In The Innovator’s Solution, Clayton Christiansen summarizes “Three Approaches to Creating New-Growth Businesses” in Table 2-1. He discusses three dimensions; the one which caught my eye was “Impact on the required business model (processes and cost structure)”. Here are the descriptions.
- Sustaining Innovations: Improves or maintains profit margins by exploiting the existing processes and cost structure and making better use of current competitive advantages.
- Low-End Disruptions: Utilizes a new operating or financial approach or both—a different combination of lower gross profit margins and higher asset utilization that can earn attractive returns at the discount prices required to win business at the low end of the market.
- New-Market Disruptions: Business model must make money at lower price per unit sold, and at unit production volumes that initially will be small. Gross margin dollars per unit sold will be significantly lower.
In the other two dimensions, performance and target market, the iPhone clearly matches the description of a new-market disruption. But not in its business model—its high price and margin disqualify it.