13 Innovation
What is Innovation?
In today’s rapidly changing business world, it seems the only thing that is constant is change. Nearly every new, ground-breaking product or service will eventually become obsolete, commoditized, or surpassed by new and better solutions. Innovation can be described in broad terms as any new idea, product, service, process, or business model, or a change to an existing product, service, process, or business model that adds value. While innovation is often linked to entrepreneurship, ongoing innovation is essential for any organization to remain competitive and survive.
Individuals and organizations innovate for many reasons, including the following:
- Solve a problem
- Take advantage of an opportunity
- Expand market share
- Improve efficiency and/or effectiveness
- Increase revenues
- Reduce expenses
- Keep up with evolving and shifting customer demands, preferences, and trends
- Adapt to and/or take advantage of changes in modern technology
- Remain competitive and relevant
Types of Innovation
Because not all innovation is the same, various typologies of innovation have been proposed. According to one framework, innovation can be distinguished based on:
- How well a problem the innovation is aimed at solving is defined.
- How well the domain in which the problem is situated is defined.
Considering these two factors together results in four types of innovation: basic research, breakthrough innovation, disruptive innovation, and sustaining innovation (Figure 13.1).[1]
Basic research involves efforts to build knowledge and understand principles and phenomena. It often precedes practical applications and is generally undertaken without immediate commercial goals. It is often conducted in academic settings, labs, or research centers. For example, scientists discovered messenger RNA, or mRNA, in the 1960s, and spent decades working to understand its structure and function. This basic research eventually made it possible for companies like Moderna and Pfizer to rapidly develop vaccines targeting COVID-19, but was not undertaken with this specific objective in mind.[2]
Breakthrough innovation seeks to solve problems that are well defined but exceptionally challenging to solve, often requiring knowledge and insights from seemingly unrelated domains. Open innovation is one approach to achieving breakthrough innovation in which organizations actively seek external insight and ideas. Unlike traditional closed innovation models, in which companies rely primarily on their internal research and development (R&D) departments, open innovation takes a more inclusive and integrative approach by actively seeking external inputs and partnerships.
For example, the National National Aeronautics and Space Administration (NASA) regularly engages in open innovation, including recent efforts related to “Moon and Mars” in which “NASA invited the national and global community to participate in its Moon to Mars planning through open innovation initiatives. These initiatives tapped into the ingenuity and passion of individuals of all ages and walks of life, resulting in ideas for lunar power and energy, life on the Moon, and managing payloads, deliveries, and storage.”[4]
Disruptive innovation “describes a process by which a product or service initially takes root in simple applications at the bottom of a market—typically by being less expensive and more accessible—and then relentlessly moves upmarket, eventually displacing established competitors.”[5] It takes two forms: low-end disruption, which targets customers who do not need the full performance valued by customers at the high end of the market, and new-market disruption, which targets customers who have needs that are unserved by existing offerings (Video 13.1).[6] Notably, most disruptive innovations are not overnight sensations. Instead, a relatively small group of customers embrace a disruptive innovation as early adopters and then a critical mass of customers builds over time.
An example of low-end disruption is digital cameras. Few photographers embraced digital cameras initially because the cameras offered poor picture quality relative to traditional film cameras. As digital cameras improved, however, they gradually won over almost everyone who takes pictures. Similarly, cameras on mobile phones, which initially were far inferior in quality compared to digital cameras, have since disrupted the digital camera industry. An example of new-market disruption is smart phones, which disrupted the market for laptop computers by offering consumers a way to connect to the internet from a small, handheld device.
Sustaining innovation, also referred to as incremental innovation, involves making small-scale improvements to existing products, services, processes, and business models (Video 13.1). Sustaining innovation focuses on improving existing offerings to align with current consumer trends and is considered a relatively low-risk approach for businesses. This approach is the most common type of innovation and has helped many companies remain competitive for decades. For example, each new version of Apple’s iPhone that comes out typically reflects sustaining innovation. iPhone features such as the camera and processor are tweaked to make an improvement over the previous model.
Watch Video 13.1: Sustaining vs. Disruptive Innovation to learn about two types of innovation. Closed captioning is available. Click HERE to read a transcript.
Objects of Innovation
Another way to distinguish innovation efforts is by the object of innovation. Four of the most common objects of innovation are product, service, process, and business model.
Product Innovation
When people think of innovation, often, they’re thinking of product innovation. Product Innovation can come in three different forms: the development of a new product, an improvement in the performance of an existing product, or a new feature to an existing product. Drivers of product innovation might be technological advancements, changes in customer requirements and demands, or outdated product design. Product innovation is generally visible to the customer and should result in a greater demand for a product.[7]
Service Innovation
With the growing economic importance of the services sector, service innovation is playing an ever more significant role in driving growth in today’s knowledge-intensive economy. Service innovation, which involves introducing new services or improving the delivery of existing services, ensures and enhances the utility, performance, and apparent value of an offering. Some offerings are purely service, such as getting a haircut, hiring someone to paint your house, or taking an Uber to your friend’s place. Other services may be combined with product offerings, such as purchasing groceries (products) and having them delivered to your home (service), or buying a new television (product), and purchasing the warranty (service).
