There are at least three very different types of innovation. A monolithic “one size fits all” approach to innovation will miss the mark and ignore key innovation approaches. Instead a coordinated and integrated set of strategies are needed at the levels of product, business, government and market structures.
Confusion will often reign when a management system uses the same term to refer to multiple business processes. The term “innovation management” falls in this category. A lack of clarity about what we mean when we say, “innovation management” can lead to imposing the wrong process at the wrong time.
Innovations can be divided into at least three major categories, incremental, breakthrough, and transformational. The process and challenges of innovation are quite different for each of these three types. Therefore, the nature of the industry and management systems employed to support each of these types of innovation should also be very different. Unfortunately, in most companies, the strategy for innovation – if it even exists – is one-dimensional and often under-supported.
The three types of innovation have very different business characteristics:
- Incremental Innovation builds on an existing market with existing customer and existing products. It innovates by increasing a measure of performance or value of the product or service offered to the customer. Primary Key to Success: Customer relationship.
- Breakthrough Innovation introduces a totally new technology or new application of existing technology to customers. This new product or service offering creates capabilities and processes that had not existed previously. It creates a new market, or significantly expands an existing market within a major industry. Primary Key to Success: Organizational flexibility to adapt.
- Transformational Innovation introduces new technology that generates a customer demand and transforms society and relationship patterns. It creates an entirely new industry that never existed before. Primary Keys to Success: Societal forces that encourage change rather than suppress it.
The impact on businesses and society is quite different for each of these three types of innovation.
Even the businesses that say they have an innovation strategy often don’t have agreement as to which type of innovation, or combination of the types, they are pursuing. The marketing manager is demanding more customer communication, the engineering manager is demanding more investment in new technologies, and the business development manager is demanding more investment in startups and lobbying. Each of these is pursuing a different type of innovation and the cacophony of demands leads to confusion and frustration on the part of the business executives.
A coherent approach for “innovating innovation” is to create a three-pronged strategy that appropriately addresses each type of innovation. Based upon the overall business competitive strategy, the business leadership can allocate resources to each of the three prongs. Let’s discuss what this looks like.
Incremental Innovation
Incremental innovation is the most common type of innovation. It is the backbone of most new product development activities and can be a very successful strategy for growing a business and expanding a market. With incremental innovation, there exists an established customer who is using an existing product. As the customer’s needs and expectations change, product and service delivery innovations are developed to accommodate the changes. These innovations can be optimized and accelerated through close customer communication that builds understanding of the needs and the customer applications. Innovating incremental innovation involves breaking down the communication barriers between internal and external stakeholders during the development process. There are numerous communication and social media technologies available today that can be leveraged to accomplish this. One very promising approach is the use of Customer Relationship Intelligence (CRI). See the hack titled, “Measure Value Creation with CRI for Long Term Success.”
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Incremental Innovation Example: Automotive companies have been successfully doing this type of innovation for years. They conduct focus groups to determine what features the customers like and what aspects of the driving experience are irritating or frustrating. General Motors innovation of the “On-star” system is a great example of incremental innovation. They realized that when their customers experienced a problem while driving, they wanted help right then. The innovation was to adapt existing cell phone communication technology into the vehicle. General Motors existing relationship with their customers uncovered the need and the innovation improved that relationship and the driving experience.
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The example illustrates the need for an incremental innovation strategy that is based upon customer feedback. Normally, automotive engineers would not be thinking about communication technology, they would be focusing on horsepower, fuel efficiency, or braking performance. Through the involvement with customers the need for improved communication capability was identified. Often these innovations are not technically complex once they are clearly understood.
Innovating incremental innovation must focus on communication with customers and removing organizational barriers to sharing information.
Breakthrough Innovation
Breakthrough innovation is a very different beast. In this type of innovation, there is no customer/product relationship that can be leveraged. However, the innovator does have access to either the customer base in which they plan to introduce the innovative technology or to a proven technology that can be applied in a novel way to create a product or service. Therefore, breakthrough innovation takes one of two forms.
In the first form, a brand new technology is introduced to existing customers to augment the current relationship and expand the market. This new technology often provides value in ways that the customers did not even envision. However, this new technology normally requires significant changes to the business infrastructure or organization.
