It may seem like companies are constantly developing and launching the next game-changing product, but in actuality, more and more of them are focusing on more subtle improvements. Innovation—the process through which companies think of and create novel products and services—doesn’t have to result in huge departures from business or product norms to make an impact. In fact, companies that spend less on research and development and more on marginal improvements to existing products tend to be more successful than those focusing on groundbreaking innovations.
Incremental innovation embraces this principle, and companies can use it to retain customers, remain relevant, and balance their innovation portfolios. Here’s what you need to know about this small but mighty form of innovation and why it’s a valuable tool for companies of all sizes.
What is Incremental Innovation?
The term “incremental innovation” refers to a series of small improvements made to a company’s existing products or services. Generally, these low-cost improvements help further differentiate a company from the competition while building on current offerings.
“You’re not really trying to bring new technology in, nor are you necessarily trying to look at a new market,” says Gloria Barczak, professor emeritus of marketing and innovation at Northeastern’s D’Amore-McKim School of Business. “You’re trying to improve the product in some way.”
Consider the iPhone: Since its debut in 2007, the phone’s basic design has remained largely the same, and Apple has yet to release an entirely new type of phone. Instead, the tech giant has released a slightly upgraded version of the iPhone at a regular cadence, with improved cameras, graphics, and other features that build off of the current model.
The opposite of this concept is radical innovation, which introduces a brand new product or service designed to replace an existing one. In the same way that cars eventually replaced horse-drawn carriages, radical innovations dramatically alter the consumer landscape and leave the status quo far behind. Though radical innovations can be more exciting than their incremental counterparts, the expense and risk they present necessitate caution.
The Benefits of Incremental Innovation
The constant demand that consumers place on companies to give them something new results in the release of more than 30,000 new products each year—and a whopping 95 percent of them fail, according to Harvard Business School professor Clayton Christensen. While it’s sometimes necessary to take that risk, it’s also vital to introduce incremental innovation into your company’s profile. Here are three ways it can benefit organizations.
1. Diversify Your Product Portfolio
“Radical innovations are high risk, high return,” Barczak says. The average cost to bring a new product to market in 2013 was around $15 million and rising, but the potential return for those 5 percent of successful products is huge. Despite this, Barczak cautions that diversity is key.
“People want new things, but they don’t necessarily want to learn new things,” she says. “It’s harder sometimes for radical innovations to get accepted because they are so different.”
Instead of pouring all of their efforts into radical innovations, companies would be wise to invest part of their research and development budgets to incremental innovation. Consumers typically adopt and purchase slightly upgraded products more readily than new ones, providing businesses with an infusion of cash that will sustain them as they work towards more revolutionary products.
2. Relevance and Customer Retention
Even the most popular products get regularly updated to remain relevant. People in more than 200 countries drink 1.9 billion servings of Coca-Cola each day, but the beverage has undergone dozens of changes in its long life, from the addition of cherry and vanilla flavors to the infamous (and disastrous) New co*ke.
“No matter what industry you’re in, there are competitors,” Barczak says. “At some level, there’s this basic need to continue to innovate.”
Through incremental innovation, companies can retain their market share and customers while remaining relevant in a sea of competitors. New co*ke, a complete reformulation of the Coca-Cola recipe, was a dramatic failure because it departed so significantly from the classic product that consumers loved. The small addition of familiar flavors to the original co*ke formula, however, has successfully attracted customers for decades, providing the Coca-Cola Company with a steady stream of dedicated consumers and helping the brand to stand out in the market.
In this way, incremental innovations allow businesses to stay in front of buyers while taking on smaller risks that, if unsuccessful, pose less of a financial concern than a more radical shift would.
3. Company Longevity
Customer retention ties into the third major benefit of incremental innovation: longevity. Radical innovations are important elements of an organization’s long term strategy, but in the shorter term, upgrades to existing products keep customers interested in your business.
“If you just keep the products you have right now, you could be gone in two or three years because someone else has come up with something interesting and taken all of your customers away,” Barczak says.
In addition to continually reminding consumers of your company, incremental innovation prolongs the market life of a product or service. Instead of completely replacing something that’s been on shelves for years to remain competitive, a company can spend a relatively smaller amount of money to update a popular item. This newness is often enough to keep consumers’ attention, buying time and providing resources to create new products.
Innovation in Action
Incremental innovation may be lower risk and require less capital, but you’ll still need strong support systems and a company culture that rewards creative thinking to successfully implement it.
A master’s degree with a focus on corporate innovation can give you the tools you need to motivate teams, create a culture of innovation, and apply bold ideas to your organization’s products, services, and practices. Students in both the online and on-campus MBA programs at Northeastern will get hands-on experience in researching customer needs, developing new product and service concepts, and testing their ideas with potential consumers. The market research, critical thinking, and analytical skills they gain through group and individual projects will be essential to successfully introducing innovation and persuading their colleagues of its value in the real world.
