Types of Innovation, Innovation Strategies and Models
TYPES OF INNOVATION
It is remarkable how many people are under the false assumption that companies are either innovative or not. This is a very polarizing and simplistic perspective that does not take into account the different types of innovations that companies can and do pursue.
For this post, let’s break down innovation into two dimensions: Technology and Market, which gives us the following 4 types of innovation:
Incremental Innovation is the most common form of innovation. It utilizes your existing technology and increases value to the customer (features, design changes, etc.) within your existing market. Almost all companies engage in incremental innovation in one form or another.
Examples include adding new features to existing products or services or even removing features (value through simplification). Even small updates to user experience can add value, for example below is an older version of Constant Contact’s email schedule page.
Disruptive innovation, also known as stealth innovation, involves applying new technology or processes to your company’s current market. It is stealthy in nature since newer tech will often be inferior to existing market technology. This newer technology is often more expensive, has fewer features, is harder to use, and is not as aesthetically pleasing. It is only after a few iterations that the newer tech surpasses the old and disrupts all existing companies. By then, it might be too late for the established companies to quickly compete with the newer technology.
There are quite a few examples of disruptive innovation, one of the more prominent being Apple’s iPhone disruption of the mobile phone market. Prior to the iPhone, most popular phones relied on buttons, keypads or scroll wheels for user input. The iPhone was the result of a technological movement that was years in making, mostly iterated by Palm Treo phones and personal digital assistants (PDAs). Frequently you will find that it is not the first mover who ends up disrupting the existing market. In order to disrupt the mobile phone market, Apple had to cobble together an amazing touch screen that had a simple to use interface, and provide users access to a large assortment of built-in and third-party mobile applications.
Architectural innovation is simply taking the lessons, skills and overall technology and applying them within a different market. This innovation is amazing at increasing new customers as long as the new market is receptive. Most of the time, the risk involved in architectural innovation is low due to the reliance and reintroduction of proven technology. Though most of the time it requires tweaking to match the requirements of the new market.
In 1966, NASA’s Ames Research Center attempted to improve the safety of aircraft cushions. They succeeded by creating a new type of foam, which reacts to the pressure applied to it, yet magically forms back to its original shape. Originally it was commercially marketed as medical equipment table pads and sports equipment, before having larger success as use in mattresses. This “slow spring back foam” technology falls under architectural innovation. It is commonly known as memory foam.
Radical innovation is what we think of mostly when considering innovation. It gives birth to new industries (or swallows existing ones) and involves creating revolutionary technology. The airplane, for example, was not the first mode of transportation, but it is revolutionary as it allowed commercialized air travel to develop and prosper.
The four different types of innovation mentioned here – Incremental, Disruptive, Architectural and Radical – help illustrate the various ways that companies can innovate. There are more ways to innovate than these four. The important thing is to find the type(s) that suit your company and turn those into success.
Companies with proactive innovation strategies tend to have strong research orientation and first-mover advantage, and be a technology market leader. They access knowledge from a broad range of sources and take big bets/high risks. Examples include: Dupont, Apple and Singapore Airlines.
The types of technological innovation used in a proactive innovation strategy are:
Radical – breakthroughs that change the nature of products and services
Incremental – the constant technological or process changes that lead to improved performance of products and services.
Active innovation strategies involve defending existing technologies and markets while being prepared to respond quickly once markets and technologies are proven. Companies using this approach also have broad sources of knowledge and medium-to-low risk exposure; they tend to hedge their bets. Examples include Microsoft, Dell and British Airways.
These companies use mainly incremental innovation with in-house applied research and development.
The reactive innovation strategy is used by companies:
- Which are followers
- Have a focus on operations
- Take a wait-and-see approach
- Look for low-risk opportunities.
They copy proven innovation and use entirely incremental innovators. An example is Ryanair, a budget airline which has successfully copied the no-frills service model of Southwest Airlines.
Companies with passive innovation strategies wait until their customers demand a change in their products or services. Examples include automotive supply companies as they wait for their customers to demand changes to specification before implementing these.
Every person has a drive for innovation be it in small things or big ones. Therefore, we cannot assume that innovations are a modern day process. It began long ago but it is until 1960 that individuals started coming up with innovation models. So far there have been six models that have been relied on for innovations.
FIRST GENERATION MODEL – TECHNOLOGY PUSH
The first generation model was developed by NASA in 1960 as a management tool. NASA referred to the process as the Phase-review-processes or the technology push. The process was broken down to help in systematizing the work and for controlling contractors and suppliers who were working on space projects.
Since progress to the next stage relied on completion of the previous stage, the management held a meeting when a stage was completed. Their role was to determine whether the set objectives for the stage had been met. They also met to decide on the progress of the project. The processes were linear in nature and relied on engineering.
Basically, the model assumes that technological advances from scientific discovery and research and development come before ‘pushed’ technological innovation through engineering, marketing, applied research, and manufacturing towards successful inventions or products as outputs.
Advantages of the model
- First, all the tasks were completed as one process had to be completed before moving on to the next one.
- Secondly, the model reduced technical uncertainties.
Disadvantages of the model
- The fact that all activities within a given phase had to be completed before progressing created delays. This is because all other activities were put on hold until the management review for the particular stage was completed.
- Another disadvantage is that the marketing phase was left out; the model mainly dealt with the development stage of an idea.