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Breakthrough Innovation Example First Form: The introduction of cell phones to consumers by their telephone service providers illustrates the first form of Breakthrough Innovation. In this case the customer relationship and product technology was stable between consumers and their phone companies. But the technology for the cell phone product was very different. The phone companies had to change their infrastructure to make it work. Cell towers had to be built all over the world. Remember the commercial, “Can you hear me now?” This innovation provided instant phone access from almost anywhere which dramatically expanded the use of the telephone. Soon everyone had to have their own phone with them at all times. The cell phone fundamentally changed the industry and the market.
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The other form of breakthrough innovation is to take an existing proven product or technology and apply it in a totally new and novel way to new customers. This will often require establishing a new business unit to “sell” the capabilities of the product or technology because there is no current customer base. This type of innovation is less about technology and more about marketing and creating customer demand. The innovating company must connect with customers and show the value of the innovation in order to achieve success.
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Breakthrough Innovation Example Second Form: Transferring microwave technology from military radar applications and creating the microwave oven for consumer’s kitchens is an example of the second form of Breakthrough Innovation. In this case the technology was well characterized and stable, but the customer relationship did not yet exist. Consumers had to first understand what a microwave oven could do, and then they had to decide whether they wanted a microwave oven in their house. Only then would they decide to buy one. The challenges with this innovation were market related, not technical.
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Whichever form it takes, breakthrough innovation entails high commercial risk. There is no existing customer/product relationship that can be leveraged during development. In addition, breakthrough innovation usually requires a high level of business investment. The key to success is a visionary leader with strong commercial backing that can see the potential of the new product and market and is able to bring the two together despite unforeseen problems and pitfalls. Inevitably breakthrough innovation will require significant organizational change as the infrastructure of new products or markets are created. This is usually a major management challenge.
Innovating breakthrough innovation relies on high levels of investment and developing and empowering visionary leaders.
Transformational Innovation
Transformational innovation introduces a new technology and creates a new market that fundamentally changes the characteristics of society. This new market is usually disruptive in society. It causes “old things to pass away,” and radically transforms society – often in unexpected ways. Examples of this type of innovation are the printing press, the airplane, television, antibiotics, and the Internet. There are three attributes of transformational innovation – if one of these is missing the innovation is not likely to be accepted and will die away. The first attribute is that the new technology has broad market appeal and allows many people to do things they hadn’t done before. Second, it impacts personal and commercial relationships within society changing how people interact with each other. Third, it is flexible and adaptable allowing additional innovators in society to multiply and accelerate the applications and benefits of the innovation – often in unexpected ways. However, transformational innovation also invariably experiences ridicule and strong resistance from segments of society which could be negatively impacted.
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Transformational Innovation Example: The innovation of the airplane illustrates Transformational Innovation. Flight was not completely new when the airplane was invented. Man had been participating in lighter than air flight for over 100 years. However, flight was viewed as a “circus act” with no commercial applications. The capabilities of the airplane changed that. It provided directional control and speed that was not available with balloon flight. A pilot could now accurately predict when and where he would take-off and land. Also this technology allowed others to innovate and soon airplanes were improved so that they could carry heavy loads over long distances. This evolving innovation allowed men to rapidly move people and goods virtually anywhere in the world. Ultimately this transformed patterns in society and gave rise to new industries. Commerce, warfare, transportation, and tourism, were some of the areas of society that experienced significant changes. This innovation spawned new industries such as airports, passenger airlines, freight airlines, aircraft manufacturers, and avionics manufacturers.
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It is impossible to predict all of the impacts of transformational innovation. The very nature of the innovation creates unexpected changes, opportunities, and threats. This type of innovation is characterized by a long-term development of multiple companies and innovators. It may take years before the innovation fully catches hold.
