“The reason why it is so difficult for existing firms to capitalise on disruptive innovations is that their processes and their business model that make them good at the existing business actually make them bad at competing for the disruption.” – Clayton M. Christensen

Disruptive innovation, as introduced by Clayton M. Christensen, has become a powerful way of thinking about innovation-driven growth. However, the unclarity around what disruptive innovation is and what it is not has led to the need to clarify it (Christensen, Raynor, McDonald, 2015). The need for refinement also stems from the fact that in practice we see engineers and managers alike struggle and miss the signals that something dangerous is coming. With a missing understanding and awareness for how severe and dangerous a situation is, igniting radical change and successfully leading a business turnaround becomes almost impossible.

In recent years there have already been debates on expanding the term disruptive innovation (see Chase, 2016) so it also seems to be a need on an international level to rethink what this term actually means to us. In order make the classification of the different types of innovation more intuitive and crisp, we propose a new definition and classification of disruptive change. If people struggle with understanding the difference and unified big picture between sustaining, disruptive technologies, low-cost disruption and Christensen’s theory on modularisation, then there must be a more intuitive way in which we can explain these fundamental concepts.

We explain and classify different innovation types with more (as we find) intuitive and comprehensive clarity, and unify Christensen’s theory on disruptive innovation and technology s-curves into one overarching model. Due to limited scope, this article zooms in only on classifying different innovation types, with a full explanation of the latter being in our book.

There are two types of disruptive change, which both can lead to fast business death. Figure 1 shows different kinds of “deaths” that can be fatal to a business, from slow to fast. Those with the same DNA refer to problems inferred because the competition has made significant technological breakthroughs, which make an offering obsolete. Disruptive innovations of different DNA are the fastest and “meanest” of all because they can kill a business with incredible speed and disastrous consequence.

Figure 1. Different types of death for a business (illustrative)

 

Knowing what disruptive innovation is and what it is not is important because we cannot effectively manage innovation without understanding its true nature (Christensen, Raynor & McDonald, 2015). The bottom line is that Christensen’s theory of disruptive innovation and the unambiguous use of terms and definitions is of such fundamental significance because it enables an understanding of what causes what and why. A theory at its best therefore helps deduce meaning from re-occurring patterns, and helps to recognise both opportunities for value creation and dangerous circumstances.

To come closer to distinguishing between what disruptive change is and what is it not, from what point onward do we consider something a disruptive innovation? Disruptive innovation is about coming up with something that makes the old obsolete. It is truly game changing and focused on creating the new. Google co-founder Larry Page ingrained the mindset of “10 times better rather than 10 per cent better” into the DNA of the organisation, with the aim of spurring radical innovation (Schulz, 2015). Google’s definition is aimed at producing concepts that are ten times better than the original product – anything less is not radical enough, as it will not have the potential to solve the large challenges of our time fast enough (ibid).

In regard to generating business impact, we are intrigued about discovering the nature and severity of an innovation and disruption. Just as there is a difference between the paw of a cat and that of a tiger cub from the moment they are born, can we spot different disruptive innovation types early on? For disruptive innovation, we have developed terms to distinguish between two subtypes.

a) Disruptive innovation with the same DNA

These are innovations that are radically better than the “original” product (i.e. around 10 times better). We consider such innovations worthy of being considered as having a breakthrough nature because they fundamentally re-define our boundaries of what is believed to be possible and what is not. Yet, with the term “same DNA”, we wish to acknowledge that such innovations still remain and disrupt within the same product category or market segment as the original concept. For car combustion engines for example (see Figure 2), reducing fuel consumption from 8 litres/100km to 0.5 litres/100 km would be a disruptive innovation with same DNA because it would be radically better than the original offering, yet still deals with the same technology (traditional fuel combustion engines implemented in a car concept). They are disruptive, yet act in the same product category and market segment.

Figure 2. Technological developments enable different types of innovation

b) Disruptive innovation with different DNA

Products, services, experiences or concepts with a completely different DNA are radical new innovations with architectural building blocks that are completely different from those products that are already established in current markets. Their nature is completely different because they build on a different and new technology. Disruptive innovations with different DNA would match Christensen’s definition of disruptive innovation. The story of Cisco’s invention of VoIP is a poignant example of this kind of innovation. A new technology that would enable electric car engines to have a 1000 km range, require no maintenance, or address the underlying customer’s job to be done of getting from A to B in a fundamentally different way would also belong to this sub-type. As long as the new technology is “not good enough yet”, the majority of customers will stick with the established technology. When the range reached with the new type of innovation is “good enough”, consumers will switch to this new type of technology.

How can we explain disruptive innovation with different DNA by using the model created by Christensen? As disruptive innovation with different DNA is identical to Christensen’s definition of disruptive innovation, we can apply his model to explain this type of innovation. According to Christensen (2016), disruptive innovations originate in low-end or new-market footholds, and innovations do not catch on with mainstream customers until performance catches up to their standards. Figure 3 contrasts incumbents and entrants product performance trajectories (the lines show how products or services improve over time) with customer demand trajectories (the dashed lines showing customers’ willingness to pay for performance).

