The difference between sustaining and disruptive innovation is commonly misunderstood by many in business. The main differentiation that I make is that sustaining innovation comes from listening to the needs of customers in the existing market and creating products that satisfy their predicted needs for the future. Disruptive innovation creates new markets separate to the mainstream; markets that are unknowable at the time of the technologies conception.
Established market leaders are extremely good at dealing with and exploiting sustaining innovations in order to fuel the short-term growth of their companies. Disruptive innovations however, pose a challenge to market leaders that many fail to overcome. Why is this?
Disruptive innovations create markets that are initially too small to 'be interesting' to large established firms. These firms have a responsibility to their shareholders to maintain continued growth rates which cannot be satisfied by the small initial returns obtained through pursuing emerging markets.
The inability of large firms to enter these markets early gives smaller firms and start-ups the advantage of time. The dominant firms will, inevitably, enter these emerging markets when they become 'interesting enough', however the time between the markets conception and the entrance of these firms is a valuable resource for smaller firms that can use this period to build up knowledge of both the market and technology and establish a niche brand.
All predictions about markets that disruptive technologies will create have only one thing in common, they are all wrong.
It is impossible to accurately predict the markets created by disruptive technologies because they do not exist. This sounds obvious but so many companies pursue the identification of a single path for a disruptive technology. Only by doing this can they formulate an exact plan for their company when entering the market and justify investments of resources and capital. This pursuit is futile. Instead of trying to pursue an absolute path these companies should be preparing a plan that allows for multiple failures before identifying the true market for the technology. This iterative process has been well adopted by many internet companies over the past decade however companies in many other industries are still struggling with this concept.
I am fascinated by disruptive innovation and the factors that determine whether a particular innovation will succeed or fail. Clayton Christensen's book 'The Innovators Dilemma' explores these thoughts in depth. I would definitely recommend reading it (if you haven't already).