DisruptiveInnovation.Org - Key Concepts

Capitalist's Dilemma

The Capitalist’s Dilemma is that by overemphasizing short-term improvements in profitability, investors inadvertently undermine long-term investments that would generate more attractive profits over time. Companies improve profitability in the short-term via two types of innovation, called sustaining innovation and efficiency innovation. Sustaining innovations improve a product or service for existing customers. Efficiency innovations lower the cost to produce a product or service for existing customers. Both types of innovation help a company improve profitability in a way that reinforces its existing business model. Companies improve long-term profitability by investing in market creating innovations. Market-creating innovations provide a product or service to new customers that was previously unavailable to them. Established companies struggle to invest in new market innovations because they require a new business model and do not improve profitability in the short term.