Each year, consulting firm PwC conducts an Annual Global CEO Survey. The purpose of this survey is to understand which hot-button issues are on the minds of today’s global leaders. Over the years, innovation has remained at the forefront of their concerns. This is to be expected, given how the mainstream and trade presses are awash with stories of new technologies threatening to disrupt businesses, industries, and even entire countries.
We continue to hear tales of nimble and agile startups upending venerable institutions who failed to remain on the cutting edge. No-one wants to be compared to the likes of Kodak or Blockbuster, consigned to public memory as casualties of the ‘innovation wars.’
Part of the problem is that innovation is such a catch-all term that it makes it very difficult to pin down precisely what it means. The reality is that the term can be applied to everything from business models to new processes.
This guide will help to demystify just what innovation can be, enabling you to innovate more effectively. It will also look at the various types of innovation that exist, and how to utilise them to the benefit of your organisation.
Why innovation matters
It is estimated that the largest 1000 companies in the world spend $782 billion on research and development. Whilst measuring innovation purely by R&D spending is an extremely blunt instrument, this should give you an indication of its importance in the global marketplace.
Research from Stanford University highlights the growing cost pressure involved in this kind of R&D, with productivity declining by a factor of 41 since the 1930s, working out at around 5% per year. In other words, organisations need to spend considerably more to achieve the same outputs.
Despite this, jumping off the carousel has even worse consequences. Studies from the London School of Economics show that firms who achieve at least one new product launch per year boost their revenue productivity an estimated 17%, with each new product launch adding an extra 22% to this. What’s more, the University of Houston found that investing in one’s innovation capacity had a significant impact on both the profitability of firms and their share price.
Indeed, at a macroeconomic level, policy-makers and economists have long bemoaned the poor state of productivity growth in much of the Western world. Cambridge University researchers attribute this mostly to the uneven distribution of innovation across the economy.
What are the different types of innovation?
Over time, we’ve created a distorted view of innovation as predominantly scientific and highly disruptive. These are both inaccurate assumptions, as is the idea that innovation is the lone work of a generation-defining genius. Instead, the following projects have managed to capture the sheer variety of exactly what can be considered innovation:
The Innovation Matrix
One of the most common ways of looking at innovation is via the Innovation Matrix, which is included below.
The Innovation Matrix classifies innovations according to both the technology it uses and the market it operates in. Therefore, it allows us to conceive of four distinct forms of innovation:
What is architectural innovation?
Architectural innovation (also referred to as ‘recombinative’ innovation) involves taking an approach, technology or methodology from one field to another. This type of innovation is incredibly common, research suggests that around 40% of the patents registered over the past 150 years fall into this camp, with the ratio growing each year.
Examples of architectural innovation
Consider the app Uber. Ride-sharing, geolocation and freelance workers were nothing new. Combined, however, they became a game-changing innovation that served as a standout example of the sharing economy – so much so that the term ‘uberisation’ has become a term in and of itself.
A slightly less glamorous example but a pertinent one nonetheless: desktop vacuum cleaners. A common household staple, but repurposed for the world of work, desktop vacuum cleaners typify the concept of adapting a classic product for modern needs. We hope this shows that you don’t need to reinvent the wheel to be innovative.
What is radical innovation?
Radical innovation is what most springs to mind when we think of innovation, as it involves the birth of new industries and the application of “revolutionary” technologies. As such, while it’s also a relatively rare form of innovation, it’s credited with allowing society to take substantial leaps forward.
Examples of radical innovation
Smartphones are a standout example of radical innovation. What’s fascinating about smartphones is that they caused us to backtrack on our fixation on making devices smaller, and ultimately reconceptualise the potential of the traditional handheld device. Whether used for communicating, travelling or shopping online, it is undeniable that smartphones are essential to our day-to-day lives – a defining characteristic of radical innovation.
What is incremental innovation?
The overwhelming majority of innovations are incremental in nature. Incremental innovation is when a series of small and seemingly insignificant improvements culminates in large-scale organisational change. Incremental innovation is arguably the most accessible form of innovation, as it can often be performed without requiring huge budgets, a large team, or a reorientation of the business’s strategy.
Examples of incremental innovation
Some of the world’s most recognised companies have maintained their position at the top due to incremental innovation. You may not notice the changes, but many ‘legacy’ brands have become industry mainstays because they do not allow themselves to become complacent. Take Gilette, for instance. From inventing the world’s first ‘safety’ razor they have slowly but surely refined their product to better suit customer needs.
Another fantastic example of incremental innovation is Amazon. To say that Amazon is a global juggernaut is a staggering understatement, and they have achieved this by steadily perfecting their service offering. This ranges from introducing next-day delivery to continually experimenting with their web interface, resulting in daily optimisation of the user-experience.
What is disruptive innovation?
Popularised by the late Clayton Christensen, the term ‘disruptive innovation’ refers to when an innovation creates a fundamentally new value network. This can be achieved by either creating a new market or by entering an existing market and changing how consumers interact with it.
Christensen’s theory sees innovations typically entering the market at a lower performance point, at least when measured by the traditional metrics of that market. They nonetheless offer value in an alternative way to a subset of the market for whom that feature is highly important. This bridgehead is then used to rapidly scale and disrupt the whole market.
From Netflix to Aldi, it is highly likely that you benefit from disruptive innovation on a regular basis. Ultimately, in a competitive market it’s the risk-takers that rise to the top, and these two companies are prime examples of disruptive innovation done right. Take a look at our article on examples of disruptive innovation to explore this in more detail.
The Doblin Innovation Framework
Doblin’s Innovation Framework defines innovation within 10 distinct categories, providing a more practical perspective than the more strategic viewpoint offered by the Innovation Matrix.
