Discontinuous Innovation: Definition and Examples

50 years ago, people saw innovation as work primarily done in big scientific labs by R&D teams. They were expensive, high-risk - high-return initiatives that only big and successful companies could afford to operate.

However, successful companies often emerge from nowhere to outperform established players and win the market by building astonishing products.

How does this happen? Enter Discontinuous Innovation.

What is Discontinuous Innovation?

Discontinuous innovation is the introduction of groundbreaking products, services, and technologies that significantly deviate from existing norms and practices. This, in turn, creates new market opportunities or drastically alters existing market dynamics.

Key Characteristics of Discontinuous Innovations

• Radical Change: This represents a major leap in technology, performance, or functionality compared to existing offerings.
• New Markets: May create entirely new markets or significantly change the dynamics of existing ones.
• High Impact: Often leads to substantial shifts in consumer behavior and market structures.
• Adoption: Can face initial resistance due to their novelty and the significant change they represent, but they have the potential to redefine industries once adopted.

Discontinuous Innovation vs Continuous Innovation

Continuous innovation is the process of adding incremental improvements to deliver more value to customers. The two types of innovation are intertangled in an interesting dynamic, illustrated in the picture below:

Each generation of technology consists of discontinuous and continuous phases of innovation. The discontinuous phase kickstarts the wave and gives the initial momentum of development, whereas incremental innovation is responsible for the longevity of the technology and prolonging its success as much as possible.

The vertical gap between the two technology waves (aka, the low-end foothold) illustrates the deficiencies in the challenger compared to the incumbents at the beginning of the disruption.

Discontinuous Innovation vs Disruptive Innovation

The two terms are often used interchangeably. Discontinuous Innovation, however, is a broader category name, while disruptive innovation is a specific approach to achieving discontinuous innovation.

Clayton Christensen developed the theory of disruptive innovation to explain the phenomenon of small companies (challengers) disrupting big markets with established players (incumbents). It outlines the mechanism that challengers use to outplace incumbents.

At its foundation, disruptive innovation involves creating new products that perform worse than existing alternatives but focus on a particular small niche segment. It solves a problem for them, usually cheaper, faster, or better in some way that customers care about. By rapidly expanding the customer segments and improving the product, challengers become the dominant players in the market, displacing existing competitors.

What Other Types of Discontinuous Innovation Exist?

Discontinuous innovation can be developed through different processes other than disruptive innovation. One such innovation will come with commercializing nuclear fusion reactors for electricity production. Such reactors will probably be:

• Very expensive
• Superior to other electricity generation alternatives in terms of quality
• Disruptive for the energy market across the board

Still, disruptive innovation is the most impactful and accessible path for challengers to win existing markets. Clayton Christensen develops this theory in multiple publications and his seminal book, The Innovator’s Dilemma. This book is part of the Icanpreneur collection of Top 10 Books on Entrepreneurship where you can find more high quality titles.

The Innovator’s Dilemma

The Innovator’s Dilemma is the paradox that market leaders become victims of their own success and are bound to be displaced by a disruptor.

How does this work?

The dominant player’s operations are aligned to support their current best product or solution. This prevents them from approaching the same problem from a different angle and providing a brand-new solution. On the other hand, disruptive innovators are initially ignored by market leaders as too small to compete with, and they only start paying attention when it’s too late.

How to escape the Innovator's Dilemma?

To avoid the Innovator’s Dilemma, big companies create separate subsidiaries that are structured and incentivized to optimize for discontinuous innovation. This allows established players to allocate resources and focus on following the discontinuous innovation process rather than protecting their existing products and services.

This dynamic has propelled many companies from zero to global leaders in their segments. Let’s look at a few of them.

5 Examples of Discontinuous Innovation

1. Apple

In the late 1970s and early 1980s, Apple played a key role in the development of the personal computer. At that time, established market players in the computer market were IBM and DEC, which focused on mainframes and minicomputers. Industry leaders are known to say that nobody will need a computer at home.

Instead, Apple focused on the small niche of technology enthusiasts and hobbyists who were buying DIY kits for assembling computers at home.