SECOND GENERATION MODEL – MARKET PULL
The second generation models are similar to their predecessor except that, the model draws its innovation idea from the market place. The first generation model draws its idea from research and development and science which are different from the second model.
Besides, they are both linear structures.
THIRD GENERATION MODEL – COUPLING METHOD
The second and first generation models had a number of limitations which the third generation model tries to overcome. Cooper is credited to have come up with the third generation models. The stage acknowledges that customer satisfaction, market trends and technology are all important in the innovation process. Cooper developed a standardized approach for development of projects.
The model uses the stage gate approach in developing an innovation. Every stage has a purpose which must be completed before moving to the next stage. If one stage is reviewed negatively, then the team does not move on to the next stage. As a result, they continue working on the present stage until it is positively reviewed.
According to the third generation model, an idea originates from creativity, customer feedback or basic research. Evaluation of the ideas takes place in the first gate. The evaluation is based on ‘should meet’ and ‘must meet’ criteria such as feasibility with company’s policies or strategic alignment. Besides, the stage is inexpensive and takes a short period of time.
The gate assesses the innovative idea in terms of finances, market and technology. Further, the second gate characterizes detailed investigations which results in a business plan. Therefore, the business plan acts as a basis for decision making about the idea.
Consequently, if the idea is accepted, the process of developing the product begins in stage three. In addition, the team develops a marketing concept. Gate three produces a prototype of the product. The prototype is evaluated to make sure it meets the specified standard stated in gate three. During the validation stage, customer field trials, in-house product tests, trial productions and tests markets take place.
After the product is verified, then you can plan for market launch and production start-ups. The third generation model allows for not only linear processes but also parallel ones in order to speed up the process. The model also involves all processes from innovation to the launch of the idea.
Advantages of the model
- The stage gate model is very efficient and it offers a standardized way of achieving an innovation.
- Consequently, the model relies on loops of feedback which make it more interactive and efficient.
- The processes involved are transparent and the teams involved share a common understanding. Therefore, there is communication within the team and with the top management. IBM, General Motors, Northern Telcoma, and 3M all use this model in all their innovations. The companies say that the model enables them to achieve success in their innovation processes.
Disadvantages of the model
- On the contrary, the gates are rigorous in the first stages of concept and idea generation.
- Although the model is effective, it might be inappropriate when you anticipate radical innovations. Thus, in such a case, then a more flexible, learning-based approach is sufficient.
- The model leaves out post launch refinement, exploitation and optimization.
FOURTH GENERATION – INTERACTIVE MODEL
The fourth generation model uses an interactive approach which is different from the linear approach which the previous models use. Furthermore, the model looks at the innovation process as a set of parallel activities across the organizational functions.
However, the interactive models do not explain the innovation process. As a result, there has been an increase in:
- Strategic vertical relationships more so at the supplier interface.
- Horizontal strategic alliances and collaborative research and development consortia,
- Greater emphasis in cross functional and parallel integration development within firms. The purpose for the interaction and collaboration is so as to gain greater potential from real time information processing.
- Innovative SMEs creating external relationships with small and large firms.
The Minnesota Innovation Research program is a good example of a fourth generation model. The model was developed in 1980 and is also known as the MIRP model.
It has three distinct stages that firms follow to develop an innovative idea. There is the initiation period then the development period and finally, the implementation period. There are specific processes that take place during each stage of the process. However there are no boundaries between the periods. In fact, the characteristics between periods seem to overlap.
Specifically, the development and implementation stage overlap. This is because, a number of innovation ideas develop when the innovation team interacts with the market.
Disadvantage of the model
- The model does not include the adoption, continued improvement and introduction to the market place processes.
FIFTH GENERATION MODEL – NETWORK MODEL
The fifth generation model is also known as the network model or a closed innovation model. The model was developed in the 1990’s. Closed innovation models explain the intricacy of the innovation process.
Its main focus is the involvement of the external environment. Besides, the model also focuses on effective communication with the external environment. Since innovation relies on both external and internal networks, the model emphasizes on the need for establishing links between the two networks.
Galanakis developed an innovation model which borrows a lot from the fifth generation model. His model uses the thinking approach which he refers to the ‘creative factory concept. ’The firm is at the center of the model. Its position signifies its role in generating and promoting innovations in the nation, industrial sector and the market. Hence, the model relies on three main innovation processes:
- The first process involves creating knowledge from industrial or public research.
- Secondly, the product development process where the knowledge is transformed into a product.
- Thirdly, product success in the market. The success of the product is dependent upon the product’s functional competencies. Further, it also depends on the firm’s competency to produce high quality product at a reasonable price and to place it in the market adequately.
Internal factors such as organizational structure and corporate strategy amongst other affect the process. Additionally, external factors like national infrastructure and regulations amongst others also affect the process.
SIXTH GENERATION MODEL – OPEN INNOVATION MODEL
The open innovation model is also known as the sixth generation model. The model is a network model. It focuses on;
- Internal and external ideas
- External and internal paths to markets
Open innovation model looks at how a combination of the two concepts can lead to technological advancements. Chesbrough came up with the team open innovation. Besides, the model presents less risks when innovation. Companies who use this model enjoy a large pool of ideas to start with. They then narrow down to the most ideal idea.