In times when everybody seems to be praising new disruptive initiatives in banks, healthcare or education, the actual leaders –companies that are sustaining their success year after year- are not necessarily thinking about a new disruptive innovation model.
The reason why they are not looking for their particular disruptive innovation hit is that by definition, disruptive is offering something simpler, convenient and affordable. When we think of companies like Starbucks, Apple or Patagonia those variables; simplicity, convenience and affordability, do not come to mind. As featured in a recent article by CB Insights, these three cases are able to thrive in today’s challenging market thanks to the durability of their competitive advantage. In order to do that, these companies are following the sustaining innovation path rather than the disruptive innovation one. A model that allows them to have loyal customers and pricing power.
Sustaining innovation is ‘doing the same a little bit better’ while disruptive innovation is essentially ‘making the inaccessible accessible’. Ahead of simpler, convenient, affordable options, sustaining innovators are able to constantly challenge their own products and services to better serve their most demanding customers. Those most demanding customers are the ones that help leading companies sustain their market leadership and to sustain their finances. The last; sustaining their finances, could not be more relevant in a year in which we have seen how many of today’s famous Unicorns are not yet profitable. A year in which we have seen how a giant like WeWork turn from being a $47 Billion Unicorn to lay off up to 6,000 employees (about 30 to 50% of their workforce) according to a report in the New York Times.
Back to one of the paradigmatic examples of sustained market leaders, let’s have a look at Starbucks latest moves. Once known as the ‘experience case study in any business school’ – and today still the second most valuable restaurant brand in the world- Starbucks is not alien to competition. Competition that comes from their own segment (i.e. Costa Coffee), but also from disruptive alternatives such as the low-end coffee shops in every city around the world -charging 75% less for a coffee than Starbucks- and even from a more disruptive formula such as the home-made coffee offered by Nespresso.
The classic ‘good sofa, good music and calling by your name’ formula is not enough anymore. Starbucks, like any other company can either go disruptive or sustaining. The first alternative, going disruptive, represents a major issue for Starbucks; its price. They have decided to go with sustaining innovation, the idea being to keep their most demanding customers, willing to pay the Starbucks price for all these new improvements and, as a result, allowing the company to stay in the black. Starbucks main innovation moves have been their state-of-the-art concept stores and their renewed rewards’ membership program. These new concept stores have received the name of ‘Roastery’, the biggest one -4 floors and 43,000 square feet- has recently opened in Chicago and joins the other 5 premium locations in the world. Starbucks Roasteries are tourist attractions in themselves, they offer specialty coffees and teas, on premise roasters and massive coffee casks where freshly roasted beans are held. In other words, they are doing the same (Starbucks experience) a bit better!
In terms of the second innovation, Starbucks instead of reducing the price for all, and getting into a new segment, has re-energized their rewards’ program offering more benefits than ever to their loyal customers. Starbucks is sending a clear message here; they want to invest (and offer discounts and other benefits) in their current customers.
So if we assume that innovation is a must, what kind of innovation -sustaining innovation or disruptive innovation- suits you best? Once decided, be consistent, coherent and convincing!
ABOUT THE AUTHOR
Jordi Díaz received his bachelor’s degree in Management from the University of Wales and holds a Master in Human Resources Management from EADA and a degree of the Authentic Leadership Development & Disruptive Strategy Programme from Harvard Business School. He is a doctoral candidate in Business Administration at the Ecole des Ponts Paris Tech specialised in Disruptive Innovation.
Currently, Mr Díaz is Associate Dean for Programmes & International Relations and member of the Executive Committee at EADA. He has also served on the Board of Trustees at the Executive MBA Council and EPAS – European programme accreditation. Since 2017, he has been Director of the Executive Academy of the European Foundation for Management Development (EFMD Global Network, Switzerland).