3 Types of Innovation You Should Know

Innovation isn’t one-size-fits-all. Depending on whether you’re an established company or a new and emerging brand, there are different ways you can create value, achieve differentiation, and outpace the competition.

At your organization, innovation could mean anything from making gradual improvements to an existing product to creating a breakthrough technology or developing an entirely new market. In the online course Disruptive Strategy, Harvard Business School Professor Clayton Christensen outlines three types of innovation, defining them as:

1. Sustaining innovation
2. Low-end disruption
3. New-market disruption

How and when you leverage each innovation type depends on your place in the market. Here's what each category means and how you can apply it to achieve long-term business success.

Different Types of Innovation

1. Sustaining Innovation

Sustaining innovation is an improvement on an existing product. Companies that pursue sustaining innovation develop enhanced versions of their top-tier products to target their most profitable customers who are willing to pay for improved performance. Businesses benefit because they can leverage their current processes and cost structures and, in turn, maintain or improve their profit margins.

In Disruptive Strategy, Christensen succinctly describes the characteristics of sustaining innovation as “better products that you could sell for better profits to your best customers.” Apple applies this practice whenever it launches a new version of its iPhone. While each release highlights a new, often breakthrough feature—such as a triple-camera system in the iPhone 11 Pro—Apple is still building on a pre-existing market and value network.

Sustaining innovation is where incumbent leaders typically win because they’re listening to their existing customers and using those insights to develop superior products and services. Yet, in the process, they create opportunities for new companies to break in at the low end of the market.

Related: Disruptive Innovation Theory: What It Is & 4 Key Concepts

2. Low-End Disruption

Enter low-end disruption, which is when businesses come in at the bottom of the market with a “good enough” product at a cheaper cost. Christensen describes this as “disruptive innovation,” in which a smaller company with fewer resources moves upmarket and, ultimately, captures the incumbents’ customers, who have adopted it into the mainstream.

“If you come to the bottom of the market, you create a situation where the giant company is motivated to flee, rather than fight you,” says Christensen in Disruptive Strategy. “They won’t fight you, because there’s no profit in it, and it’s very hard for companies to pursue opportunities where there’s no profitability.”

Low-end disruption is how new entrants typically win. For example, Airbnb got its start in 2007 when co-founders Brian Chesky and Joe Gebbia had the idea to rent out air mattresses in their apartment to people attending a design conference in San Francisco. Although not an ideal sleeping situation, it was “good enough” for the three guests who showed up, and much cheaper than staying in a hotel. Fast forward to today, and the online vacation rental marketplace is offering travelers more than seven million accommodations and 50,000 experiences from around the world. Hotels have since turned to Airbnb to generate more bookings.

Related: 3 Examples of Disruptive Technology That Are Changing the Market

3. New-Market Disruption

New-market disruption is when businesses create a new segment in an existing market to reach underserved customers. Through a new measure of performance, they turn products and services that were once expensive and unattainable into something affordable and accessible to a larger population of people.

“Low-end disruption doesn’t create new markets,” says Christensen in Disruptive Strategy, “you just gain market share against the old. New-market disruption competes against the original players by going after new customers that these [companies] aren't interested in, selling them a simple product.”

While Apple’s iPhone is now a sustaining innovation, it previously served as a new-market disruption. The iPhone upended the laptop market by enabling customers to connect to the internet and engage with their favorite apps from a device they could hold in one hand.

Pursuing Innovation Opportunities

There are multiple ways to pursue innovation. If you’re an incumbent business, thinking strategically through how you might improve your current products can help you maintain a competitive advantage, while industry entrants will want to create new products or markets to achieve success.

If you’re interested in learning more about disruptive innovation and how you can leverage it to craft winning strategies, explore our six-week Disruptive Strategy course.