The 10 categories are broadly divided across business model innovations, product innovations and marketing innovations:
Business model innovations
Innovation in the context of profit models typically aims to package up existing offerings in new ways. They can be considered an example of disruptive innovation in terms of the traditional customer relationship, and therefore often require detailed knowledge of the customer and what they really crave from your business.
As supply and value chains become more complex and interconnected, network innovation is growing in popularity. Network innovation will typically involve the creation of new ways of taking advantage of the processes or technologies of other companies. This then empowers an organisation to significantly punch above its own weight.
Structural innovations look at how an organisations internal assets can be utilised to create fresh value. This may include improving internal software and processes to make better use of your talent or equipment. Managerial innovations often fall into this category, with organisations using their culture and processes as a means of attracting the brightest talent.
Process innovations are another inward-looking innovation and involve changing the way you go about your business. These innovations often form a key part of the core competencies of the business, and can provide a significant advantage over your rivals. A great example of this is our work with Kent Police force. By using Idea Drop, they were able to crowdsource several hundred ideas from across their organisation. The resultant process improvements had a long-lasting impact on efficiency, employee engagement and empowerment.
Product performance is the first product-related categorisation proposed by Doblin, and is perhaps the one closest to the conventional definition of ‘innovation’. Whether it’s by expanding on a product’s features, improving its overall quality or creating something entirely brand new – the key is that businesses look to add significant value to their product lines.
The product system is not as popular as the product itself, but is no less important. Innovations in this domain revolve around the complementary products and services that can add real value to a core product. You might look to establish interoperability, modularity and integration with other products and services to provide value added to the customer.
The final category revolves around the customer experience, and begins with service-related innovations. The aim is to enhance the offering of your product or service, whether through making it easier to use, highlighting overlooked functionality, or fixing common problems. Such innovations are easy to overlook but they can really make an offering stand out.
Channel innovations focus on the way you deliver your offering to consumers. E-commerce has been an obvious innovation in this domain, but as brick-and-mortar retailers have got to grips with the changing retail landscape, there have been clear innovations in how stores and retailers interact with customers. The ultimate goal is to delight consumers by ensuring they get what they want, when they want it, and how they want it.
Branding remains hugely valuable, and innovations in this domain can help a company distinguish itself in a competitive market. Great branding innovations typically involve a wide range of customer touch points and result from collaboration between advertisement, customer service and employee engagement.
Last, but not least, are innovations which will help you build long-lasting relationships with your customers. Innovations in this domain require a deep understanding of the customer journey, allowing you to build a meaningful connection with your audience. At insurance company Covea, they innovated improvements to their customer processes that delivered approximately £2.5 million in savings.
The classifications highlighted above are not intended to be an exhaustive list, nor indeed a prescription that requires you to innovate in each of the ways that are possible. Rather, they are intended to showcase the breadth of innovations that your organisation might seek based upon your specific circumstances.
The most innovative companies seldom operate across all of the categories, but rather find the right mix for them. Just as the most successful investors don’t put all of their eggs into one basket, neither do the most successful innovators. The key is to ensure that the approaches you do employ work together effectively, propelling your organisation towards a common goal.
How can we innovate successfully?
As Clayton Christensen famously reminded us,
The above frameworks provide a degree of structure and inspiration for your efforts to do that, but there are limitless possibilities when it comes to employing innovation tactics.
John Kotter famously advocates the dual operating system approach to innovation, Vijay Govindarajan proposes a three box method. Henry Chesborough is a strong advocate for open innovation, with Kaihan Krippendorff making the case for intrapreneurship. The lean startup methodology has been strongly promoted by Eric Ries, with the likes of Amy Edmondson and Carol Dweck looking at the cultural and individual aspects of ‘bucking the norm’ respectively.
There are many approaches one can take, but perhaps the first step is to recognise that innovation has to be a priority. A recent survey from Harvard Business School revealed that just 30% of executives believe this to be so, which perhaps underlines why executives placed innovation as the 18th strongest capability in their organisation, some way behind areas such as compliance and financial planning.
This perhaps underlines why just 14% of companies surveyed by Accenture thought they were getting a return on the £2.5tn they had spent on innovation over the past 5 years. Accenture sagely remind us that the amount you spend is less important than how you spend it, and they argue that the best innovation tends to:
- Tackle the most pressing concerns of customers
- Harnesses the power of the crowd, including internal employees and external stakeholders
- Tap into the best talent you can, regardless of whether that’s inside or outside the business (find out more about open innovation here)
- Ensure that data drives everything you do (find out more about data driven innovation in this blog post)
- Tap into the latest technologies (such as idea management software) to drive your innovation
- Involve a wide range of stakeholders to not only tackle the needs of customers, but society as a whole.
- Embrace agile innovation methods as it leads to increased productivity and greater innovation output
Innovation is anything but straightforward, and there are many ways you can approach things, but hopefully the above will provide a degree of guidance to help you on your way.
Idea Drop: The Leading Innovation Software
Now you know the many different ways of defining innovation, you can begin to unleash its possibilities for your organisation.
Innovation can be a single idea on how to do things more efficiently, or it could be the start of large-scale transformation. Whatever form it may take, the Idea Drop platform helps to make innovation possible.
Businesses can use our idea management software to source new ideas from across their organisation, and then refine and implement those with the potential for real impact. Not only is our platform entirely cloud-based and easily incorporated into daily operations, but our innovation experts are also on-hand to guide you through the implementation process.
Are you ready to take ownership of innovation in your organisation? Contact the Idea Drop team today!
Ready to see Idea Drop in action?
Request a Demo!
Idea Drop is the market-leading idea management platform.
Request a demo today and our team of enterprise innovation experts will be in touch straight away to set up a one-to-one discovery session and demo.