The Key Types of Innovation - CyprusInno (2024)

The key innovation types are:

Incremental Innovation

This type of innovation refers to innovation that is improving existing systems in a marginal way by making it faster, cheaper and/or better. Incremental innovation is happening in various areas such as aerospace, automotive, hi-tech, medical and industrial, amongst others. This type of innovation is popular, especially among large organisations, as it carries a smaller risk of getting something wrong as smaller changes to the status quo are made. These small changes include cost cutting measures or making improvements to existing products or services (Leifer, 2000).

By using incremental innovation, a company can stay relevant to the customer over time. For example, Coca Cola has added new flavours such as Cherry co*ke to their product line to satisfy customers's needs. Another example of incremental innovation is Gmail by Google, as it was an improvement of other existing email clients due to its enhanced usability and design (Incremental Innovation, 2018).

Radical Innovation

Radical Innovation refers to something that is novel and unique, i.e. something that has not been done before (Norman and Verganti, 2014). Radical innovation can happen in a blue ocean market (the innovation opens up a completely new market) or within an existing market. In order for the innovation to be successful, it needs to be adopted by the market.

A great example of radical innovation is Dyson, who have reinvented vacuum cleaners and fans from the ground up (Fullagar, 2018). An example of radical innovation in a blue ocean market is the steam engine or the aeroplane, as there had been no such thing before and it created a market for itself. However, with radical innovation, it is crucial to get the timing right because if a product is coming on the market too early, adoption can be slow or not work at all. Furthermore, radical innovation usually requires a substantial amount of investment, and it might take a while until any returns are seen as markets can be slow to adopt.

The advantage of radical innovation is bigger wins if the innovations work, and a completely new idea that can create a new brand or new market (ibid.).

Laserlight – An example of Radical Innovation (TEDx) (Brooke, 2016):

Blue Ocean Innovation

Blue Oceans refer to the uncontested market space i.e. all the industries that don’t exist yet, as opposed to Red Oceans, where companies try to outperform their competitors to get more market share of an existing market. In a Blue Ocean, the competition is irrelevant as the company is creating and capturing new demand by offering the customers a lot more value while streamlining their own costs. By being the first to move into a Blue Ocean market, your company can reap significant profits and grow quickly, therefore capturing a lot of brand equity and market share. This in turn makes it quite difficult for competitors to imitate as this is a natural barrier of entry into the market (Chan Kim & Mauborgne, 2005).

An example of creating a Blue Ocean market is Cirque de Soleil, which combined traditional circus elements with elements from theatre. With this strategy, they managed to attain revenues in 20 years that has taken the world’s leading circus' over 100 years. Cirque de Soleil achieved this by getting rid of the costly elements of a circus like animal acts and included new things such as themes and theatre elements that added more value for visitors. Thus, customers kept coming back more often, thereby increasing revenues (ibid.).

Disruptive Innovation

This type of innovation is different from breakthrough or radical innovation as it transforms a product that attracts higher paying customers, and therefore only making it accessible to a select few, and makes it affordable to the masses with a basic, low-cost alternative offering that is easier to use. While industry giants focus on sustaining innovation by upgrading their existing products and services with sometimes unnecessary enhancements to attract higher paying customers, hence ignoring regular customers who want simple, cheap alternatives, a small startup can take advantage with a basic, cheaper offering that is easy to use, and eventually take more market share (Christensen, et al.). The Explainer video below from Harvard Business Review is a great short, visual example of this.

Clayton Christensen from Harvard Business School on Disruptive Innovation (examples are mentioned in the video) (Harvard Business Review, 2012):

Process Innovation

Process innovation refers to the implementation of a new or significantly improved production or delivery method (including significant changes in techniques, equipment and/or software). However, small changes or improvements, an increase in production or service capabilities through the addition of manufacturing or logistical systems which are very similar to those already in use, customization, regular seasonal and other cyclical changes, are not considered innovations (European Commission, 2013).

An example of process innovation is Henry Ford’s invention of a moving assembly line for cars, which allowed them to produce cars much cheaper and faster and thus made them accessible to the public at large. This is not only a process innovation, but also a disruptive innovation and a business model innovation.

Another great example of process innovation is the fashion company Zara, as they have an innovative manufacturing process and are thus able to respond quickly to changing market demands. Where it takes competitors often several months to get new fashion into the stores, Zara manages to do this in just four weeks (Buljubasic, 2018).

Open Innovation

Open innovation refers to a decentralized approach to innovation and is based on the idea that no one organisation possesses all the knowledge internally to innovate effectively. Thus, open innovation refers to combining internal and external ideas, as well as internal and external paths to market to advance the development of new technologies (Chesbrough, 2003).

In order to innovate effectively, companies should collaborate with their various stakeholders such as suppliers, universities and their own customers (ibid.). The input from these stakeholders during the innovation process ensures that whatever is being built is something that the market needs and wants, as there is a constant feedback loop due to the people using/buying the product/service actively being involved in the co-creation process.

An example of a company using open innovation is Lego with their Lego Ideas. On this website, customers can come up with their own Lego designs either with their own Lego sets or a 3D computer application. Once a customer posts a new design, others can vote for it and discuss it. When it has reached a certain number of votes, Lego considers the design for a new product and a small part of the revenue goes to the creator of the design (Elmansy, 2018).

