, risk, and strategy in pursuing them often significantly vary. Moreover, the implication of the latter type of innovation on jobs, firms, and industries is often destructive. Lack of clarity about their nature and consequence usually raises the debate about incremental innovation vs disruptive innovation. Moreover, such a lack of clarity also leads to inappropriate strategic response, which often destroys high-performing firms.
Genesis of Innovation
Our quality of living standards depends on the products we use to get our necessities met. In Prof. Clayton Christenson’s language, it’s about Getting jobs done with the help or by employing products. To get our jobs done better at less cost, we have been looking for increasingly better products at a decreasing price. So that we can keep extracting more Utility from getting our numerous jobs done. Starting from having a good night’s sleep to recovering from illness, the list of these jobs is long. It has been expanding too. To address this basic urge, human beings are producing ideas for making existing products better and less costly and innovating new ones.
To tap into this opportunity, the Market Economy encourages competition to profit from ideas. Competition in profiting from ideas by offering better quality products at a lower cost, and innovating new ones underpins incremental and disruptive innovation. However, incremental innovation also has other connotations. Among them, continuous innovation and sustaining innovation are two common forms. By the way, Prof. Clayton Christenson coined sustaining innovation for referring to incremental innovation.
Incremental innovation
Producers are facing two major issues with their products. First, they would like to sell the product to increasingly more customers, either at the same or higher price. The next one is about to figure out the way to lower the cost and improve the quality. On the other hand, customers are looking for increasingly better versions at decreasing prices. Moreover, there is a competition issue. Irrespective of the greatness of the products and IPR barrier, competitors replicate, imitate, and also innovate. Due to competition, the same product keeps suffering from decreasing willingness to pay. Therefore, the situation demands a response. Otherwise, producers not only fail to succeed in selling the product to more customers to make more profit. But also, most importantly, the competition will be taking away market share.
To address this urgency, producers need to add more features and improve existing features. The addition of new features increases the perceived value, consequently enhancing the willingness to pay. Unfortunately, it also increases the cost. On the other hand, the improvement of existing features serves two important purposes. First, it increases the willingness to pay. Most importantly, it offers the opportunity of reducing the cost too. For example, the improvement of battery technology leads to a better battery for smartphones, often at less cost. This journey of adding new features and improving the existing ones of products is incremental innovation. For example, successive versions of mobile phone handsets have additional, as well as, enhanced features. As this incremental innovation is vital for sustaining a products’ sale in the competition space, Prof. Clayton termed it a sustaining innovation.
Progression of technology core is vital
Every product has a core technology. Of course, a product may also have multiple of them. For example, Thomas Alpha Edison’s light bulb had a single filament technology core. On the other hand, computers, television, or smartphone have multiple technology cores. A technology core is a basis for adding, as well as improving, features of a product. The continued improvement of filament technology led to the incremental innovation of the light bulbs. Through the release of subsequent better versions, which were more reliable and energy-efficient, producers kept expanding the light bulb market. This continued progression through incremental improvement is also at the core of the competition strategy. It’s less risky and profitable as successive better versions expand the sale and often reduce costs.
The progression of technology core fuels the generation of ideas for adding new features and improving existing ones. To leverage it, producers invest in R&D and keep increasing investment for continued progress. Nevertheless, the trend of advancement slows down and reaches saturation. Consequentially, the momentum of the incremental innovation journey also slows down.
The saturation of technology cores open the journey of disruptive innovation
The slowing down of incremental innovation around the existing technology core creates the urgency of changing the technology core. For example, the saturation of filament technology core eased the incremental advancement of the light bulb. To overcome this limitation, producers embarked on changing the technology core, giving birth to fluorescent lamps. Gradually, consumers started finding fluorescent lamps a better alternative to filament lamps. Notably, the latter produces less heat and produces more light from the consumption of the same amount of electricity. Subsequently, filament-producing activities suffered from destruction. This effect is known as Schumpeter’s Creative Destruction. Examples of Schumpeter’s creative destructions are all around us. Starting from automobiles, destroying horse wagons, to the multi-touch user interface, causing destruction to the keyboard of smartphones, the list is virtually endless.
