When companies pursued innovation in the past, they typically used one of two approaches: 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 game in many new ways.
But as with any other game, you need to follow a set of rules. Today and in two weeks, we'll look at the spectrum of modern innovation types, and then learn more about the 10 rules you need to understand and follow.
Modern innovation types occupy three levels related to operations, value creation, and the leverage of a created value offering:
Operational innovations represent the entry level. Companies pursue them to enhance and optimise the operations needed to create value propositions. Here we see two innovation types: process (redesigning operational processes in leaner, more efficient and cheaper ways) and structural (restructuring units and related assets needed for creating value).
Value innovations aim to create meaningful, novel and original value propositions. The innovation types encompass products (developing new products in an established or new category), services (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 and "sticky" moments).
Finally, leverage innovations allow organisations 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 analogue and digital networks through delivery partnerships and digital platforms), business model innovation (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 and aesthetic coverings).
Now you have a good overview of innovation types, with the exception of strategic 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 on the pitch to avoid falling behind. Watching the moves of other innovators won't suffice if all major players are investing 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 can fall behind faster than you think possible. Who dominated the photographic film business two decades ago? Kodak, which missed the transition from analogue to digital imaging. Who led the mobile phone market? Motorola and Nokia, who were slow to embrace the shift to smartphones. As Rupert 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 defence only. The easiest way to innovate is through operational innovations, which is why most corporations do it. Successful process and structural innovations help save costs, increase efficiency and improve the bottom line. But they won't bring you industry-leading profits. Having a strong defence keeps 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 and customer experience design are 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 offers 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 favour. 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, it 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 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 is the founding director and chief ideator of Thinkergy Limited (www.Thinkergy.com), the Innovation Company in Asia. He is also an assistant professor at the Institute for Knowledge & Innovation-Southeast Asia (IKI-SEA), Bangkok University, and an adjunct associate professor at the Hong Kong Baptist University. He can be reached at dr.d@thinkergy.com