Service Innovation

Service innovation refers to the way you serve your customers to create more value for them while at the same time increasing revenue for your organisation. Van Ark et al. (2003, p. 16) came up with a more detailed definition. According to them, it is "a new or considerably changed service concept, client interaction channel, service delivery system or technological concept that individually, but most likely in combination, leads to one or more (re)new(ed) service functions that are new to the firm and do change the service/good offered on the market and do require structurally new technological, human or organizational capabilities of the service organization". This means that service innovation can take place on many different levels within an organization. For example, it could be a better way to handle customer complaints, a better way to communicate with clients about deliveries or a new piece of software that helps with team coordination, resulting in a better service for the customer. Each industry will have their own specific challenges depending on how they are serving their customers and what tools they are using.

An example ofservice innovation is Singapore Airlines, as they are the gold standard in the airline industry when it comes to service innovation. For example, Singapore Airlines provide free drinks for their customers as well as the most advanced in-flight entertainment system. Furthermore, excellent training for their employees and constant personalisation for their customers are differentiating factors. These and other new developments are crucial to keep constantly improving and to maintain a competitive advantage. This level of service is made possible by the attitude of wanting to be the best, as the company is benchmarking themselves against many other industries. Furthermore, the company culture is supporting service innovation and a constant feedback loop helps to understand customers's needs (Harcleous, Wirtz and Johnston, 2005).

Business Model Innovation

Business model innovation refers to changes of key decisions in the business such as what a company’s offering will be, when decisions will be made, who makes them and why. If the changes are successful, this means an improvement to a company’s revenue, costs and risks (Girotra & Netessine, 2014).

In its simplest form, business model innovation does not require new technologies or creating new markets, but rather the focus is on delivering existing products with existing technologies to existing markets. As there is seemingly no change to the outside world, it can bring advantages for the company that are hard to replicate for competitors (ibid.). However, there are also more complicated types of business model innovation, which are covered in the article referred to at the end of this section.

An example that was covered in the Open innovation section is LEGO, which can also be seen as business model innovation as there was a change to who makes the decisions around new products. It shifted from the R&D team of LEGO to the customers together with the LEGO team, where the customers have a significant say. This change of how to innovate and go about new product development can be described as business model innovation.

For a more detailed account of the different types of business model innovation as well as more examples, please read this article:https://hbr.org/2014/07/four-paths-to-business-model-innovation

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References:

Brooke, E. (2016). Laserlight. The Serendipity in Radical Innovations | Emily Brooke | TEDxUniversityofBrighton. Available at: https://www.youtube.com/watch?v=FcoF3XWjCKY [Accessed 8^th January 2018]

Buljubasic, T. (2018). Process Innovation – Zara. Available at: http://innovationexcellence.com/blog/2013/11/18/process-innovation-zara/

Chan Kim, W. and Mauborgne, R., (2005). Blue Ocean Strategy: How to create uncontested market space and make the competition irrelevant. Harvard Business School Press, Boston, MA.

Chesbrough, H. (2003). Open Innovation: The New Imperative for Creating and Profiting from Technology. Harvard Business School Press.

Christensen, Michael E. Rayn, Clayton M., (2016). What Is Disruptive Innovation?Available at:https://hbr.org/2015/12/what-is-disruptive-innovation

Elmansy, R. (2018). 5 Successful Open Innovation Examples. Available at: http://www.designorate.com/successful-open-innovation-examples/

European Commission (2013). Framework for state aid for research and development and innovation. Available at: http://ec.europa.eu/competition/consultations/2013_state_aid_rdi/rdi_draft_framework_en.pdf

Fullagar, P. (2018). Incremental vs. Radical: What is the future of product innovation? Available at: https://www.designcouncil.org.uk/news-opinion/incremental-vs-radical-what-s-future-product-innovation

Girotra, K. and Netessine, S. (2014). Four Paths to Business Model Innovation. Available at: https://hbr.org/2014/07/four-paths-to-business-model-innovation

Harvard Business Review (2012). Disruptive Innovation Explained. Available at: https://www.youtube.com/watch?v=qDrMAzCHFUU [Accessed 8^th January 2018]

Harvard Business Review (2013). The Explainer:DisruptiveInnovation. Available at: https://www.youtube.com/watch?v=mbPiAzzGap0[Accessed 11^thFebruary 2018]

Heracleous L., Wirtz J., and Johnston R., (2005). Kung-Fu Service Development at Singapore Airlines. Business Strategy Review. pp. 26-31.

Incremental Innovation (2018). Available at: http://www.incrementalinnovation.com/incremental-innovation/incremental-innovation-vs-radical-innovation

Leifer, R. (2000).Radical Innovation.Library of Congress.

Norman, D.A. and Verganti, R., (2014). Incremental and radical innovation: Design research vs. technology and meaning change. Design issues. 30(1), pp.78-96.

Van Ark, B., Broersma, L. and den Hertog, P. (2003). Services innovation, performance and policy: A review. Synthesis report in the framework of the project on Structural Information Provision on Innovation in Services (SIID) for the Ministry of Economic Affairs of the Netherlands, University of Groningen and DIALOGIC.