By providing a complete product that was ready to use and had some practical applications, Apple and other companies created a new market that established players ignored.

The rest is history. Most homes today have at least one personal computer or laptop, which is now commoditized.

2. Tesla

Tesla has been one of the biggest disrupters in the automotive industry for the last decades. One would expect that car innovation would require high-tech innovation. However, Tesla’s cars are quite the opposite. By putting a big tablet with an even bigger battery on four big wheels, the company creates electric cars.

It becomes a leading manufacturer in less than two decades, displacing companies with a century-long history of car production.

The product initially has significant disadvantages:

• Long-distance trips are hard due to lack of infrastructure
• Uncertainty around the longevity of the battery
• A high price tag

However, all those challenges are being addressed continuously to ensure that EVs are widely accepted in many regions.

Why weren’t traditional car manufacturers the first to release EVs, considering their strong positions on the market? Some did, like the Nissan Leaf, the top-selling car for quite some time.

However, traditional manufacturers couldn’t play a leading role in this process, as EV models cannibalize their existing products, namely the ICE cars.

EVs have to compete for the same resources as ICE cars across the whole lifespan of a car—sourcing materials and supply chain, assembling, distribution, marketing, sales, customer care, etc.

None of the traditional manufacturers have any incentive to self-disrupt until a new player like Tesla enters the market.

3. Nintendo

The history of Nintendo is full of curious examples of disruptive innovation.

PPU

The Nintendo team was challenged to create a video game console that cost no more than $100. They decided that since their device wouldn’t be used to calculate electronic tables, they could go with a cheaper CPU as long as something else could take care of calculations related to painting the pictures.

They came up with the Picture Processing Unit (PPU), a dedicated device component that handled the computations related to painting pictures on TV.

Nintendo became one of the first to create such a type of computational parallelism, motivated by the need to reduce cost. Ten years later, Nvidia would make the GPU, which is now a ubiquitous part of every computer.

Wii

Nintendo played a crucial role in the battle of the game consoles in the mid-2000s. While the big players in the space, Xbox and Playstation, focused on high-end devices with stunning graphics and processing power, Wii introduced motion-aware controllers that unlock a brand new type of interaction.

This helped them win customer segments that weren’t typically involved in gaming, expanding the market share for Wii. They did that with cheaper hardware compared to the other two players, which allowed them to be very competitive.

Switch

10 years later, Xbox and PlayStation continued their cutthroat battle for more expensive consoles. Nintendo carved out a new market segment for themselves by introducing a home gaming console that you can use on the go and still at a lower price point than competitors.

4. Uber

Uber is a great example of discontinuous innovation that is not disruptive innovation.

Here are the reasons:

1. Uber didn’t start from a small niche market with a weak product at a lower cost. They went right on to compete with taxi services with a superior product, priced comparable to existing alternatives. However, Uber didn’t meet Christensen’s definition of disruptive innovation.
2. Uber introduced new technology in the personal transportation space (mobile application, GPS technologies, rating platform, etc.) that led to significant shifts in the market. The dramatically better user experience set a new bar for customers' expectations of the service. At the same time, Uber made it easier for more people to become drivers in their spare time. Uber and similar services became one of the pillars of the sharing economy.

5. Bonus: a negative example, The Segway

We often think of discontinuous innovation as a stellar example of success. However, success should never be taken for granted.

The story of Segway is a good reminder. This device represents a discontinuous innovation in personal transportation.

Despite its technological novelty, it couldn’t create a new market or meaningfully disrupt an existing one. It targeted a niche market but faced adoption challenges caused by high costs and limited use cases. It was eventually displaced by electric scooters.

3 Key Benefits and Challenges of Discontinuous Innovation

Benefits of Discontinuous Innovation

Huge Opportunity

Discontinuous innovations represent enormous opportunities to capture a huge existing market or develop a new one to become the market leader. Depending on the market, this could be anywhere from a million-dollar business to a multibillion-dollar business.

