“Welcome to the Proven, Practical, Profitable Innovation podcast! I am Richard and I thank you very much for taking time out of your busy day to listen to this podcast.
In the previous podcast I shared with you part one of some of the most helpful thinking I’ve ever experienced regarding innovation strategy. This can really make a difference in your business. Today we continue with part two where you learn about the various types of innovation and what types work best with various innovation needs.
Please be sure to listen to the end of this podcast where I give you an exciting preview of future podcasts.
If after listening to this podcast you feel a need for more help, please contact me directly—my email is richard@i2ge.com. You can also go to my website—i2ge.com– where you can explore many innovation topics, especially check out the DIY Innovation Training on the menu bar. We customize all the training programs to our clients’ unique needs and circumstances.
The thinking on innovation strategy shared in this podcast is taken from a June 2015 article in the Harvard Business Review. In part one covered in the previous podcast, I covered such topics as why innovation strategy is so important and should be linked with an overall business strategy, different ways innovation can create value advantages, and the need to think of innovation strategy as a total system.
So let’s dive into part two.
Let’s start with the recognition that there are different types of innovation. A key question a business needs to answer is what types will best help us create value competitive advantages and what kinds of resources do those types require. As discussed in the previous podcast, technology has long been the darling of innovation. As the last podcast pointed out, technology alone can have a difficult time building and sustaining meaningful competitive advantages.
Business model innovation is often an underappreciated form of innovation. Very simply, business model innovation typically involves innovative ways of pricing and making money for a combination of products and services. In a future podcast, I will do a deeper dive into this important topic. I believe this form of innovation has significant potential for many companies and can often be achieved with fewer resources than many technology and scientific innovations require.
The author of the article puts forth what he calls “the innovation landscape map.” In this map there are four quadrants and four types of innovation within the quadrants being defined by elements of the business model and technical competencies. Let’s take a closer look at each of the four types of innovation on the map.
What the author calls “routine innovation” utilizes existing technical competencies working within the current business model. This is typically evolutionary product improvement to an existing product. It is often a very profitable form of innovation. Think of all the improvements Intel has made to its computer chips, the unending new Microsoft Windows versions, and the evolution of the iPhone and other Apple products. In the consumer products world, I’m accustomed to referring to these as line extensions and product improvements. Examples also include the next generation of the F-150 Ford pickup and new forms of credit card offers.
The next form of innovation he calls “disruptive innovation” which is a term first used by Clayton Christiansen another Harvard professor. In this form of innovation, there is an innovative business model but there is not necessarily an associated technological breakthrough. The best example of this is Google’s android operating system. While companies like Apple and Microsoft charge for their operating systems, Google made the android operating system available for free – definitely an innovative business model! Of note, at this writing the android operating system is the most prevalent in the mobile device world, suggesting this is a successful innovation for Google, even if it is for free. Other examples include open source software, which often can be free and are almost always customizable – two dimensions that the traditional software suppliers find frightening.
The third type of innovation is called “radical innovation” and in many ways is the opposite of disruptive innovation. The focus here is on technological innovation. Think of new sciences that emerged in the 1970s and 1980s like genetic engineering and biotechnology. These gradually became the backbone of new drug development technologies. These new drugs typically worked well within the existing business models of the drug companies. Another example is fiber-optic cable that dramatically changes the delivery of media and software capabilities.
The fourth type of innovation is “architectural innovation” which requires both a new business model and technological capabilities. Think of how this type of innovation essentially put companies like Kodak and Polaroid out of business. The new technological capabilities were delivered by new cameras and mobile devices that easily interacted with computers which could print high quality pictures. The Kodak and Polaroid business models depended upon film and printing paper sales to make money. They found the former to become obsolete and paper sales to be far less important – images could be easily stored and presented on a computer or mobile device. Another example is how an innovation like craigslist fundamentally changed the delivery of information traditionally only available in newspaper classified ads. It was free to place most ads—an innovative business model. The ads were easily accessible on line and searchable. This innovation has put great pressure on newspapers with many major names drastically cutting back or going into bankruptcy.
Okay, there are four types of innovation. How do you determine which type or types of innovation are right for you? If types, what is the appropriate mix between these various types of innovation?
As the author appropriately points out, there is no one-size-fits-all solution. Many factors need to be taken into consideration. Here are a few of those factors.
