When companies pursued innovation in the past, they typically worked on one of two innovation types: product innovation (also called new product development) and process innovation. Over the last two decades, however, a compendium of modern innovation types has emerged that allow companies to play the innovation game in many new ways. But as with any other game, you to follow a set of rules when playing with innovation types. Today and in two weeks, we’ll look at the spectrum of modern innovation types, and then learn more about the 10 rules that you need to understand and follow.
The spectrum of modern innovation types
At Thinkergy, we position modern innovation types on three levels related to operations, value creation, and the leverage of a created value offering:
- Operation innovations locate at the entry level. Companies pursue them to enhance and optimise the operations needed to create value propositions. Here we can see two innovation types: process innovation (redesigning operational processes in leaner, more efficient and cheaper ways) and structure innovation (restructuring the units and related assets needed for creating value).
- Value innovations aim to create meaningful, novel and original value propositions. The related innovation types encompass product innovation (developing new products in an established or new category), service innovation (new services offered stand-alone or in connection with a product), solution design (new solutions that address specific problems of business clients or end consumers), and customer experience design (crafting an impactful customer journey full of emotional, sensory-pleasing and “sticky” moments).
- Finally, leverage innovations aim to allow organizations to multiply revenues or magnify profits from their value propositions. Innovation types include channel innovation (delivering the value through new channel concepts), network innovation (mushrooming analog and digital networks through delivery partnerships and digital platforms), business model innovation (creating new ways to get paid for a given value), brand design (creating an impactful, emotive brand that attracts a tribe of loyal customers), campaign design (crafting moving, clever and effective campaigns) and packaging design (presenting a value offering in elegant, sensory-pleasing and aesthetics coverings).
Now you have a good overview of modern innovation types, with the exception of strategy innovation and social innovation, which we will cover later. But what about the rules for playing the innovation types game? Read on.
Rule #1: Play to stay in the game.
In the innovation economy, you need to play the innovation game on the pitch to avoid falling behind. Watching the moves of other innovators as a spectator on the ranks won’t suffice if all major players invest in efforts to innovate. What happens to a company that only settles for milking the cash cows of a once-better past? Gradual decline and eventual extinction.
Nowadays, depending on the industry you’re in, you may fall behind faster than you think possible. Who dominated the photographical film business before the turn of the millennium? Kodak, which missed the transition from analog to digital imaging. Who led the mobile phone market mid in the early noughties? Motorola and Nokia, who were slow to embrace the shift from dumb to smart phones. As Rubert Murdoch said: “The world is changing very fast. Big will not beat small anymore. It will be the fast beating the slow.” So, get on the pitch and start playing. And if you’re already on the pitch, keep playing and enjoy the innovation game.
Rule #2: You won’t win with a strong defense only.
The easiest way to innovate is through operation innovations, which is why most corporations do it. Successful process and structure innovation initiatives help save costs, increase efficiencies and improve the bottomline. They add a few pennies to your corporate piggy bank, but won’t bring you industry-leading profits. Having a strong defense is keeping you in the game longer, but it won’t bring you a major trophy.
Rule #3: Create meaningful new value first.
Value innovations such as product and service innovation as well as solutions and customer experience design are on the next level. Focus your efforts on creating a novel, original and meaningful value proposition first. In particular, ensure that a new product, service, solution or experience truly makes meaning to customers; when it does, it will make you money, too. But when it does not, you end up with a wacky invention such as the Dynasphere (a monowheel electric vehicle from 1932) that may be new and original, but fails to impress buyers. As Thomas Edison said: “Anything that won’t sell, I don’t want to invent. Its sale is proof of utility, and utility is success.”
Rule #4: Shift the value differential in your favor.
While pursuing value innovation, aim to boost your profit margins by raising the value perception in the eyes of your customers. You can do this through one of two strategies:
- Aim to add significantly more value to an existing value proposition. For example, Dyson has concentrated on product innovation in traditional household goods such as vacuum cleaners, fans and hair dryers. While staying in established product categories, Dyson has pushed the value differential to new levels of usability, aesthetics and performance, enabling the company to command higher prices and enjoy higher margins. Inventor James Dyson puts it simply: “People buy products if they’re better.”
- Climb up the value pyramid to higher levels of value perception by moving from products or services to solutions and customer experiences. For example, carmakers are promoting car-sharing solutions to urban consumers who don’t want to own a vehicle. Likewise, Starbucks is not just a coffee shop; it has designed an experience that allows guests to hang out in a “third place” between home and work where they can relax and connect with like-minded, sophisticated people.
What are the remaining six rules of playing the innovation types game? Come back in two weeks to find out.
© Dr. Detlef Reis 2017. This article was published in parallel in the Bangkok Post under the same title on 8 June 2017.