You might think there are as many types of innovation as problems to solve. But sorting innovation strategies into logical categories allows you to identify your business’s strengths and weaknesses, opening up opportunities for more innovation and increased profitability.
Few people know that Toyota started as a loom company. Inventor Sachiki Toyoda, trying to save his female relatives from the back-breaking work of operating a manual loom, came up with a steam-powered version that radically increased the efficiency of loom work and improved the lives of thousands of operators.
After this breakthrough innovation, Toyoda set about gradually improving the loom and the process for manufacturing it. This commitment to slow, incremental progress eventually became Toyota’s famous “kaizen” system or continuous improvement.
These two examples of innovation in business show that although breakthrough innovations get all the press, incremental innovations are just as important. What matters is fostering every innovation type to see profound results.
What’s innovation?
Most professionals define innovation in business as solving a problem in an original way. This typically has two phases: first, coming up with new ideas, and second, applying these concepts in useful ways.
While creativity is part of innovation, they’re not the same thing. A science fiction writer might develop a new construction method that lets her characters build skyscrapers thousands of stories high. But if the idea doesn’t work in the real world, it’s not an innovation.
The benefits of innovation
Businesses that innovate outperform those that don’t, because being innovative:
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Increases profitability: Companies can sell innovative products at higher prices, and innovative processes increase efficiency and reduce costs.
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Helps businesses stand out: Innovative product features delight existing customers and bring in new ones.
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Increases company growth: Expanding into new markets helps companies gain and hold a competitive advantage.
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Makes companies adaptable: Business books are full of examples of former market leaders, like Blockbuster and Kodak, that failed because they couldn’t innovate quickly enough in response to a changing market.
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Means creating custom markets: When a company releases a fantastic product, it generates demand for that product, leaving competitors scrambling to catch up.
The 4 main types of innovation
Here are the four main types of innovation. Use these categories to understand where your business should focus its attention to distinguish yourself from the competition.
1. Incremental innovation
This refers to improving existing technology in an existing market. Apple gradually adding new features to its iPhones is an example of incremental innovation.
Incremental innovation is a low-risk strategy, as the business already knows both the technology and the market well.
2. Architectural innovation
Architectural innovation occurs when a business expands existing technology into a new market. An example of architectural innovation is Uber’s expansion into the food delivery market with Uber Eats.
This innovation type is relatively low-risk, as the company has already tested the technology and knows it works. But the uncertainty regarding the new market introduces unknowns, so architectural innovations benefit from extra marketing investment.
3. Disruptive innovation
Disruptive innovation, a concept first outlined by Harvard Academic Clayton Christensen, occurs when a company uses a new technology to enter an existing market. Wikipedia is an example of disruptive innovation. Its free digital crowd-sourced encyclopedia entries were a driving force in moving traditional print encyclopedias out of business.
Startups commonly use disruptive innovation strategies to implement a new idea on a shoestring budget. These strategies are most dangerous to large companies engaged in “sustaining innovation”: companies making small adjustments to their business to gradually increase profit margins.
Disruptors can claim market share at the bottom of a market, forcing established companies to raise prices to remain profitable. Disruptive innovations are a medium-to-high risk. Many fail, but as they usually use low-cost resources, the cost of failure is often manageable.
4. Radical innovation
Radical innovation occurs when a company develops and applies a new technology to a new market. An example of radical innovation is Salesforce, an early developer of cloud computing and the software as a service (SaaS) business model.
Its release in 1999 created a new market for business clients who wanted a comprehensive software package to manage customer relationships.
Radical innovation is a high-risk, high-reward strategy. Companies may invest a great deal in developing the new technology and then feel disappointed by customer engagement. But if a radical innovation works, it gains the company a valuable head start in the new market.
Alternative categories
While the above categorization covers four general innovation types, here are a couple of alternative ways of understanding innovation for your business.
This first one is useful when considering where to focus your innovation efforts:
This second breakdown is helpful when you’re considering adjusting your business’s core operations:
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Core innovations are small ongoing improvements, like new packaging or optimized product features, that don’t require a significant change
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Adjacent innovations expand existing operations, either bringing an existing product into a new market or developing a new product for the company’s existing market (think traditional car companies developing electric vehicles)
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Transformational innovations change the company’s core business profoundly, usually by implementing a new business model, like when Netflix moved from mailing DVDs to streaming films on demand via the internet
The 4 steps in the innovation process
Innovation goes through four main stages, starting with a problem and ending with a newly-implemented solution. Here’s what to do in each stage.
