Innovation explained – Definition, Types and Meaning of Innovation
What is innovation and what are the different types and fields of innovation?
The simple definition of innovation in the business context. We also explain which different fields of innovation there are, what types of innovation are happening and the overall meaning.
Innovation is the practical application of ideas that result in different new types of new offerings, like products, services, processes, and business models, intending to improve or disrupt existing applications or creating new solutions.
It doesn’t matter if you are getting the ideas from outside the organization, through brainstorming, combining of existing ideas, or radical new thinking within your field. But it should be at the heart of your business and it should constantly be done to ensure business survival.
Therefore we will explain here the different fields where innovation can happen, 4 different types of innovation, and also how to best protect your ideas from being copied or stolen.
Definition of Innovation – What is innovation?
Innovation is the process of creating, developing and implementing new ideas, methods or products that lead to significant positive change. It is about recognizing and overcoming unmet needs or challenges by thinking creatively and deviating from established practices. Innovation can occur in various fields, such as technology, business, science and the arts, and it often leads to improved efficiency, productivity or value creation. Key aspects of innovation include originality, practicality and impact, and it requires a willingness to take risks and embrace change. Successful innovation not only solves existing problems, but often anticipates future needs and trends, drives progress and fosters growth in a rapidly evolving world.
Innovation often comes from individuals who have an idea, but companies also invest heavily in innovation and the development of new products and services. Several key factors contribute to a company’s ability to innovate. One of the most important is a strong culture of innovation. This means creating a climate in which employees feel encouraged to develop new ideas and are rewarded for taking risks. Another important factor is having the right resources such as R&D labs, design teams, management support and funding. Finally, it is important to have a clear strategic vision that supports innovation and helps with decision-making.
To innovate successfully, companies must be able to recognize opportunities and seize them. This includes observing the market and understanding what customers want and need. They also need to anticipate trends and be willing to experiment with new ideas.
Developing innovations and introducing them to the market can be a challenge, but it is also a beneficial process for companies. It can lead to higher profits, faster growth, a competitive advantage, better profit margins and sometimes even world-changing discoveries.
Innovation is the specific function of entrepreneurship, whether in an existing business, a public service institution, or a new venture started by a lone individual in the family kitchen. It is the means by which the entrepreneur either creates new wealth-producing resources or endows existing resources with enhanced potential for creating wealth. – Peter Drucker
8 Fields of Innovation
Innovation can be in different forms and outcomes. When we talk about innovation, most people think of new products while there is a wide array of different innovation outcomes possible. Here we list the most common
1. Product & Product Performance Innovation
Either a new product is developed or the performance of an existing product is improved. This kind of innovation is very common in the business world.
2. Technology Innovation
New technologies can be also the basis for many other innovations. The best example was the Internet, which was itself an innovation but also lead to other innovations in various fields.
3. Business Model Innovation
Many of the most successful companies in the world managed to innovate their business model. Using different channels, technologies and new markets can lead to new possible business models which can create, deliver and capture customer value. Digital ecosystems are a well-known example of innovation using several technologies and creating a whole new type of business. Digital Business models pose one of the biggest opportunities for innovation at the moment.
4. Organizational Innovation
Managing and sharing resources in a new way can also be an innovation. This way it’s possible to use resources and assets in a completely new way.
5. Process Innovation
Innovation in the processes can improve the efficiency or effectiveness of existing methods. Possible process innovations involve production, delivery, or customer interaction.
6. Marketing / Sales – New Channel Innovation
New methods to capture and hold attention from customers. Either through the use of innovative marketing/sales concepts or the use of new channels for customer acquisition/sales.
7. Network Innovation
By connecting different groups and stakeholders it might be possible to create extra value. This type of innovation is very common due to the use of ICT services.
8. Customer Engagement / Retention
Innovative concepts that try to increase the engagement of customers and keep the retention up. The goal is to have innovative models to keep the customers “locked-in” or engaged.
The 4 Types of Innovation
First, we need to understand that there are various ways that innovation can have an impact on products, services, and processes. Most commonly we differentiate between 4 levels of innovation depending if they open up new markets or when the technology is changing.
