In evaluating the performance of the company in our investment portfolio, growth is definitely part of the equation that we want to include. This growth can be attributed by new markets penetration (inorganic growth) or simply improving certain service or product (organic growth) that the company is currently having, so as to increase value in turns hopefully lead to increasing revenue.
To put it simply, innovation is the key essential for a change. Be it reflected in the work processes of the company or in the product/services the company is providing.
However, a change doesn’t always have to be good. I like the way how Clayton M. Christensen describe the 2 types of innovations. Let’s us first understand the 2 types of innovation:
1. Sustaining innovation
2. Disruptive innovation
1. Sustaining Innovation
Sustaining innovation seeks to improve the current state of performance and value in products, processes and services.
Do not have the wrong impression that sustaining connotes boring growth, it can be radical at times. For example, with the Retina display on phones and tablet, Apple successfully improve our viewing experience, and created a brand new standard where pixelated words are ugly.
But of course, sustaining growth can also take place in incremental steps, progressively. For example from a 2gb RAM to a 3gb RAM. It improves speed and performance, but nothing to call it a new standard, more of catching up to meet the needs of consumer demands.
No matter radical or incremental, sustaining growth aims to improve performance of a product that the markets values. Most of the technological advances falls under the sustaining growth
2. Disruptive Innovations
Disruptive innovations create a different value existing products, services and processes can provide.
As described by Clayton Christensen, generally products of disruptive innovation will underperform established products in mainstream markets. But they have other features that a few fringe that customers valued.
Ideally the end product should be cheaper and simpler to use. For example, a notebook computer versus hand-held digital devices such as tablets.
This type of innovation is less often employ by companies as it might result in worse product performance at least in the near term. However, companies with established product serving the mainstream market should take note of disruptive innovation that could affect the company position in the market.
It might be interesting to note that although promising it might sounds for disruptive growth – to be a game changer, it is disruptive technologies that account for most companies failure. Many companies lose their stand as market leaders due to disruptive innovation.
On the other hand, even the most radical sustaining innovation rarely account for failure of leading company.
I hope this short article serve you as a food for thought, be it in your workplace or when you are evaluating your invested company. Make a thought on what is the type of innovation is the management team placing the most resources in? What are the upcoming disruptive technologies which will affect the standing of your company? As this might equates to the future success or even survivability of your company.