Tata Nano

Companies can also grow in their existing business by pursuing innovation. But what kinds of innovation potentially create durable growth opportunities? What are some of the challenges and best practices in pursuing growth through innovation?

Profitable growth is near the top of every manager’s agenda. But most view achieving that growth as a gamble where success is random and unpredictable. There is some truth to this perception, but the good news is that companies can tilt the odds of creating sustainable new growth businesses in their favor by developing strategies based on disruption.

Three strategies for new growth businesses

A sustaining strategy, in which a company brings better products to existing customers in existing markets.

A low-end disruptive strategy, in which ‘overserved’ customers are offered a ‘good enough’ product at a lower price. Disruptors capture value only as long as there are high-cost competitors competing in a market segment.

A new-market disruptive strategy, in which a company reaches ‘nonconsumers’ with a relatively simple, convenient product. Here growth is created by giving nonconsumers a way to do something that previously they couldn’t. New-market disruptions typically have performance limitations compared with established products but bring new benefits like convenience, simplicity of use, portability, or low prices.

Choosing a disruptive path

Few technologies or innovations are inherently sustaining or disruptive. Shaping an innovation into a disruptive growth business is a strategic choice. Research shows getting the initial conditions right-setting up an environment that encourages the identification and nurturing of disruptive innovations-strongly influences a firm’s ability to make what turn out to be the right choices.

Organizational autonomy-setting up a separate group to nurture disruptive innovations-is one of the important initial conditions that make it easier for a company to follow a disruptive path....