What is the rate of technological change in your business? If the rate of change is relatively slow then types of innovation that do not rely upon major technological improvements may be right for you – like disruptive and routine innovation.
What is the competitive intensity in your business? If your business is very competitive with a constant flow of innovative new products, you have some tough choices. You can be a fast follower with routine innovations but this can be very risky. You are likely to find a competitor investing in radical and/or architectural innovation that’s intended to leapfrog your products. If these types of innovations are successful, your competitor’s success could mean major losses for you.
What is the rate of growth in the business that you are in? If you are in a rapidly growing business, you may be able to afford radical and architectural innovation, which can be more costly. Even if you only maintain share in a rapidly growing category, there can be significant sales and profit growth.
How well are your customers needs currently being met? Answering this question typically requires high-quality research of both your products and those of your competitors. You can also look worldwide for products similar to yours to see if innovations in other parts of the world are fueling greater category growth because products are better meeting customer needs. In mature categories, needs are often well met, but you need to be careful. Today’s mature category can become a vibrant and explosive growth category with an innovation. Just think of what Starbucks did to the coffee category – prior to their introduction Folgers and Maxwell House coffees had very flat sales.
I will briefly address another important consideration brought up by the author of this article. Many companies prefer using a structured process that is variously called stage gate or phase gate. In this process development go and no go decisions for an innovative product are made at various stages of development. For example, for a product to become a formal project it may first have to achieve a certain score in customer research. In the next step, to go forward it could have to achieve a certain estimated sales volume for year one, according to research and economic models. In the next step, it may have to achieve certain cost targets that will support profitable pricing. If it fails to meet specific standards at a particular step, the product innovation will likely die. Critics say that this process stifles creativity and there needs to be a more open and experimental process to ensure creativity is alive at each step. In a future podcast I will spend more time on this topic, but suffice it to say that there is no simple answer to which process would be right for your business.
Lastly the author points out the four essential tasks required to develop and implement an innovation strategy.
First, “how are you expecting innovation to create value for customers and for your company?” This is not an easy question. Senior leaders need to be involved every step of the way.
Second, again from a senior leader perspective, decisions need to be made about how resources will be allocated for different kinds of innovation. Funds are always limited. Choices are always tough. But choices need to be made.
Third, senior leaders need to manage the trade-offs and battles that can happen between functional – like marketing and manufacturing – leaders.
Fourth, like with business strategy, innovation strategy needs to be dynamic. If your innovation strategy is working perfectly, then change at the moment may not be required. Unfortunately, this is seldom the case. We live in a rapidly changing world of technologies, regulations, competitors, business models, and many other elements. Standing still is often a recipe for getting run over.
What you can do today with this information. The major point from these two podcasts is that if you count on innovation to grow your business, you must have – not nice to have – an innovation strategy.
Here is a suggested to do list for your business coming out of today’s podcast.
First, evaluate the various types of innovation. Given the considerations that are important and relevant to your business, which type or types of innovation are most appropriate for your business?
Second, is a structured or a more unstructured process appropriate to your business and its culture? And if it is structured, which is a choice of many companies, what are the appropriate steps and decision-making points that are right for your business?
Third, considering the four essential tasks required to develop an innovation strategy, how do you answer the key questions? How can you find the answers – especially answers that you can trust? What is the senior leadership group that’s appropriate to develop the innovation strategy in conjunction with the overall business strategy?
None of these are easy steps. Having said that, when you go through this process your innovation program will be built on a far stronger foundation. Done right, you should expect a higher success rate then the average of 25% today. Remembering the principles from Merwyn Technology in an earlier podcast, you also know what’s required to double your chances for long-term success.
If you would like to see the key written points from this podcast, you can find them in my blog – i2ge.com/blog.
If you would like to contact me, please email me at richard@i2ge.com.
If you would like to create far more robust innovation capabilities within your business, I have a complete portfolio of training programs that we tailor to your unique needs. If you would like to learn more, go to the Innovate2Grow Experts website – i2Ge.com and click on DIY Innovation Training.
One of my six books is Proven Practical Innovation That Delivers Results. This very low-cost book is available at Amazon in paperback and has a Kindle book. Is truly packed with lots of practical help.
A preview of the next podcast. WHAT?
The next podcast presents some powerful innovation lesion developed by Fast Company magazine. I will focus on the lesson with the greatest immediate help for your business.
Thank you very much for your time and I look forward to reconnecting with you soon. Please have a great day.