Figure 3. Explaining disruptive innovation

Source: adapted from Christensen (2016)

The tipping point occurs when the performance of the entrant’s product is good enough to satisfy minimum customer requirements. At that point, customers are rapidly switching from the incumbents product to the entrant’s product, which finally leads to the downfall of the incumbent.

Disruptive innovation with same DNA

Through Christensen’s theory of disruptive innovation we can understand disruption with different DNA. The question arises of what theory then explains “disruptive innovation with same DNA”. To explain this idea of disruptive innovation with same DNA, we can turn to the theory of S-curves.

Figure 4 shows multiple S-curves, with performance on the vertical axes, and the progression of time along the horizontal axis. High performance is defined by companies that execute repeated jumps and climbs between S-curves (Accenture, 2010). Typically, it is in this last phase that the product is disrupted by another.

Figure 4. S-curve model to describe innovation trends

In difference to the original S-curve model, we propose to use customer value on the vertical axis, instead of performance. Value here refers to the maximum amount of money a specific person/company is willing to pay for the satisfaction of his/her needs delivered by a product or service. With this slight change it should be evident that the successive S-curves and thus innovations always develop towards increasing customer value, placing the customer at the centre of attention. Another aspect that we cherish by using value on the vertical axis is that it acknowledges that performance increase not alone will lead to better customer value. It should be noted that significant cost reductions will also increase perceived customer value.

So when is something an incremental innovation and from what point onward do we consider it a disruptive innovation with same DNA?

Small improvements on customer value, performance or cost take place on single S-curves. These are incremental innovations. Big steps in technology improvements, radical improvements or technology breakthroughs on performance, cost or on how customer value is delivered result in a jump from one S-curve to the next S-curve. We see these jumps on the S-curves as disruptive innovation with same DNA, since the roots of the technology are still based on the very first S-curve within this S-curve chain. In opposition to disruptive innovation with different DNA, disruptive innovation with same DNA can kill or disrupt products, product lines or even single companies but it will not disrupt an entire market segment and kill all business providers. Regardless if incremental or disruptive with same DNA, the chain of single S-curves takes place in a business ecosystem where the customers, technologies, products, suppliers, competitors etc. interact in a dedicated market environment. Innovations remain in the same product category or market segment.

Using these definitions of disruption with same or different DNA, “low-end, or low-cost” disruption would fit in the category of disruption with same DNA. This type of innovation usually does not improve on performance within the DNA of a technology but due to a better cost position, allows companies to offer their customers better price points and with that offer more value to their customers. It goes upwards on the S-curves, either incrementally or disruptively by jumping to the next S-curve. Being in technologies with the same DNA, we consider low-cost disruption much more aggressive than disruption based only on performance increase. Incumbents are good in innovating on performance, but for low-cost solutions their internal cost structures and complex processes often hinder them to compete with low-cost solutions entering their market realm. The most dangerous mindset is that those low-cost products often are not considered to be a disruptive change or even a disruptive innovation. But reality shows exactly the opposite: they are very much able to disrupt the incumbents.

Innovation based on market driven modular architectures often also falls into the category of disruptive change by same DNA. Modular architectures compete through increased speed, flexibility and customiSation, and have the power to disrupt mature, integral architectures (cf. Christensen, Verlinden, & Westerman, 2002). But modular architectures can even combine both types of disruptive change. Typically, major parts in such modular architectures are driven by innovations based on same DNA (incremental or disruptive) while they can simultaneously integrate modules that are driven by innovations with different DNA

Summary

We introduced a more nuanced way to think about innovation. We explored different types of innovation, namely those with same and different DNA. To summarise, Table 1 shows the two types of disruptive innovation we have intensively discussed.

Table 1. Different types of DNA for disruptive innovation

If you would like to get in touch with us, we look forward to hearing from you via email: christoph.fuchs@siemens.com and franziska.golenhofen@siemens.com.

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Notes:


Christoph Fuchs is senior principal and key expert at Siemens’ internet of things (IoT) consulting department. His problem-solving approach and way of thinking have deeply been impacted by experiences made early on in his professional life. Starting his career in 1996 as a product manager in telecommunication at Infineon Tech., he later experienced the disruption of Siemens’ communication unit. From these experiences, he realised and made it his passion to focus on the importance of holistic product development, stressing constant adaptivity to global trends and integrating flexibility into products that allow them to grow with market changes. Christoph holds a Ph.D in electrical engineering from the Technical University of Karlsruhe.

Franziska J. Golenhofen is a consultant in the IoT consulting department at Siemens and an MSc in social innovation and entrepreneurship candidate at LSE’s department of management. Through her research she takes a systems perspective to scale impact and understanding on topics related to innovation, technology and entrepreneurship. She builds on previous experiences as assisting research in the renown lab of Dr. E. Dunn at the University of British Columbia, and publishing own research with Oxford University. Before writing the book with Christoph, she worked at THNK School of Creative Leadership in Amsterdam.