Innovation isn’t just about technology, and it isn’t a case that organizations are either innovative or not. There are multiple facets and the innovation culture within an organization will be on a spectrum. So, it’s essential that leaders have their heads across the types of innovation that will affect their business at some stage.
Different types of innovation can be categorised in several ways. Two common and similar category models are:
- Incremental, radical, disruptive and architectural. Or;
- Breakthrough, sustaining, basic research and development, and disruptive.
I’d like to simplify those models and talk about innovation in terms of the three categories that are most relevant to Executive Central’s clients. Those are product, process and business model.
Those three categories are most relevant because, whether a client needs to change and innovate incrementally or radically, it will be either to their product, process or business model.
National Transport Insurance (NTI) is one company that demonstrates multiple types of business innovation.
Let’s take a closer look at each type.
More about Business Model Innovation
A business model simply describes how a company creates value for its customers in exchange for capital. By describing the business model logic, it becomes visible, measurable and changeable.
By changing parts of their business model, companies can create an advantage over their competitors.
Business model innovation may not mean changes to the product or service, nor in the production process. It is specifically a change in how the product or service is brought to the market. Karan Girotra and Serguei Netessine writes in HBR:
“Business model innovation is a wonderful thing. At its simplest, it demands neither new technologies nor the creation of brand-new markets: It’s about delivering existing products that are produced by existing technologies to existing markets. And because it often involves changes invisible to the outside world, it can bring advantages that are hard to copy.”
Still, business model innovation is probably the most difficult type to succeed at. It will likely present a company with big existential questions and decisions to be made. The capabilities or processes that have made a business successful may be the targets for disruption and transformation. This can potentially challenge brand and company identity and expectations and be difficult to sell internally.
Although product and process innovation can be incremental and moderate, business model innovation is almost always radical, and transformative. And not without risk.
Microsoft had to adapt its business model quickly in the face of disruption from Apple and Google, which both at one stage overtook Microsoft’s dominant market share. Microsoft grew its fortunes on a software licensing model. It changed that model to focus on products that run on its software. The company added ‘freemium’ software — tiered packages for users — and cloud computing to its mix. And it recently has regained its place as the World’s Most Valuable Company.
Lego, the iconic children’s toy brand, faced an existential crisis as new competitors took its market share and it was left with plummeting revenue. Through a strategic business model innovation process, Lego reduced the costs of its physical products and delivery of them, and launched a rebranding exercise through digital products. The result, increased customer engagement, a new generation of parents and children consuming their products, and a resurrected revenue.
Process innovation may be the least exciting of the innovation categories. But it’s no less important than other types. Process can be described as the combination of capabilities, skills, and technologies used to create, deliver, and support a product or service. Processes can be changed and improved in a potentially infinite number of ways.
An organization could introduce innovation into process in several ways. Examples of ways this can be done would include changing the technology and tools used in manufacturing, changing the logistics of their supply chain, or even developing a new way of delivering leadership development coaching — as is the case with our Coachlive services.
Whereas a product innovation is often visible to customers or clients, process changes typically are only noticed and valued internally. In general terms, process innovations are developed to reduce costs of production or service delivery, more often than to drive an increase in revenue.
Process innovation would usually be considered the lowest risk of the three categories.
Henry Ford’s invention of the world’s first moving assembly line. This process innovation simplified vehicle assembly and shortened the time necessary to produce a single vehicle from 12 hours to 90 minutes.
Executive Central’s Coachlive platform is a process innovation for delivering coaching solutions. Expert leadership coaching is typically delivered in person, so it’s usually restricted to the capital city headquarters and the executives of large corporate organizations. Coachlive allows companies to deliver expert coaching to large groups of managers and leaders, wherever they are located.
Product innovation is what most people would think of when they consider innovations. Product innovations come in three different forms.
One: new products
The creation of a new product, such as the Fitbit or Kindle can either disrupt an existing market or create an entirely new market. Amazon’s Kindle was disruptive innovation in the marketplace for books, while the FitBit was a technological innovation that created a new market for exercise tech.
Two: Improved products
Improvements to the performance of existing products can happen incrementally or radically. The increase in the digital camera resolution of the iPhone has occurred incrementally with each new release. Dyson, on the other hand, is said to have radically improved the common household vacuum.
Three: New feature of an existing product
An example of these would include the addition of safety sensors to new cars, which alert drives when other cars or objects near them.
Drivers of product innovation might be technological advancements, changes in customer requirements, or outdated product design. Product innovation is generally visible to the customer and should result in a greater demand for a product.
Executive Central coaches and consultants work with organizations that have varying levels of capabilities for innovation. Yet all need to innovate in at least one of these three ways now and in the very near future. But the more clearly they can define and understand their innovation culture and needs, the more agile they are to change and adapt as necessary.