Innovation can be a very confusing topic to decipher, and when exploring various types of innovation, you’ll quickly discover that the concept of innovation is used and applied in different ways depending on who you speak to.
Usually, when people hear about innovation, what comes to mind are technological inventions. Although these are the most apparent forms of innovation, they are not the only form. Innovation also comes in a variety of other forms depending on the business environment and customer needs.
Each year, PWC conducts a global survey on business leaders to know what excites them, concerns them, and drives their current and future actions. In most cases, innovation is at the forefront.
Thus, understanding the various types of innovations available for an organization allows you to respond to your customers’ changing needs and improve your ability to grow your business.
Types of Innovation: Innovation Taxonomy
Innovation comes in many shapes and sizes. One of the significant ways of categorizing innovation is classifying it based on the technology it uses, the extent of change, and how it affects the market dynamics.
So, whether an organization is at its early stages of exploring innovation or already has experience with innovating, new opportunities are always available across the growth cycle. By classifying innovation, organizations can assess how different approaches can help them create more value.
It often seems like companies are continually working on developing the next revolutionary product or business model. However, in the actual sense, most of them are gradually improving their existing products and models. Innovation doesn’t have to result in a massive leap for products or business models to make an impact. In fact, according to the Harvard Business Review, companies that spend less on developing new products and more on gradually improving their existing products are more profitable.
What is Incremental Innovation?
Incremental Innovation is a series of minor improvements made to a company’s existing products, services, or business model. With incremental innovation, companies are not developing new technologies, products or markets.
Compared to disruptive and radical innovations, this invention doesn’t require giant leaps in technology, and it rarely has an immediate enormous impact on market dynamics. However, if you combine the gradual improvements over-time, the effect is profound.
Incremental innovation requires fewer resources and is easier to implement. Since it does not rely on substantial innovative leaps, incremental innovation is also more predictable and safer for companies. Hence, it’s relatively safe to say most companies do at least some incremental innovation.
The Advantages of Incremental Innovation
According to Clayton Christensen, a Harvard Business School Professor, 95% of the over 30,000 new products released every year fail. To develop, and launch a new product is often quite tricky. Many principles apply to creating it, and most companies do not have the necessary resources or team to follow through.
While it’s sometimes necessary to develop new inventions, it’s also crucial to always maintain your products’ gradual improvements. Here are two ways your organizations can benefit from the progress;
1. Diversification of your Product Portfolio
Radical and Disruptive innovations are costly, high-risk, high-return situations. However, almost 95% of the new products introduced each year fail despite the potentially high returns. Hence, instead of pouring resources and time into new products, it would be wiser to improve existing products and models.
Additionally, customers often purchase upgraded versions of products from brands they are familiar with more readily than new ones. Therefore, upgrading the products and services provides companies with a ready market and cash infusion from their various product upgrades.
2. Company Longevity and Customer Retention
Company longevity depends on customer retention. Radical and Disruptive innovations are essential elements to consider when making long-term business goals. However, for short-term goals, frequent upgrades are necessary to keep customers interested in the business. These upgrades are enough to buy time and provide resources to create new products.
The Risk Involved
There is more to innovation than just doing what we do a little better. In rapidly changing markets and technologies, most large companies reach the limits of what is possible with incremental innovation, where they cannot make any more upgrades. There is also the risk that some other start-up or organization is developing a more radical and disruptive idea that may put large and established companies out of business.
So any smart entrepreneur or organization needs to invest in exploring the other innovations.
Examples of Incremental Innovation in Action
iPhone – Product Improvement
Since its creation, the iPhone has kept its competitors on their toes with incremental innovation. Every year, Apple releases a new iPhone with a better design, camera, a bigger screen, larger storage capacity, and more robust services. Through these incremental improvements, Apple ensures that it always satisfies customers with improvements to the existing iPhone.
Gillette – Product Improvements
Gillette might not appear as one of the great innovative organizations. However, the brand is an excellent example of incremental innovation. Gillette started with a single blade on their product, but they have developed their product over time, adding more blades and features to meet the customers’ needs.
Radical innovation is perhaps what comes to mind when most people think of innovation. Incremental innovation does not compete in a fast-paced, changing market. In times of technological changes, companies need to question their operations, products, and models radically.
Radical innovations are often rare, but they allow societies to make gigantic leaps forward when they occur.
What is Radical Innovation?
According to TechTarget, Radical Innovation is an inventive concept aiming to destroy current products, services, and business models to create new markets and replace existing ones. Radical innovation always aims at long-term goals. It goes further than incremental innovation, which only aims at developing and optimizing existing products and services. It is crucial to note that radical innovation occurs internally within an organization and involves successfully commercializing entirely novel products and ideas.
Radical Innovation creates unique products, services, and business models previously unknown to companies. It provides alternative solutions to global problems and even offers solutions to problems we didn’t know we had. Unlike incremental innovation, radical innovation requires a lot of time, capital, and technological development to make it mainstream.
Since Radical Innovation introduces new concepts, it often receives significant resistance. However, if the invention executes successfully, it often symbolizes the beginning of a new era that affects most industries and countries worldwide.