Process Innovation
An organization is essentially made up of a series of processes: how a product is designed is a process; how it is manufactured is another process; and how it is transported to reach customers is yet another process. If a company can make its processes work faster, cost less, and/or result in a higher quality product/service most likely that company will see higher profits and increasingly happy customers.
While product innovation is often visible to customers, a change in process is typically only seen and valued internally. Generally, changes in process reduce costs of production more often than they drive an increase in revenue. Process innovation, which involves the implementation of a new or significantly improved production or delivery method, can include changes in the equipment and technology used in manufacturing (including the software used in product design and development), improvement in the tools, techniques, and software solutions used to help in supply chain and delivery system, changes in the tools used to sell and maintain goods, as well as methods used for accounting and customer service.[9]
Business Model Innovation
Business model innovation refers to the process of creating, adapting, or fundamentally changing the way a company delivers value to its customers and/or generates revenue. It involves rethinking and redesigning various elements of a business’s core model, which may include its customer segments, value proposition, channels, revenue streams, cost structure, and more.
Business model innovation is essential for organizations seeking to remain competitive and adapt to changing market conditions. It often involves thinking creatively and exploring new approaches to disrupt existing industry norms or create entirely new markets. This innovation can result in improved customer experiences, increased efficiency, and potentially higher profits. Successful business model innovation can be a source of sustainable competitive advantage for companies in an ever-evolving business environment.
Business Model Innovation is perhaps the most challenging of the innovation types as it will likely present an organization with major requirements for change. Often, the very capabilities or processes that have been optimized to make a company successful and profitable will become the targets for transformation. In some cases, these changes can threaten elements of the company’s identity and come into conflict with brand expectations or promises.[10]
Whereas product, service, and process innovation can be incremental and moderate, business model innovation is almost always radical, risky, and transformative. When talking about business model innovation, without a doubt, names like AirBnB, Uber, or Spotify will come up. These are perfect examples of fast-moving companies that were able to disrupt age-old markets (hotel, taxi, music) by tweaking or inverting their industry’s traditional business model.[11]
Creative Thinking
Creativity relates to generating ideas, which are integral to and fuel innovation. Organizations are increasingly turning to creative thinking and problem-solving techniques like SCAMPER and design thinking to help them continue to innovate.
SCAMPER
One of the easiest and most direct methods of creative thinking is the SCAMPER technique, which is based very simply on the idea that many “new” ideas are actually modifications of existing products, services, processes, and business models.[12] The SCAMPER acronym refers to the following:
- Substitute (e.g., components, materials, people)
- Combine (e.g., mix, combine with other assemblies or services, integrate)
- Adapt (e.g., alter, change function, use part of another element)
- Modify/Magnify (e.g., increase or reduce in scale, change shape, modify attributes)
- Put to other uses (e.g., more than one way to use, more than one function)
- Eliminate (e.g., remove elements, simplify, reduce to core functionality)
- Rearrange/Reverse (e.g., turn inside out or upside down)[13]
Click on the information icon beside each of the letters below to learn more about SCAMPER.
Design Thinking
Design thinking is another well-known and widely-used technique for creative problem-solving. Design thinking encourages organizations to keep the user at the center of everything and is focused around asking different questions and looking at problems in new ways.
Design thinking is an iterative and non-linear process involving the following five phases (Figure 13.2):
- Empathize with users: learn about and understand the people you’re designing for.
- Define the design problem: identify users’ needs and focus on a design challenge.
- Ideate: generating and evaluating creative ideas.
- Prototype solutions: turn insights and ideas into tangible models.
- Test: evaluate and evolve solutions by gathering actionable feedback from users.
The iterative and ideation-oriented nature of design thinking means that individuals constantly question and acquire knowledge throughout the process. This helps them redefine a problem so they can identify alternative strategies and solutions that aren’t instantly apparent with their initial level of understanding (Figure 13.3).
A common core of design thinking is its application beyond the design studio, as the methods and tools have been articulated for use by those outside of the field, particularly business managers. Design practice is now being applied beyond product and graphic areas to the design of digital interactions, services, business strategy, and social policy (Video 14.2).
Watch Video 14.2: The Design Thinking Process to learn about the five phases of the design thinking process. Closed captioning is available. Click HERE to read a transcript.
Chapter Review
Optional Resources to Learn More
Chapter Attribution
This chapter incorporates materials from the following sources:
Shields, K. (2022). Leading innovation. https://ecampusontario.pressbooks.pub/leadinginnovation/. Licensed with CC BY-NC-SA 4.0.
