Innovation Doesn't Always Start in the Garage

I’m a fan of the idea of disruptive innovation. Popularized by Harvard business professor Clay Christensen, this happens when a company offers new or cheap products for market segments overlooked by big incumbent players. Eventually, after gaining a foothold, the newcomers move up-market and overtake the established companies. This is one way to get creative destruction -- an older and more general concept popularized by economist Joseph Schumpeter, in which industrial churn leads to greater productivity growth. Successful disruption clears away corporate deadwood, and the opportunity for disruption gives hungry young businesses an incentive to innovate.

Economists often trumpet creative destruction, and there’s lots of research on its effects. But recently, there has been a bit more focus on the other source of private-sector innovation -- incremental improvements by large companies. Even as we celebrate disruption, we shouldn’t forget that big companies are critical players in the innovation game.