Innovations caused by the change of technology core, consequently showing destruction effects, are often called disruptive innovations. However, all of them do not qualify to be disruptive innovations, as explained by Prof. Clayton Christenson. If the creative destruction force of innovations due to the change of technology core leads to disruption of incumbent firms and industries, they qualify as disruptive innovation. For example, fluorescent lamps or LED television caused creative destruction to filament bulbs and CRT television. Still, they did not disrupt the business of dominant makers like Philips or Sony.
On the other hand, the effect of digital cameras is a bit different. The digital camera destroyed the demand for film cameras. On the other hand, it disrupted the business of Kodak. For this disruption effect on incumbent firms, creative destruction of digital camera innovation qualifies as disruptive innovation.
Why cannot incumbent firms avoid the disruptive effect of innovation?
Incremental innovation serves two major purposes. First, it keeps increasing sales and profit. It’s also vital to respond to the short-run competition force. Moreover, the technology core is proven, and complementary capacities are available. Therefore, the allocation of resources for pursuing incremental innovation is highly justified.
On the other hand, disruptive innovation demands the change of proven technology core with an emerging one. Invariably, they emerge in primitive form. Such primitive emergence shows very weak potential for replacement. Moreover, there is an inherent risk. How much R&D effort will be needed to make it a better substitute? Will advancement slow down or saturate before reaching the target? How will customers respond to the features developed by the new technology core? There are many such questions about the emergence of disruptive innovation. For this reason, there appears to be a debate in resource allocation surrounding Incremental innovation vs disruptive innovation.
Such questions often lead to the dominant incumbent firms’ avoidance or slow response to the uprising of the creative destruction force. Consequently, they often fail to switch to new technology core leading to experiencing the disruptive effect. For example, Digital Equipment Corporation (DEC) was unable to respond to the uprising of the creative destruction force of PC. Similarly, Nokia was late in responding to the multi-touch technology core-based user interface of smartphones. Consequentially, the uprising of the iPhone caused disruption to Nokia. On the other hand, Samsung succeeded by rapidly adopting multi-touch which accelerated incremental innovation of its mobile handsets. Such reality demands a balanced approach in incremental innovation vs disruptive innovation.
Market economy welcomes messy effects of disruptive innovation
Incremental innovation vs disruptive innovation, which one is messy? Incremental innovation is highly benign. On the one hand, it keeps offering increasingly better-quality products, often at decreasing costs. Both consumers and producers are happy. On the other hand, it does not disrupt products, firms, and jobs. Consequentially, society as a whole is better off. But disruptive innovation creates pain. Its disruptive effects often cause high-performing firms to suffer from bankruptcy. Jobs are lost. Communities are shaken. Even a whole country experiences a tsunami-like effect. For example, Finland’s national economy experienced a huge shock with the disruptive effect of the iPhone on Nokia. But should we resist? Of course not. The market economy welcomes such a messy effect. Invariably, the continued progression of incremental innovation around existing technology core often leads to Wealth accumulation and the formation of dominant firms. Usually, the regulation is not the solution.
Disruptive innovation annihilates wealth accumulation
A smarter approach is to fuel the uprising of disruptive innovation. On the one hand, it opens the next path of growth for offering us increasingly better products. On the other hand, it tumbles monopolies and annihilates wealth accumulation. Therefore, disruptive innovation is at the core of the functioning of the market economy. To keep benefiting from it, there is a need to increase the supply of knowledge so that start-ups can keep generating ideas for pursuing disruptive innovation. Hence, there is a need for public investment in science and technology research and support for start-ups. In the absence of the flow of knowledge, creative urge, and entrepreneurial spirit alone do not succeed. Advancement of knowledge is like the fuel to the creative process for producing ideas to keep powering the uprising of innovation waves for causing the disruptive effect.
Therefore, the debate about incremental innovation vs disruptive innovation should not just be limited to get additional clarity. It should rather proceed to fuel strategy and policy transformation to maximize benefits from innovation.
