Identifying Disruptive Innovation: Innovation Theory and the Defense Industry

Clayton Christensen developed a powerful framework for evaluating innovations and choosing business strategies to respond to technological change. 1 He divides innovations into two categories, "disruptive" and "sustaining," based mainly on whether or not the new product's performance is measured by new metrics.Sustaining innovations improve performance along an established trajectory that is familiar to traditional customers.Disruptive innovations, on the other hand, offer a different kind of performance that does not help traditional customers with their normal business practices.Christensen argues that incumbent firms will sensibly cater to their established customers, because they understand the established market well and work hard to preserve good customer relationships.As a result, incumbents will tend to focus on sustaining innovations and will neglect disruptive ones.However, this tendency will leave them vulnerable to new entrants that lack established customer ties and are therefore willing to pursue disruptive innovations, initially by selling to fringe customers.Christensen describes cases in a wide range of industries in which competition from new firms selling disruptive innovations led to the collapse of well-known, well-managed incumbent firms.In this article, we improve on Christensen's theory in a way that makes it more analytically useful-making the theory more predictive than descriptive.Christensen actually defines disruptive innovations as those in which incumbent firms lose out in the post-innovation competition, conflating cause and effect.That choice helps make his case histories engaging and easy to read.But it also makes his theory hard to test and hard to apply ex ante rather than ex post, because it requires analysts to know the outcome of the post-innovation competition before they can assign the value of the independent variable-that is, before they can decide whether the innovation in question is disruptive or sustaining.Christensen also introduces auxiliary assumptions about the nature of competition in the product market that complicate the story.