Sunday, January 29, 2012

Types of Innovations

I have conducted several innovation workshops. Invariably participants in these workshops restrict themselves to incremental innovation (80% of the ideas) and radical innovations (20% of the ideas). Often times these radical ideas are so extreme that most of other participants shake their heads when they hear of it.

In reality, there are four types of innovations:

1. Incremental Innovation
2. Radical Innovation
3. New Business Model
4. Collaborative Venture solutions

Incremental innovations are easy to imagine and implement. These are essentially product extension ideas and are easy to implement. For example: Bajaj designed RE60 - a 4 wheeled auto. (see: Bajaj Innovates with RE60 or Apple iPhone 4S ) Incremental innovations are usually part of continuous development - more on lines of product roadmap, or six sigma projects.

Another form of incremental innovation is imitation. Companies often times imitate their competition and also license technologies needed for it. For example Chevrolet's Volt was essentially a response to Toyota's Prius. Another very good example is Google Andriod is an imitation of iOS, Microsoft Windows was an imitation of PARC GUI system etc. Imitation is a very good way to innovate. See: Innovation by Imitation - Toyota Imitates Segway

Incremental innovations are often seen as low risk with moderate benefits projects and is more preferred.

Radical Innovations are essentially major breakthrough, like Toyota's hybrid technology, or Liquid battery from 24M . Radical innovations are usually tough to understand and accept. Often times, companies reject radical innovations because the top management cannot understand it. For example Xerox corporation did not understand the breakthrough done by their scientists at PARC, and failed to capitalize on the PC revolution.

Radical innovation often needs a new business model and a futuristic vision of how the innovation will help the society. Radical innovation needs much greater management commitment and resources to succeed. If the leadership does not have the right vision, then the breakthrough product will fail - despite its technical superiority. For example, Nokia introduced N770 tablet in 2005 and was way ahead of Apple, yet Nokia could not capitalize on its innovation and failed in the market.

Another classic blunder was from Gillette:
When the Gillette company developed a superior stainless steel razor blade, it feared that such a superior product might mean fewer replacements and sales. Thus, the company decided not to market it. Instead, Gillette sold the technology to Wilkinson, a British garden tool manufacturer, thinking that Wilkinson would use the technology only in the production of garden tools. When Wilkinson Sword Blades were introduced and sold quickly, Gillette understood the magnitude of its mistake. (Source: Export Help)

Radical innovations is often associated with high risks and high uncertainties.

Innovations are not limited to new products. New Business Models are also innovations. For example Apple's iTunes was a new business model to sell music over Internet. The technology to deliver MP3 files over Internet was well known, but Apple's innovation was to build a new business model to sell individual songs for 99 cents - instead of selling the entire CD was the real business innovation.

New business models essentially take an existing technology or product and apply in a different business scenario - and thus create new business opportunities.

New business models are also needed to bring radical innovations into market, as existing business models cannot adapt to new technology. For example, in 1960's Xerox's created a new business model of leasing its photo copier instead of selling it outright. The success of Xerox led to a standard business model of leasing expensive equipment. Today, most of medial imaging equipment, industrial machines are leased, and leasing is considered as industry standard.

Google's free distribution of Andriod or Red Hat's free distribution of Linux is an example of business model innovations. Google makes money through selling advertising on its search engine - which users of Andriod phone will use. Red Hat makes money by selling services for Linux.

In general new business model as innovation is seen as moderate risk option. Companies are reluctant to explore new business models - especially when it threatens their current business models.

New Venture as Innovation. Current business venture could be expanded into new markets by creating new ventures. A common example would be to expand an existing business abroad, or forming a joint venture with another company to leverage its current products and generate additional revenue. Though in this case, there is no major product innovation, there will be a need for business model innovations.

For example, GM formed a joint venture with Shanghai Automotive Indistrial corporation to build & sell GM cars in China. New ventures are not just limited to joint ventures, it could be setting up a subsidiary to tap into new markets. For example, McDonalds expansion in India.

New ventures are often seen as low risk options to expand existing business - but there is a need to customize products to suit local needs, else the business will fail.

Closing Thoughts

Innovations are not limited to technical areas or to products alone. Business innovations are just as important. New business models and new business ventures are better in terms of ROI and these must also be pursued.


Ahmad Firdaus said...

thanks for the info sharing :)

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