Innovation is essential for business growth, but without a clear strategy, even the best ideas can fall short. In this first part of our blog series, we explore what innovation strategy is, why it matters, and the various types of innovation that drive lasting success.
“Innovation distinguishes between a leader and a follower.”
Steve Jobs, Former CEO of Apple
Successful businesses know that innovation is critical to their growth and relevance. However, the key to continuous innovation lies in a robust plan. A 2016 Accenture survey of executives and managers at 500 U.S. companies revealed that 82% approach innovation the same way, whether it’s for incremental growth or large-scale transformational change. This one-size-fits-all approach doesn’t propel game-changing ideas to fruition. To fully harness the power of innovation, leaders must craft a well-defined innovation strategy to unearth new solutions that solve complex problems to compete in today’s fast-paced business environment.
In part one of this blog, you’ll learn what innovation strategy is and why it’s essential to success. You’ll also discover various types of innovation and real-world examples. Part two will cover the critical steps to develop your innovation strategy.
What is Innovation Strategy and Why Does it Matter?
An innovation strategy is a comprehensive roadmap that empowers decision-makers to conceive and implement new ideas. It creates value for customers, employees and investors and aids companies in building and sustaining a competitive edge. Innovation strategies differ from many business strategies because it can be challenging to forecast the required resources and impact of innovation.
Innovation strategies should include an analysis of a business’s competitive and technological environment, its external challenges and opportunities and its distinctive advantages. The framework must consist of tools, techniques and processes to take an idea from concept to completion and methods to predict its success. The best innovation strategies adopt a systematic approach that helps stakeholders set measurable goals, allocate resources and establish continuous feedback to monitor progress.
Types of Innovation
“Innovation is, at its core, about solving problems — and there are as many ways to innovate as there are different types of problems to solve. Just like we wouldn’t rely on a single marketing tactic for the life of an organization or a single source of financing, we need to build up a portfolio of innovation strategies designed for specific tasks,” says Greg Satell, author of Mapping Innovation: A Playbook for Navigating a Disruptive Age.
Some common types of innovation include:
- Incremental innovation involves making gradual, iterative improvements to existing concepts, products or services to optimize and refine them to be more effective, efficient and customer-centric. These new products or services are marginally superior to previous versions without compromising their essential purpose or function. For example, Gillette has regularly improved their razors by incorporating new features, including multiple blades, gel-coated strips to reduce friction and skin guards for sensitive skin. Incremental innovation is less risky and costly than introducing a new product or service. More frequent improvements can also enhance product visibility and sustain consumer enthusiasm.
- Disruptive innovations ‘disrupt’ existing value chains or establish new ones for concepts, products or services. They often initially appear less effective and garner less attention because they frequently don’t meet the needs and preferences of most of their target audience. However, successful disruptions have distinct valuable characteristics for small market segments and often convert non-customers into customers. A classic example is the introduction of the iPhone, which revolutionized the mobile phone industry by offering touchscreens and a wide range of apps.
- Sustaining innovation runs counter to disruptive innovation because it enhances and expands current value networks to fulfill customer requirements rather than generating new ones. Like incremental innovation, sustaining innovation metrics improve marginally with each iteration, minimizing errors. Updated products or services that offer enhanced performance may cost more and have higher profit margins if they appeal to consumers looking for high-end goods and services. For instance, smartphone companies regularly release the next generations of technology to implement new technology and satisfy consumer demand.
- Radical innovation describes applying new technology or merging old and new technologies to generate a revolutionary product or service for a new market. This type of innovation is so technologically advanced that it often solves problems people are unaware of. It also radically transforms marketplaces and economies by replacing old products or services. Technological advancements such as personal computers and the internet are radical innovations that have fundamentally shifted how the world works, communicates and purchases goods and services.
- Product innovation refines an existing product’s quality and features. This type of innovation uses components from previously produced products and can involve new technologies, creatively combine current technologies, or require no technology. For example, car companies manufacture new models every year.
- Service Innovation significantly improves services in new or existing markets. It may include innovating new ways to engage with consumers or establishing new content distribution channels or consumer interface solutions. Providing superior service by meeting consumer demands and expectations is an excellent way for businesses to create value-adds for consumers, differentiate themselves from the competition and increase revenue. For example, Netflix fundamentally altered the movie rental industry when it launched its DVD-by-mail service in 1998. By disrupting the established market with a subscription service that allowed consumers to rent DVDs without any late fees, Netflix was able to carve out a niche market for itself.
- Process Innovation happens when businesses create new or improved processes with enhanced capabilities, functionalities and efficiencies to conserve resources while improving customer service. Process innovation can include new equipment, software or technology to streamline processes like purchasing, manufacturing or transportation systems. Starbucks prioritized efficiency and customer satisfaction when they rolled out a mobile ordering system, allowing customers to place orders and make payments from their smartphones. This seamless, user-centric ordering and fulfillment process increased efficiency and better served their customers.
- Technological innovation is the development of new or improved technologies, such as updated equipment or modifications to products, processes or services. Ford automobiles are famous for integrating new technology into their manufacturing process. This automation increased production, improved product quality and increased market competitiveness.
- Business Model Innovation involves a significant transformation in how companies deliver value to customers or distinguish themselves from the competition. Businesses often achieve this type of innovation by generating new pricing structures, revenue streams or distribution channels. Amazon’s Subscribe and Save program allows customers to automate the resupply of commonly used household items, reducing the emotional labor of these recurring domestic tasks.
- Marketing Innovation exists to create new markets or expand existing market share by significantly shifting the conventional marketing mix (price, product, promotion and place) for a particular industry. As technology and client preferences evolve, companies use innovative marketing strategies like rebranding, expanding to new regions and starting loyalty programs. In 2015, Gucci shifted its focus from high-end luxury to approachable fashion by designing streetwear using vivid colors and bold graphic designs. With a refined logo and a modern aesthetic, they rebranded themselves and successfully targeted younger customers, transforming the staid luxury brand into a high fashion powerhouse.
- Architectural innovation modifies an existing solution for a completely new market. This type of innovation is low risk because if a new product or service architecture is unpopular with consumers, the company can revert to the old solution and continue selling to the existing market. In 2014, Apple used existing smartwatch technology as a foundation to innovate and design a new product—the Apple Watch. While the first generation lacked GPS and had multiple app issues, nine generations later models now include GPS, messaging, heart rate monitors, sleep trackers, music and other functions. Apple Watch dominated the North American market with a 37.9% market share in the first quarter of 2021.
Stay tuned for part two of this blog, where we’ll discuss how to develop an innovation strategy for your organization.
Anne Evenson is a native Austinite and a proud Veteran’s spouse with over 20 years of marketing, communications and program coordination experience in the public, private and nonprofit sectors. She is also a sculptor, jeweler and all-around dabbler in the arts and loves to help military-connected individuals discover their inner creativity.
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