Inevitably this type of innovation will attract critics who attack the innovation and try to suppress it. The press scoffed at the Wright brothers. Doctors refused to use antibiotics when they were introduced. And there are countries today that attempt to block and control the Internet. The best we can do to innovate this type of innovation is to ensure the existence of a free society with strong capital markets where the innovator can create and market his or her idea and have access to capital to pursue the dream. Economic incentives can be used to accelerate the rewards of successful transformational innovation. These ideas will not come from top down management and control but from the creative and inventive spirit of many individuals who can reap the rewards of their efforts. However, businesses can be continuously scanning the innovation horizon to identify transformation innovations and begin the process of rapid acceleration by enhancing and leveraging these innovations with further applications.
Innovating transformational innovation must ensure open markets, open communication, access to capital, and incentives to accelerate the innovation.
Innovation Strategy
There is nothing that is mutually exclusive between the three prongs to an innovation strategy. However, they are implemented at different levels of business and society. The first prong of customer communication and sharing is best managed at the business unit or product line level. The second prong of large investments and empowering visionary leaders is best implemented at the business or corporate level. The third prong of open markets, access to capital, and incentives to innovate are created by a business climate that is influenced by government and markets. Government has a role, but government cannot do it alone. It amounts to encouraging the industry dynamics that leads to new industries.
So what’s innovative here? What is innovative is the understanding that innovation can happen in different ways. Therefore, to innovate innovation, a strategy that has multiple parallel paths should be followed.
The practical impact for a business of adopting a three-pronged strategy for innovation will be a better allocation of innovation resources and a clearer expectation of innovation results. Instead of the confusion and misunderstanding, the individuals charged with innovation activities will have clarity of focus. In addition, the business leadership will have more realistic expectations concerning the timing and impact of innovation activities.
Innovation activities will no longer be ad-hoc and unfocused, now they will be strategic and integrated with other aspects of business strategy. Investment in innovation activities can be targeted to specific product lines and specific types of innovation such as 75% for incremental innovation with its rapid payback, 20% for breakthrough innovation with its longer term business growth, and 5% for accelerating and leveraging transformation innovation.
Step 1: The obvious first step is for a business to create a three-pronged innovation strategy. This innovation strategy should be related to the business market or product line strategy. The incremental innovation should be focused on selected product lines and the breakthrough innovation strategy should select either a target market or a target technology to be developed. Finally, the transformational innovation strategy should be either looking inside the corporate research center for ideas to be developed or outside the business for transformational innovations to be accelerated and leveraged.
Step 2: Once a strategy is established, it must be resourced to be implemented. This will require the assignment of scientists, engineers, marketing, business development, and possibly others to support the innovation activities in the three-pronged strategy.
Step 3: As the individuals involved in innovation activities begin their work they will identify projects to be implemented. Incremental innovation projects will be product improvements or process enhancements. Breakthrough innovation projects will be creating new facilities, developing new products, and establishing new capabilities. Transformational innovation projects will be experimenting with new technologies and leveraging ideas and activities to create totally new systems and products.
25 years of experience designing products, managing product development, and consulting with companies around the world on product development, countless individuals and untold books and articles. Here are a few examples at the risk of leaving out many, many people who have influenced me.
Colleagues I worked with in the USAF and at GE
Faculty and students at WPI, MIT, Clemson, and the China Institute for Innovation
Client colleagues at GE, Johnson & Johnson, Nielson, Medtronic, Instrumentation Laboratories, Draper Laboratories, Schneider, and many more
Colleagues in Strategic Alliances including Religence and Wronksi Associates
Innovating innovation is not that easy, you need to be very knowledgeable and experienced in order to do this. Thanks for this article, it can help a lot. Regards, Maryann Farrugia on Crunchbase.
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Ray Sheen provides a very helpful perspective on three different levels of innovation. Most firms tend to lump everything connected to innovation in the incremental category. A simplified lumping can cramp the collective company brain.
A few firms do discover breakthrough innovations and game-changing improvements, including GM, TI, 3M, Apple, etc., but as Ray points out, there are not nearly as many transformational innovations.
Given the long odds of discovering a transformational innovation, and the fact that the transformational inventor often fails to reap the largest reward, a firm would still do well to consider all three innovation categories as they ponder options.
Any organization would profit by taking a long, hard look at how it addresses innovation, question what they now are doing, and make an attempt to apply new perspectives to their efforts to stay ahead of competition.
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