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  • Writer's pictureDr. Babette Sonntag

What is innovation? The importance of a clear definition


A hand holds a lightbulb symbolizing innovation
A clear understanding of innovation is important for success

There are different definitions of the term "innovation". Do we want/need something completely new? Or do we build on what already exists? Do we focus on our products or on new services? These questions clearly show that there are worlds between the respective characteristics. If the term "innovation" is not clearly defined and communicated in a company, there is a lack of orientation as to which ideas should be pursued and which trends should be focused on. I have already seen that time and money are wasted this way and that the innovation culture and motivation are lost. In addition, innovation efforts must always be in line with corporate strategy. In order to be successful, you need to focus on the trends that are most important to the business - not just the most interesting - and move fast there.


What types of innovation are there?

Basically, innovations always describe something new. Nevertheless, there are different types that differ in the degree of innovation and that determine your goal and your approach:



4 types of innovation
4 types of innovation

Disruptive Innovation

Disruptive innovations lead to products or services that revolutionize and fundamentally change an existing market. This creates new value chains, new practices and new customer expectations.

The term was created by Prof. Clayton M. Christensen from Harvard Business School.

Examples: Netflix and its new streaming model, Uber business model, Digital Photography


Incremental Innovation

Incremental innovations are continuous improvements of existing products, services,... Knowing the buying behavior and attitudes of customers is the best way to sell these innovations. I believe that every company does incremental innovation by improving its products or processes over time in a more or less structured way through customer and employee feedback.

Examples: Process optimizations, new features for existing products


Architectural Innovation

Architectural innovations modify an existing solution for a new market. The existing technology forms the basis for the new development.

This type of innovation therefore involves less risk.

Examples: Smartwatches, mobile payment


Radical innovation

Here, existing products or services are replaced by new ones, which changes the relationship with the customer. Innovators respond to existing problems with a new approach.

Examples: Invention of scheduled flights, first smartphone


Ideal distribution of resources across different types of innovation

The Learning Theory states that we acquire 70% of our knowledge through hard work, 20% through interpersonal exchange and 10% through individual learning. Former Google CEO Eric Schmidt transferred this concept to innovation management at Google.

This means:

  • 70% of the resources should ideally be invested in improving products and services etc. in the core business (incrementally, see above).

  • 20% of resources should be devoted to developing adjacent, related markets and competencies.

  • However, 10% of the resources should be dedicated to the development of new, groundbreaking innovations.

You can find out more about this by searchingthe web for the 70:20:10 rule. In the Harvard Business Review you can also find a good summary.



What kind of innovators are there?

What role should or can your company play as an innovator? In other words: Which market entry strategies can be roughly distinguished for innovations?


Types of innovators
Types of innovators


Pioneers, the first movers and early movers

First movers want to be seen before everyone else with groundbreaking news. Everything is geared towards gaining a significant competitive advantage with the innovative idea. There is no comparable product on the market. The company is a pioneer that surprises customers and competitors and thus (at least temporarily) achieves high prices and status via monopoly.

Early movers look at the very first phase to market and then launch shortly thereafter with marginally less risk. Because of this, they are often seen as copy cats.

The disadvantage for both is that due to the lack of experience, risks (teething troubles of the product, lack of demand) are difficult to assess. Speed and real novelty are the most important things here.

Examples of first movers: Apple's PDA, Bayer's Aspirin


First followers and late followers

They only enter the market when initial technical and economic problems appear to have been solved and benefit from the experience of the first or early movers.

For them, it is crucial to their success that they constantly and thoroughly scan and evaluate the relevant market area and then act quickly and consistently when going on the market. Otherwise it's just a lame umpteenth copy.

Examples: Generics in the pharmaceutical market, PCs from IBM



Tips for defining your own path

By presenting the types of innovation and different innovators, I want to illustrate how diverse "innovation" is. There is no one way innovation happens. I often observe a lot of irritation as to what is meant by "innovation" and which ideas are really valuable. Then nobody can be really innovative and somehow every idea is followed a bit. That´s why "Innovation" for your company must be precisely defined!


You've read this far, and now you might be wondering, "So what does this information mean for my definition of innovation?

I consider the following steps to be best practice in the strategic development of the innovation approach:


1. What is the subject of innovation (services, products, business model,...) and how radically do we want to innovate (see above "What types of innovation are there?")


2. What kind of innovator do we want to be?


Pioneer?

Then you have to ask yourself the following questions:

  • How can we fully focus the innovation, R&D, production resources on disruptive innovations?

  • How can we get employees to develop fundamentally new things? How can we develop and train employees to be visionaries?

  • What do we need to do to understand tomorrow's markets?

  • Can our organization be strong and courageous enough to take on major economic risks?

Followers?

Then you have to ask yourself the following questions:

  • What are the markets and technologies that are really relevant for us?

  • How can we ensure that we have a really deep understanding of the markets and technologies that are relevant to us?

  • How can we ensure that we get the necessary market and competitor information quickly and reliably?

  • What expertise do our employees need?

3. How is our organization currently set up and what gaps do we have to close?

  • SWOT Analysis

  • Gap Analysis

in terms of expertise, culture, innovation and other processes, etc.


Conclusion

A look at the different types of innovation has shown that there are gradations, depending on how new the innovation is. Then we looked at how resources in the company should ideally be distributed among the different types of innovation. The types of innovators are nothing other than the strategies for entering the market with the above innovations.

The questions about the type of innovation and your own role are highly complex. Is that perhaps one of the reasons why they are often overlooked? I experience and hear that innovation managers in companies often seem to assume that everyone understands the same thing when they say: "We have to become more innovative!". Or that strategic workshops on the questions outlined above are dismissed as theoretical games. This is definitely short-sighted. The complexity of the above questions makes them appear academic or theoretical. But in my opinion they are the basis for successful and efficient innovation work in any environment!

The combination of all points is important for how you design the innovation process in your company and what questions you should ask when making this decision.


I hope I was able to encourage you as an innovation manager not to give up and keep asking the important questions!


Which questions about the definition of innovation do you find particularly important? Do you ask yourself other questions? Feel free to share your thoughts in a comment!


Please note: This text is translated into English by using Google Translate - I apologize for any mistakes in this text I may have overlooked.



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