I’ve written elsewhere about the many forms of innovation to consider when developing a firm’s strategy. I’ll focus here on disruptive innovation and discuss three things: What it is not, what it is, and why precise understanding matters.

First, let’s discard some common unhelpful misunderstandings. An innovation is not disruptive just because it’s cool, successful, a gamechanger, or widely talked about. Tesla’s electric vehicles are not disruptive innovations. (I’ll explain later*).

So, what is it? When it comes to innovation, Harvard Professor Clayton Christensen was one of the most respected teachers, writers, and consultants of all time. Steve Jobs and (Intel CEO) Andy Grove both followed his work closely. Christensen proved a frequently repeating pattern. He labelled it ‘disruptive innovation’ and spent his academic career studying and teaching it.

It’s helpful to think of disruptive innovation as a repeating, gradual process rather than a product. Consider any mature market, for example, personal computers. Incumbent firms invest heavily in what Christensen described as sustaining innovation. This continuously improves established products, keeps demanding customers satisfied, and justifies high prices. But, the improvements slowly exceed the needs of mainstream customers. Concurrently, new firms enter the market offering cheaper or easier-to-use (often inferior) products to customers who cannot afford, cannot use, or don’t need the full capabilities of those established products. The new entrants continuously improve their products, start attacking the established ‘expensive/complex’ products, and increasingly pull mainstream customers away from those incumbent firms.

Why does precise understanding of disruptive innovation matter? Because it helps new entrants to successfully target their market. And it helps incumbents defend themselves against those new entrants. Let’s consider both in turn.

Christensen empirically proved that new entrants should generally follow a disruptive approach. He advised cheaper/easier over faster/better. Transistor radios, minicomputers, personal computers, inkjet printers, cloud computing providers, cloud software, and entertainment streaming services all followed the process. (* Tesla’s electric vehicles did not).

Long-time technology industry incumbents IBM, HP, Intel, Apple, and Microsoft understand Christensen’s process. They monitor new entrants and respond to genuine threats from cheaper or simpler computers, printers, semiconductors, software, and cloud providers by carefully launching their responses. (Christensen advised creating independent business units to do this). Many, now extinct, firms failed to respond: Digital, Wang, Sun Microsystems, Commodore, Atari, Nokia, WordPerfect, Siebel.

So, when developing your firm’s strategy, apply disruptive innovation thinking when entering a market or defending your position within it.