The 4 different types of innovation are
- Incremental Innovation
- Architectural Innovation
- Disruptive Innovation
- Radical Innovation
1. Incremental Innovation
Existing Technology, Existing Market
One of the most common forms of innovation that we can observe. It uses existing technologies within an existing market. The goal is to improve an existing offering by adding new features, changes in the design, etc.
The best Example for incremental innovation can be seen in the Smartphone market where the most innovation is only updating the hardware, improving the design, or adding some additional features/cameras/sensors, etc.
2. Disruptive Innovation
New Technology, Existing Market
Disruptive innovation is mostly associated with applying new technologies, processes, or disruptive business models to existing industries. Sometimes new technologies and business models seem, especially in the beginning, inferior to the existing solutions but after some iterations, they surpass the existing models and take over the market due to efficiency and/or efficacy advantages.
Amazon used Internet-Technologies to disrupt the existing industry for book-shops. They had the existing market for books but changed the way it was sold, delivered and experienced due to the use of disruptive technologies. Another example was the iPhone, where existing technologies in the market (Phones with buttons, keypads, etc.) were replaced with touch-interface-centered devices combined with intuitive user interfaces.
3. Architectural Innovation
Existing Technology, New Market
Architectural innovation is something we see with tech giants like Amazon, Google, and many more at the moment. They take their domain expertise, technology, and skills and apply them to a different market. This way they can open up new markets and expand their customer base.
Especially digital ecosystem orchestrators like Amazon and Alibaba use this innovation strategy to enter new markets. They use existing expertise in building apps, platforms, and their existing customer base to offer new services and products for different markets. A recent example for this: Amazon recently entered the medical care field.
4. Radical Innovation
New Technology, New Market
Even it is the stereotypical way most people see innovation; it is the rarest form of them all. Radical innovation involves the creation of technologies, services, and business models that open up entirely new markets.
The best example of radical innovation was the invention of the airplane. This radical new technology opened up a new form of travel, invented an industry, and a whole new market.
What are the 5 stages of corporate innovation?
To create a successful and sustainable innovation process, your company needs to go through different stages of corporate innovation. This includes Idea Generation, Evaluation, Testing and Experimentation, Development and Implementation, and Optimization. Each stage is important for the overall success of your innovation initiative.
1. Ideation & Idea generation
The process of generating new ideas and drafts. This stage is all about coming up with new and innovative ways to improve your business, and services or products. Some common methods for generating new ideas include brainstorming, customer feedback, new technologies, changing economy or other sources for new ideas. No matter how you generate them, it’s important to have a steady flow of new ideas to evaluate and move forward with.
Many companies skip the step of evaluating their ideas and this can be costly. Without taking the time to properly evaluate an idea, you may end up investing in a project that is not feasible or profitable. It’s important to take the time to assess each idea before moving forward with it, so you can make sure you are investing in projects that have the greatest potential for success.
3. Testing, Experimenting and MVP
The process of testing an idea to see if it works in practice. This stage involves prototype development, market testing, and user feedback. However, it’s important to first start with small-scale MVPs to reduce the risk of investing in a project that is not feasible or profitable. MVPs are a great way to test an idea without spending too much time or money on development.
4. Development and Implementation
A successful test can give you good first feedback that can help you create a plan and then execute the full-scale development of the innovation. After a successful test, it’s important to take that feedback and use it to build out a development plan. This plan should include all the steps necessary for bringing the innovation to market. Once the plan is in place, it’s time to execute that plan and bring the innovation to life. This also involves Marketing, Sales, and Support.
5. Optimization & Scaling
After the innovation has been launched, it’s important to track the performance and optimize where necessary. This stage is all about making sure the innovation is successful and sustainable in the long term. It involves continual tracking, analysis, and improvement. Once the innovation is established and performing well, it’s time to scale it up and bring it to more customers.
How to encourage innovation in your business
Innovation is sometimes a key critical area for the survival of many businesses and industries. But encouraging your employees to come up with new ideas can be sometimes stressful.
Here are some tips on how to get more innovation going:
- Actively encourage your employees
- Ask customers for feedback/invite customers for feedback rounds
- Ask stakeholders for feedback
- Invest in your employee’s education
- Actively reserve resources for Research and Development (R&D)
- Build a reward system for innovative thinking
- Collaborate with start-ups and innovative companies
- Build an intrapreneurship program
- Do active research on the internet (follow industry news, tech news, etc.)
