Innovation is widely acknowledged as important for companies seeking to achieve market success in various industries. This perception is supported by case studies and by observation of companies that have adopted different types of innovation as part of their organizational strategy. Before tackling the innovation types, we need to identify what innovation is and what innovative activity is. Considered as an activity, innovation is the action that is required to create new ideas, products, or services. This action leads to a positive change to the product development process and business. Hence, the definition of innovation is broad and goes beyond the product itself. There can be innovation in the business model, process, or organizational strategic thinking.
The definition provided above is based on that of Marc Chason from Motorola Labs. Other definitions can help to clarify the innovation process, such as that provided by Victor Fernandes from Natura, who defines innovation as: “creating new value and/or capturing value in a new way. Value is the key word, stressing the difference between innovation and invention. The definition is simple, easy to memorize and also good enough to encompass innovation in all the value chain.” According to another definition, innovation is defined as changing or creating a more effective process, product, or service that can increase the opportunities for business success. However, many tend to use the word innovation to refer to a process rather than an outcome. Innovation refers to the change, be that small or signification change. So, innovation is considered a result or an outcome of the development process that aims to achieve innovative output.
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Defining the Types of Innovation
As mentioned above, innovation is a result of a process or activity that is reflected in the final product, service, or process. As a result, identifying the types of innovation can vary based on the target output, the process used to achieve innovation, and the scale of innovation based on its impact on the market. Different classification models have been introduced to define the types of innovation. One of these categorization models was introduced by Doblin (Monitor Group), which is based on the industry pattern and defines the types of innovation based on the following criteria:
- Business model
- Enabling process
- Core process
- Product performance
- Product system
- Customer experience
In his book, “Dealing with Darwin: How Great Companies Innovate at Every Phase of Their Evolution”, Geoffrey Moore categorized innovation based on the product and service term used by the consumer to define what they are buying. So, he defined the innovation types as the following:
Additionally, other models introduce other categorized models such and the impact of current business, which categorized innovation to 1) cannibalization, 2) market creation, and 3) competitor disruption. Another model categorizes innovation based on the source of innovation to 1) manufacturers, and 2) end-user innovation. In the Oslo manual developed by the Eurostat and the Organization for Economic Co-operation and Development (OECD), the categorization includes the product, process, market methods, and new organizational methods.
Types of Innovation Based on Change Impact
Aside from the categorization models discussed above, innovation can be defined based on the change’s impact on sustaining, breakthrough, and disruption. Understanding these models help us to explore the different types of innovation and where to innovate inside the organization.
In this model, the innovation isn’t meant to introduce a fully new product or service to the market. Instead, it aims to improve the current product gradually until it reaches the end of its life cycle. Normally, large or old companies with experience in innovation are able to adopt this model of innovation because of their resources, culture, and employees’ abilities to understand the model compared with new companies. Sustaining innovation can be characterized by the following:
- Improving features. This model ensures that the future generations of the product will be improved with new features and enhancements compared with the old one, as there is continued improvement applied to the product.
- Reducing costs. Along with increasing sales of the product, the cost of the raw materials and the design process become clearer. The product is hence produced faster and development work is reduced for each unit, which contributes to a reduction in cost.
- Expand production lines. As the product get improved, companies expand the production line to allow more features to be added to the product, such as colors, size, and shape.
Examples of the sustaining innovation include the new versions of mobile phones such as iPhone 4, 4s, 5, 6, and 6 plus. These updates didn’t introduce new products to the market. Instead, they introduced new features in order to maintain superiority in the market and target more consumer segments. While sustaining innovation is seen as the least desirable form of innovation by innovators who want to take big steps rather than small ones, sustaining innovation is necessary to maintain the product’s success and ensure that the various consumer needs are met through the addition of features to the next generations of the product.
Unlike sustaining innovation, disruptive innovation aims to produce simple and low-cost products that address consumers’ needs. The term “disruptive innovation” was coined by Professor Clayton Christensen, Harvard Business School, in his question posed in his PhD thesis; “why do successful firms fail?” He found that companies tend to add features to their products until the products become complicated, expensive, and less desirable to consumers. On the other hand, startups introduce simpler products that directly target the consumers’ needs, offering cheaper and more user-centered products. This is known as disruptive innovation.
An example of the disruptive innovation is the MP3 players that target one feature for the consumers. This makes them cheaper compared to mobile phones, or tablets. So, in order to achieve successful disruptive innovation, companies should consider the following points:
- Build a user-centered culture. Instead of focusing on adding features to a new product, it is better to focus on one feature that clearly address the market’s needs. This will help to build a product that is usable and less complicated for consumers.
- Reduce the cost. Reducing the cost of the product helps to attract consumers to experience the new product and increase its presence in the market. Reducing the cost can be achieved by focusing on the important features of the product, replacing the raw materials with cheaper but reliable alternatives, and removing the middle man by selling the product directly through the marketing channels. Apple achieved more success by directly selling apps through the App Store without the need for a middleman to distribute applications.
- Observe the market. Disruptive innovation is closely related to technology and market changes. New trends, like new technologies and models, help to find more ideas for innovative products. Observing competitors also helps to identify their weak points and overcome them in the new products.
This type of innovation can help companies to achieve market success by providing new solutions for their consumers. However, it requires deep and accurate research in order to understand the consumer needs, the market gaps, and new technology to build new products based the research findings.
The breakthrough innovation represents a radical change in the market through the production of a revolutionary new product. It can be considered a higher level of disruptive innovation. Examples of the breakthrough innovation include the Apple Macintosh that introduced the first PC computer with a graphic user interface (GUI). Also, Apple introduced the iPhone that represented a radical change in the mobile industry in its simplicity, power, and Apple brand on a mobile phone. Other examples of breakthrough innovations are the Nest Thermostat and cloud computing in the IT industry.
The market impact of breakthrough innovation is higher than the impact of disruptive innovation. However, companies need to have the knowledge of innovation models and consider the following in order to archive this type of innovation:
- Conduct deep user experience research in order to understand consumer needs or prospective needs that are not addressed by existing products.
- Identify the innovation opportunities. While this requires a talent like Steve Jobs had, research, implementing tools such as the TRIZ, and brainstorming with consumers and teams can help identify the innovation opportunities.
- Possess resources such as the knowledgeable employees, access to raw materials, and stakeholders. This can help companies to innovate new products. For example, distributors can provide very detailed feedback about consumer behavior when they buy different products.
- Acquire knowledge of technology and new trends. This can help companies to see the future of the consumer needs and target these needs through new products. Cloud computing helped companies to innovate by providing cloud services such as cloud website hosting, products such as the App Store where all the apps are stored in the cloud, and applications such as the Viber and WhatsApp.
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Finally, the models discussed above depend on addressing the consumers’ needs through adopting a user-centered design process: the process that places the consumer at the heart of the development process. Design thinking models such as IBM design thinking and new product development processes such as the Stage-Gate process can help ensure that the company is moving in the right direction by focusing on the consumer.
Innovation allows companies to achieve success by introducing new or improved products and services to the market. However, understanding the different types of innovation can help identify the suitable innovation model to adopt based on the company’s capabilities and market status. Earlier, we introduced different types of innovation based on the industry pattern, the term defined by the consumer, the market impact, and source of innovation. One of the models is based on the impact of innovation and tends to categorize innovation as sustaining, disruptive, or breakthrough innovation. Most of these models depend on understanding the consumers’ needs and building a user-centered process, which ensures that the consumers’ needs or problems are solved by the innovated product.