Chapter 7 of Kennedy, R. (2020). Strategic management. https://pressbooks.lib.vt.edu/strategicmanagement/chapter/7-4-types-of-innovation/. Licensed with CC BY-NC-SA 4.0.
Matrix, S. (n.d.). Design thinking. https://pressbooks.pub/innovationbydesign/chapter/introduction/. Licensed with CC BY-NC-SA 4.0.
Media Attributions
Figure 13.1: Hoopes, C. (2024). Types of innovation. Licensed with CC BY-NC-SA 4.0.
Figure 13.2: Dam, R. F. and Teo, Y. S. (2022, June 27). What is design thinking and why is it so popular? Interaction Design Foundation. https://www.interaction-design.org/literature/article/what-is-design-thinking-and-why-is-it-so-popular#the_take_away-7. Licensed with CC BY-SA 3.0.
Figure 13.3: Dam, R. F. and Teo, Y. S. (2022, June 27). What is design thinking and why is it so popular? Interaction Design Foundation. https://www.interaction-design.org/literature/article/what-is-design-thinking-and-why-is-it-so-popular#the_take_away-7. Licensed with CC BY-SA 3.0.
Video 13.1: HBS Online. (2023, July 26). Sustaining vs. disruptive innovation [Video]. YouTube. https://youtu.be/vF9jLDyp7cE
Video 13.2: Sprouts. (2017, October 23). The design thinking process [Video]. YouTube. https://youtu.be/_r0VX-aU_T8
- Satell, G. (2017). The 4 types of innovation and the problems they solve. Harvard Business Review, 11, 2-9. ↵
- Beyrer, C. (2021, October 6). The long history of mRNA vaccines. Johns Hopkins Bloomberg School of Public Health. ↵
- NASA. (2022) Open innovation: Boosting NASA higher, faster, and farther. https://www.nasa.gov/wp-content/uploads/2022/01/fy1920openinnovationreport-final.pdf ↵
- NASA (2023). Open innovation at NASA. https://www.nasa.gov/open-innovation-2023/ ↵
- Christensen Institute. (n.d.) Disruptive innovation. Retrieved March 8, 2024, from https://www.christenseninstitute.org/disruptive-innovations/ ↵
- Christensen, C. M. (1997). The innovator's dilemma: When new technologies cause great firms to fail. Harvard Business School Press. ↵
- Differential. (2020, March 20). The three types of innovation: Product, process, business model. https://www.differential.com/posts/the-3-types-of-innovation-product-process-business-model/ ↵
- Ibid. ↵
- Kulbyte, T. (2021, June 24). 37 customer experience statistics you need to know for 2022. https://www.superoffice.com/blog/customer-experience-statistics/ ↵
- Differential. (2020, March 20). The three types of innovation: Product, process, business model. https://www.differential.com/posts/the-3-types-of-innovation-product-process-business-model/ ↵
- Ibid. ↵
- Elmansy, R. (n.d.). A guide to SCAMPER technique for creative thinking. https://www.designorate.com/a-guide-to-the-scamper-technique-for-creative-thinking/ ↵
- Serrat, O. (2009, February 31). The SCAMPER technique. https://www.adb.org/sites/default/files/publication/27643/scamper-technique.pdf ↵
A new idea, product, service, process, or business model, or a change to an existing product, service, process, or business model.
Involves efforts to build knowledge and understand principles and phenomena. It often precedes practical applications and is generally undertaken without immediate commercial goals.
Seeks to solve problems that are well defined but exceptionally challenging to solve, often requiring knowledge and insights from seemingly unrelated domains.
An approach in which organizations actively seek external insights and ideas.
“Describes a process by which a product or service initially takes root in simple applications at the bottom of a market—typically by being less expensive and more accessible—and then relentlessly moves upmarket, eventually displacing established competitors."
Christensen Institute. (n.d.) Disruptive innovation. Retrieved March 8, 2024, from https://www.christenseninstitute.org/disruptive-innovations/
Also referred to as incremental innovation; involves making small-scale improvements to existing products, services, processes, and business models.
The development of a new product, an improvement in the performance of the existing product, or a new feature to an existing product.
Introducing new services or improving the delivery of existing services.
The implementation of a new or significantly improved production or delivery method.
Creating, adapting, or fundamentally changing the way a company delivers value to its customers and/or generates revenue/
Generating and developing original ideas.
A technique for creative brainstorming that draws on existing products, services, and business models. It involves substituting, combining, adapting, modifying, putting to other uses, eliminating, and/or rearranging.
A technique for creative problem-solving that involves keeping the user at the center of everything and is focused around asking different questions and looking at problems in new ways. It involves empathizing, defining, ideating, prototyping, and testing.