- Ask / interview experts
Innovation is a calculated risk that needs to be addressed. Not all projects will be successful, and the company’s process needs to be managed to filter out potential fails before they have a too big impact on your innovation budget. Try to streamline the process and maybe create your own innovation program which covers some of the points mentioned above. This way you can manage it better and get a better overview.
Measuring innovation: A complex challenge
Measuring innovation is a complex task that many companies find difficult or that prevents innovation. While some aspects of innovation are tangible and easy to quantify, such as the number of new patents or revenue from new products, the actual aspects that constitute innovation are difficult to capture. These include, for example, cultural changes, the expansion of knowledge, the path to “more innovation” or the increase in general creative problem-solving skills within the company.
It is important to understand: Innovation is not a straightforward process, but an iterative process with many detours and dead ends. It sometimes involves countless experiments, learning from failures and the gradual refinement and adaptation of ideas. As innovation is not measurable in this respect, it is difficult to define a KPI for it.
Therefore, setting rigid KPIs or measures of success for innovation is a problem for many companies. These rigid KPIs can lead to a focus on short-term results and ‘flagship innovations’ rather than long-term change and fundamental innovation. Such innovation KPIs can also discourage risk-taking and encourage employees to ‘play it safe’ in order to achieve their goals. More importantly, however, measuring innovation incorrectly can nip the creativity that drives innovation in the bud.
Innovation is like a muscle
Innovation can be compared to a muscle that needs to be developed over time. It is an investment in the future that may not always pay off immediately or take longer. A culture of innovation does not develop overnight, but through constant practice, learning and repetition. Companies need to recognize that only the measurability of the conditions in which innovation can thrive should be considered, which often requires rethinking traditional approaches to planning, goal setting and measurement. For example, it is better to measure how much is invested, how many projects are planned in advance, how many insights are shared, what percentage of ideas become prototypes, what percentage become pilots, or other methods of evaluating innovation.
The importance of failure in innovation
No one wants to lose money and celebrate it. But embracing failure is an important part of innovation. No company seeks failure for its own sake, but it is important to recognize that every failure offers valuable lessons for future efforts. In the words of Thomas Edison, “I have not failed. I have only found 10,000 ways that have not worked.” And Edison’s light bulb was not a one-time stroke of genius that could simply be planned, but the result of constant experimentation and learning from mistakes until it finally worked. If a KPI had been set, it would have been ready after 100 experiments.
However, it is not enough to allow failures. The company must develop a culture that not only tolerates failure, but actively encourages it. This includes ensuring that failure is no longer perceived as a setback but as an opportunity to learn. It is also about creating an environment in which employees feel safe to take risks and make mistakes.
In addition, every failure, every experiment, and every learning must be documented and made accessible. It’s not enough to simply fail; you also have to learn from it. This means that it must be actively managed, that the hypotheses tested and the lessons learned must be recorded. This can prevent the same failures from happening again and accelerate the learning process.
Over time, if knowledge management works well, it can help the organization become more capable of developing ideas, experimenting, and implementing innovations. This learning culture, combined with the right tools, methods and processes, can increase the organization’s ability to innovate and set it up for long-term success that can become a competitive advantage.
Protection of innovations
There are many ways in which you can protect your innovation. We focus here on the 2 major protection methods which are either “legal protection” or being the market leader due to a “first-mover advantage”.
1. Legal Protection
Depending on the type of innovation, it might be useful to patent your invention to monetize it and protect it from others. There also needs to be an understanding of the cost of patent protection. While the initial cost might not be as high, it can be that the legal costs to enforce possible patent infringements can skyrocket and make it harder for smaller companies to get their right.
It is also important to understand that not everything can be protected and patented. While products, processes, and technologies are usually easier to be protected/patented, it’s harder/impossible to protect software or business models.
2. First-Mover Advantage
Especially software companies make use of the first-mover advantage. A company that has a new process, new business model, or new product tries to get as much market share as possible while the competition is still developing its offering. This headstart gives the first-mover the advantage of incrementally improving the product. This way it’s possible to grab a market share and offer a better product/service faster than others.