The Advantages of Radical Innovation
1. Competitive Advantage
The profound changes of radical innovation transform entire markets, introduce new products, and develop entirely new business models. If a company chooses this path, it becomes an innovator and a trendsetter in its respective industry. Because the radical changes are too profound to be implemented by competitors, the company gains a unique selling proposition and competitive advantage.
2. Opens up the Market to New Players
Radical innovation is better suited for start-ups and new players. Since they do not have any operational history, start-ups are more flexible when trying out inventions. If executed and implemented effectively, radical innovation allows start-ups to launch into unexplored markets and become industry leaders.
The Risks Involved
The difficulty in radical innovation lies with starting as it requires a lot of capital and resources to create. Also, selecting the right idea to follow through and inventing a cohesive strategy to support the concept also acts like a barrier to many companies. Furthermore, since it creates new markets and products, radical innovation may fail to pay off if the invention does not go mainstream.
Examples of Radical Innovation in Action
SalesForce – service innovations
Salesforce’s CRM platform harnesses not only new technologies like cloud computing but also a new business model. To this day, Salesforce continues to push its creative boundaries, and it has been named one of the most innovative companies four years in a row by Forbes.
According to ARK Invest, there are new, more radical innovations that are on the verge of becoming mainstream. These are Artificial Intelligence, Robotics, genome sequencing, and Blockchain Technology.
Over the past two decades, disruptive innovation has been very influential among business leaders and technical individuals. However, the term is widely misunderstood and commonly applied to companies that are genuinely not disruptive. Therefore, understanding the meaning of disruptive innovation is crucial when making innovative plans.
So what is Disruptive Innovation?
According to the Christensen Institute, disruptive innovation is the process by which a product or service initially takes roots in a simple application at the bottom of the market, typically being less expensive and more accessible and later on relentlessly moving up the market and displacing established competitors.
Disruptive companies often exploit technology to deliver new products and services differently. In a video by Clayton Christensen Institute, Disruptive products and services start as products that cannot compete with existing technologies in the market but later move on to become mainstream products.
Disruptive companies are often small companies that target market segments often neglected by large organizations. Despite having fewer resources, they offer products or services better suited to overlooked customers at lower prices.
Over time, these companies move upmarket until they deliver what the established business’ mainstream customers expect. Disruption happens once the customers adopt the small business products and services in large volumes.
The Advantages of Disruptive Innovation
1. Provides start-ups with a competitive edge
Disruptive innovation allows start-ups to compete with already set up businesses by establishing and growing their market segments. Start-ups that take up a significant segment of the market also land lucrative deals with large organizations.
2. Increases Efficiency on a wide scale
With 3D printing, organizations and individuals can now build their products in the comfort of their premises. There are already a ton of hobbyists and organizations who are buying 3D printers for plastic products. If (when) 3D printers go mainstream, the manufacturing industry will be disrupted as people will have the luxury of creating products at home or locally.
The Risks Involved
Disruptive technology gives rise to legitimate public policy issues. Established organizations may petition existing regulations to apply to the upcoming companies to lessen their competitive advantage — claiming that the advantage arises from an unfair exclusion from regulatory rules. Hence, regulators may shut down your idea or product before it brings in any returns.
Most disruptive innovations require prolonged and strategic processes, which in may not achieve big profits. Since disruptive innovation develops new products, it is often an experimentation process. Therefore, it is quite challenging to understand the customers’ needs as the product or process has not yet been introduced into the market before.
Examples of Disruptive Innovation in Action
Airbnb: Peer to-Peer Lodging Service
Airbnb is a prominent example of disruptive innovation in the hospitality industry. It combines a new business model with technology by providing travellers with the opportunity to live like locals. It also facilitates transactions to the host through the Airbnb platform.
Initially, Airbnb started by matching travellers who were looking for less expensive alternatives to hotels. On the other hand, the hosts (founders) were looking to make a few extra bucks. After securing its first few clients, the business gained traction, and it was not long until it went mainstream. Currently, the company has expanded, and it offers accommodation to many individuals, from high-value clients to regular clients.
Although Airbnb faced legal resistance and doubts, it gradually outmatched the resistance and built a 5 million lodging business worldwide.
For any successful innovation to occur, it needs to meet all the following factors; feasibility, viability, and desirability. The implemented innovation has to ensure that the product, service, or business model has proven feasible, and viable, and that customers desire it. Incorporating this trifecta provides your business with a higher chance of meeting its innovative goals.
Which Innovator are you?
Before any business implements innovation, it first has to assess which type of innovator it is. Generally, there are four types of innovators:
They have a high investment in innovation and emphasize working with external expertise and products.
Invest significantly in innovation but focus more on developing its capacity and efficiency internally
Invest less in innovation but explore externally to look for inspiration for their innovations
Invest less in innovation but have the capacity for internal innovation.
Therefore, when innovating, a business needs to understand its innovator type to choose a suitable innovation strategy.
Most organizations today focus on inventions that may revolutionize their industries. What they fail to understand is that even the most revolutionary inventions started as constant minor improvements on existing models.
Successful and sustainable innovations do not happen overnight. They require continuous improvements and conceptualization of solutions to business challenges. Regardless of the type of innovation, you need to drive repeatable innovative practices that consider all the creative approaches. Do not lock yourself to a single approach; there are always new problems to be solved.
So, you can still make an impact whether you choose to focus on improving your core business or on inventing completely new models.