1. Clarification
Determine the exact nature of the problem: who it affects, what barriers it introduces, and how people tend to solve it. This clarification may involve conducting market or customer research and holding team meetings to pinpoint product shortcomings, service bottlenecks, or sources of lost profits.
2. Ideation
Seek possible answers to the problem. Brainstorm with teammates, using one person’s solution to kick-start thinking about another. Also ask your potential target audience or current customers what they think a possible solution could be. And research competitors’ solutions to learn what’s already available and consider improvements.
3. Development
Pick a set of promising ideas to develop further. Create prototypes or preliminary versions to test and calculate detailed financial projections. After testing and receiving feedback, choose the best solution and develop it into a concrete strategy ready for implementation.
4. Implementation
Roll out the solution in minimum viable product (MVP) form to get early feedback. Incorporate the feedback and develop the product into a fully-fledged version ready to distribute widely.
Tips for cultivating innovation in your company
Here are a few ways to foster an innovative mindset in your employees to enjoy increased success.
Create a psychologically safe environment
To generate and freely share creative ideas, employees need to feel confident people won’t judge their ideas. Create an environment of psychological safety by actively listening, praising creative and innovative behaviors, and leading by example.
Provide regular training
Research shows that normal on-the-job training leads to increased innovation — but this effect wears off over time. Make sure employees receive regular professional development on top of one-off training like onboarding workshops.
While surprisingly rare in large organizations, innovation-specific training has a positive effect on employee innovation. Consider running sessions with titles like “What’s disruptive innovation?” or “What sets innovative companies apart?” to raise awareness regarding different forms of innovation among your employees.
Offer rewards for behavior that supports innovation
Consider running competitions among teams for innovative ideas, offering prizes, and awarding grants so employees can research their ideas and develop prototypes.
Singaporean bank DBS, a leader in innovation management, offers a “Gandalf scholarship” of $1000 to employees who commit to learning more about a topic of interest and then teaching it to others. And in 2007, India’s Tata Group started an annual “Dare to Try” program where teams are awarded for taking risks on promising ideas and fail.
Also, examine where you might be unknowingly rewarding behavior that supports the status quo. Eliminate awards for excellence in outdated areas, long or aimless meetings, and any habits that discourage diverse input.
Cultivate future-minded leaders
Future-minded leaders combine optimism, pragmatism, and the ability to imagine future outcomes to increase overall team innovation, sometimes by 18%.
For example, Satya Nadella inherited a company culture that had become complacent when he became CEO at Microsoft. He fostered a new company culture where everyone valued others’ opinions and encouraged each other to take calculated risks on new ideas — and Microsoft is now soaring.
Identify the barriers to innovation
One group of researchers recommends identifying blocks to innovation by asking employees to complete the following sentences:
- “Wouldn’t it be great if we…”
- “But we didn’t because…”
The answer to sentence #1 suggests potential avenues for innovation, while the answer to #2 uncovers why no one pursued these avenues.
Guard against the innovator’s bias
The innovator’s bias is the optimism we all feel about ideas we have a personal stake. It’s common for people to consider the advantages of their own ideas and neglect the disadvantages, which is dangerous in the long term. The most effective way to neutralize this bias is to imagine your solution’s worst-case scenario.
Create diverse teams
Creating a diverse team and putting together cross-disciplinary groups synergizes people with different viewpoints, knowledge, and skill sets, making it more likely they’ll come up with something new.
If the aim is product innovation, for example, product designers are deeply familiar with the product, and marketing staff are knowledgeable about customer needs. Encouraging dialogue between the two will likely yield a product improvement that’s both realistic and likely to draw new customers.
Hire or collaborate with researchers
Partnerships with academic researchers are mutually beneficial: businesses benefit from exposure to cutting-edge research, and researchers gain access to a forum where they can apply and test their ideas. Consider approaching a university or research institute or creating a chief research officer position to guide research in-house.
Use proven techniques to encourage innovation
Research and apply the organizational innovation techniques that suit your business context. For example, consider conducting virtual brainstorming sessions, as they generate more ideas than in-person sessions. You could also divide meeting leadership roles. At DBS Bank, for example, a “meeting owner” runs each session and a “joyful observer” notes if the meeting was effective.
Avoid “innoganda”
It’s easier to talk the talk than walk the walk. Many firms slip into “innovation theater” or “innoganda” (innovation propaganda) instead of doing the hard work to foster creativity. Reflect periodically to make sure you're promoting real innovation rather than just PR.
Forge your own path
Thinking carefully about which types of innovation you’d like to cultivate and trying out a few tips to foster it will keep your business healthy and flourishing. Whether you’re disrupting the market with a new service or shaving off a few seconds from a manufacturing process, your customers (and bottom line) will thank you.
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