Competitive Advantage

As already mentioned, existing players have natural barriers to compete with challengers. Unless other disruptive players arise, discontinuous innovation can be a strong protective factor from competitors.

Long-Term Sustainability

Discontinuous innovations often are part of a wave of technological revolution. Examples from the past are personal computers and electronics, the internet, SaaS products, and most recently AI. This suggests that such innovations will continue to pay off for a long time.

Challenges of Discontinuous Innovation

High Risk

As with any entrepreneurial journey, discontinuous innovations have a high chance of failure.

Resistance to Change

Products emerging from discontinuous innovation encounter all kinds of friction points, from legal and regulatory issues to users' perceptions and expectations.

In the case of Airbnb, there is a whole set of these, from different regulations that vary a lot from region to region dictating how short-term tourist-related stays are regulated to users’ skepticism about staying at a stranger’s home and all the anxiety associated with that.

Time to market

Compared to continuous innovation, discontinuous might take more time to reach an MVP that can be tested with the market.

Disruptive Innovation Process: 8 Key Steps

Step 1: Identify a target market

Look at markets with underserved niche segments that could benefit from a new emerging technology or another innovation.

Step 2: Explore the unmet needs of the customer segments

Conduct customer problem research to gain a deep understanding of the problem space and existing alternatives.

Step 3: Build a hypothesis and test

Focus on lower quality product and a lower cost that solves an identified problem from Step 2 really well.

Step 4: Gain traction in the beachhead segment

Focus entirely on the segment you are in a best position to win. At this point, market leaders will ignore you

Step 5: Move upmarket

Start winning adjacent markets on by one. Each win will increase your momentum and propel you to the next expansion.

Step 6: Displace incumbents

While gradually improving the product by adding the missing pieces for each new segment, the product becomes competitive to market leaeders.

Step 7: Transition to continuous innovation to preserve competitive edge

Being the market leader, switch gears to continuous innovation, focusing on protecting your competitive edge.

Step 8: Be prepared to be displaced by the next disruptor

The last step is probably the most crucial! Never forget that what makes you successful today will eventually cause you to be disrupted. Be ahead of competitors by leading the next disruption wave.

3 Key Best Practices Implementing Discontinuous Innovation

There are significant differences between organizations optimized for continuous innovation and discontinuous innovation.

1. Fostering a Culture of Innovation

Discontinuous innovation requires the values, objectives, and team incentives to be aligned with innovation. Experimentation and failures should be encouraged and celebrated. Time and resources should be allocated so they don’t hinder experimentation. Agility and adaptability to new insights should be expected.

2. Separate Innovation Unit

As mentioned above, the only way for established organizations to overcome the innovator's dilemma might be to create a separate subsidiary focusing on discontinuous innovation.

Alphabet (Google's parent company) currently has 15 to 20 major subsidiaries. Some are now focused on continuous innovation after being discontinuous innovators. These include YouTube, Google Maps, and Android. Others are currently working on discontinuous innovations like Waymo and Verily.

This structure allows disrupting companies to have the process, structure, and resources needed to be successful in their market. All happening without affecting the improvements of existing products.

3. Focus on Market Exploration

Getting from zero to product-market fit requires different skills, activities, and processes than scaling and growing a post-pmf product.

The key competencies are:

• Product research to understand and validate customer problems and needs
• Rapid iterations and learning to create a better and stronger product
• Cross-functional expertise where the product team collaborates and no silos are slowing the process down

The Icanpreneur platform creates the perfect environment for product teams to succeed with discontinuous innovation. It follows proven methodologies built into a compelling entrepreneurial journey. On top of this, you will have access to guidance, examples, and tooling you need.

Wrap up

Discontinuous innovation is a critical skill to develop for every company that needs to become or remain the market leader.

At the heart of innovation is to:

• be curious,
• explore new opportunities,
• push the boundaries of what is possible,
• never succumb to complacency.

The Icanpreneur platform can help you kickstart your journey with discontinuous innovation by providing the guidance, examples, and tooling you need to build the next disruptive product. We all have a fantastic community! Get started now.