Definition and Types of Innovation

Definition and Types of Innovation

Businesses must innovate in order to improve customer satisfaction and increase market share. Learn about the four types of innovation and how you can best respond to market changes.


What Exactly Is Innovation?

When a company attempts to revitalize itself through a new method, product, or market strategy, this is referred to as innovation. Companies can promote growth and added value through innovation. To achieve innovation, business leaders generate (or listen to) creative ideas and then use strategic planning and decision-making to successfully implement new business ideas.


Why Innovation Matters

Here are some reasons why you should incorporate innovation into your business:

Staying ahead of the competition is made possible through innovation. Your company may face a lot of competition as a result of globalization and a rapidly changing market. Innovative thinking can help you predict the market and meet customer needs, giving you a competitive advantage and establishing you as a market leader.

Your company will benefit from innovation. Profits increase as a company grows. Successful innovation can add value to your business and increase profits; however, if you don't innovate well, your business may plateau and you may lose your competitive advantage.

Innovation allows you to capitalize on new technologies. Because new technologies evolve quickly, you can find new, more efficient technologies to create better products, provide services, market your business, or track your performance with analytics. You can optimize your business by utilizing these new technologies for process innovation.

When a company innovates, it can improve an existing product, service, or methodology or start from scratch. According to the Doblin Innovation Framework, all innovation involves the same three factors: the business model, the product, and the outward-facing elements of the business (such as marketing and customer service). When it comes to innovation, there is no such thing as a one-size-fits-all solution—consider what aspects of your business require change, what you can afford, and what risks you are willing to take. Every startup and established company benefits from innovation management, the process of streamlining and sustaining innovation.


4 Types of Innovation

The innovation matrix is a framework for categorizing different types of innovation into four categories: disruptive innovation, incremental innovation, architectural innovation, and radical innovation. Product innovation, marketing innovation, technological innovation, and process innovation can all fall into one of these categories.

1. Architectural Innovation: Applying existing technology or methodology to a new market can be a low-risk innovation strategy because it relies on aspects of your business that have already proven successful. Car ride share companies, for example, exemplify architectural innovation because they took existing technology, ridesharing and geolocation, and applied it to the transportation industry to create an alternative to taxis. This service innovation spawned an entirely new business model based on freelance work and smart phone technology. With a receptive market, architectural innovation can boost your competitive advantage by appealing to a larger customer base.

2. Disruptive Innovation: Clayton Christiansen coined the term "disruptive innovation" in his book The Innovator's Dilemma, which refers to the introduction of new technologies or methodologies into your company's existing market that creates a new value network. This innovation strategy can be extremely successful, but it may take several attempts to create technology that outperforms the original model. Smartphones are an example of disruptive innovation. Companies took existing technology—the cell phone—and created a new user experience by replacing buttons with a touch-oriented interface. Digital streamers produced similar innovation by introducing a new business model for an existing service.

3. Incremental Innovation: Small upgrades that phone companies frequently implement are examples of incremental innovation. This is the most common type of innovation, and it entails incremental but continuous improvements to existing technology in an existing market. You can add value to your product and respond to customer needs by changing the design, adding new features, or even removing features that are no longer useful to your customers. If you have an established, successful product, this is a relatively low-risk way to increase your company's market share. Because incremental innovation rarely involves the creation of new markets or products, its success is dependent on customer engagement—if you listen to customer feedback and implement new features that improve product performance, you can steadily increase both customer satisfaction and profits. However, keep in mind that market disruptions may render your improvements ineffective if your core product does not also respond to changing markets.

4. Radical Innovation: When new technology emerges, it has the potential to turn an industry on its head or to create an entirely new one—a phenomenon known as radical innovation. For example, the invention of the airplane revolutionized travel by creating a new market and new technology that allowed customers to travel long distances faster. Customers' needs are met in novel ways through radical innovation.

Each type of innovation has value, and in order to become a market leader, you must implement all four.