Two Ways to Innovate


“Continual improvement is an unending journey.” – Lloyd Dobens and Clare Crawford-Mason (“Thinking About Quality”)

Consider the two most basic options companies have when they seek to grow their businesses: They can try to increase their market shares by sustaining innovations — by continually improving a product everyone is using — or they can use disruptive innovations to create a new market or take over the low end of an existing market.

Sustaining innovations (a microprocessor that enables personal computers to operate faster, for example, or a laptop battery that lasts longer) are perhaps the easiest to produce because their need is apparent (just ask the users) and the technology to accomplish them comes usually from existing research. Improving your product and service incrementally will keep it fresh in the minds of your customers and thus sustain back-end and continued sales, but such innovations are unlikely to give you a quantum leap forward.

The big progress is usually made via more radical innovation — what the Harvard report calls “disruptive” innovation. “Disruptive innovations often initially result in worse performance as compared with established products and services in mainstream markets, but they are often cheaper, simpler, and more convenient … so they can create new markets.

An example of disruptive innovation: the transistor-powered, hand-held radio that had very poor fidelity but was extremely popular with a new market at the time — teenagers who wanted to listen to rock ‘n’ roll away from their parents. The innovation (the transistor) did not make conventional radios sound better, so it wasn’t embraced by the existing marketplace (adults at home). But transistors did offer the added benefit of portability, which was not very useful to adults but very attractive to their children.

The distinction between sustaining improvements and disruptive innovation makes sense in most businesses I can think of, including the business of running ETR. We are always looking for ways to make ETR more useful and easier to use — by adding expert editorial and improving delivery methods, for example — but it’s the more radical innovations (such as creating a self-guided program to teach direct marketing) that result in quantum growth.

The folks at Harvard Management Update say that disruptive innovations are where it’s at, and they are right. But any business that hopes to grow and prosper for any length of time … and particularly during times like these when conditions are difficult … must make continuous improvements in product quality and service as well.

How do you create a business atmosphere where both types of innovation flourish?

First, by recognizing how change begins. Rarely are good ideas born fully developed. Most often, they begin as “half-baked propositions.” Before they reach senior management and are accepted and funded, they usually go through a somewhat elaborate process of formal and informal shaping and editing.

If a business has only one way to shape new ideas, the Harvard people argue, most of the ideas that survive the process will end up looking pretty much the same. The problem is especially acute for disruptive innovations, because the shaping process is usually one in which ideas are measured against past experience and existing customer bases.

Since most disruptive innovations end up servicing new markets or new market segments, they are unlikely to be approved by such a process — because they generally don’t really help the existing customer base.

To make sure your business succeeds, you need two parallel processes of innovation: one that allows for sustained improvements and another that gets you into radically different markets.

Both processes start, I think, in your head. You need to believe in improving your product and service and put some pressure on your product and service people to keep coming up with new ideas. At the same time, you have to recognize that any sizable growth will come from ideas that are further afield, and generating them requires a culture and a financial structure that permits some amount of experimentation.

At a newsletter-publishing company I’m involved with, the big growth has recently come from our developing our own unique program for e-mail business. What we did was not what the books told us to do, and it wasn’t what we were doing already. It was a combination of ideas we had seen work elsewhere but put together in an innovative way. Results included a cheaper way to service our customers, a slew of new products, a new and very profitable market, and a big jump in sales and income.

At a company selling nutritional supplements, we’ve made good steady progress with sustained improvements. This year, however, we introduced a new idea to our marketplace: a product that was more, not less, expensive. That had a remarkable effect on our business.

I wonder what the right mix is in regard to innovative improvement vs. disruptive innovation. In the newsletter business, you need to create one new product per year for every four or five existing products. The same ratio may hold true for nutritional supplements. I’m not sure … but I do know you need to do both.

Do you have an active program to promote both kinds of innovation in your business?