Mapping the Types of Innovation

In a recent article, we talked about digital innovation and transformation in the context of the COVID pandemic. Melissa Schilling defines technological innovation as

the act of introducing a new device, method or material for application to commercial or practical objectives

But we should notice that innovation comes in different flavors, and it's important to learn how to identify them and use this knowledge to our advantage.

Why understand the different types of innovation?

Firstly, to open our minds and develop the ability to recognize new possibilities. Almost every business activity has room for innovation, and purposefully considering multiple categories of innovation can foster ideas we'd probably never think of.

Secondly, understanding the type of project you're dealing with allows picking the most appropriate techniques to approach it. Think of it as adding new tools to your problem-solving toolbox, and correctly labeling them for the right application.

And finally (in particular for those companies with multiple innovation and R&D activities running in parallel) it's key in portfolio management: classifying projects with clarity helps to maintain a balanced portfolio. With limited budgets, it's essential to strategically diversify across different types of projects. For example, some companies may focus all their efforts on the end product, and never think about how much they could gain by improving internal processes. Another tendency is that firms selecting innovation projects according to pure and simple financial metrics may end up only doing incremental projects (because they are safe bets), not pursuing any radical high risk / high return opportunities, and put themselves at risk of disruption in the long run.

 There are certainly many ways to classify innovation…

What follows is not an attempt to exhaust every classification out there – it's just a compilation of approaches that, in my opinion, paint a pretty complete picture of the different possibilities (and ways to approach them).

Classification according to the object

Perhaps the most basic classification we can do is according to the object undergoing the innovation, as explored by Julia Kylliäinen in a very complete article:

• Products: changes to a tangible item sold by the company, ranging from modest increases in features between versions to radically new, game-changing products. This is the type that first comes to mind when we think about innovation.
• Services: innovations can also focus on services, i.e. intangible benefits provided directly to the customer, either as a firm's principal offering or as a support activity (e.g. customer service for physical goods).
• Processes: the two objects above (products and services) are considered the company's output, but we can also innovate targeting internal improvements, changing the processes by which we create value (see picture below). An example is implementing a shared CRM (Customer Relationship Management) tool across business units to start leveraging cross-selling opportunities.

An additional way to categorize an innovation is Modular vs Architectural, as proposed by dr. Serge Rijsdijk of Rotterdam School of Management. This distinction can be applied to any type of object (it might be easier to think about products but, with some imagination, it's possible to apply these concepts to services and processes as well):

• Modular: an innovation that changes one component of a system, while maintaining the overall configuration. Example: launching a new cell phone model with practically the same features but a new camera technology (the module upgraded is the camera)
• Architectural: it involves altering the configuration of parts in a system, or how those parts interact. For instance, to create a flexible manufacturing system we don't necessarily change the production machines per se, but reconfigure how they were arranged in the plant and their workflow

Classification according to the impact

Another common way to classify ideas is based on the expected impact and magnitude of the change:

• Incremental: the creation of solutions that are slightly different than what already exists, causing limited impact – like the release of a TV model with some new features. Most innovations fall into this category, as they are gradual, easier to manage, and perceived as safer. Incremental can be identified with Sustaining Innovation, although some authors only use this term when the change has a more relevant impact and serves to sustain the firm's competitive position in the market (more info on Sustaining Innovation in the following section)
• Radical: these innovations produce solutions that are very different from what already exists. Some radical innovations result from technological advances, just like electronic miniaturization and the rise of solid-state memory enabled the iPod invention. If a radical innovation changes the base for competition, reshapes the market, etc., it can be considered a Disruptive Innovation (more about it in the next section)

Innovation Matrix: Problem vs Skills Domain

An interesting way to organize projects, proposed in HBR by Greg Satell, is in a 2x2 matrix by asking the questions "How well is the problem defined?" (Y-axis) and "How well is the skills domain defined?" (X-axis):

Let's talk about each of them:

• Basic Research: we often don't think about basic research when talking about innovation in the business context, but it's an important aspect to take into account when trying to stay ahead of the competition, especially in some markets. While giants like Volkswagen and Samsung can afford their own basic research labs, it also possible for smaller companies to participate in useful scientific discovery, through partnerships with local universities and government programs such as the Manufacturing Extension Partnership (MEP)
• Sustaining Innovation: as mentioned before, this can be considered a particular instance of Incremental Innovation. It's an improvement in something we're already doing, allowing us to sustain or evolve our presence in existing markets. Usually, the problem is well-defined, and so is the skillset and resources employed to solve it. When managing this kind of pursuit, techniques like Design Thinking can be highly beneficial to uncover customer needs and boost creativity
• Breakthrough Innovation: a radical innovation that happens when we know fairly well the problem we must solve, but the skills domain is not so defined. This can happen when facing a very hard technological challenge, which requires bringing together diverse teams, with professionals from different areas of expertise. In those situations, the value is frequently created at the intersection of two or more disciplines - so it's essential to employ techniques that promote healthy interaction and the generation of useful ideas, e.g. well-crafted brainstorming sessions that promote divergent thinking followed by convergent thinking, while avoiding pitfalls such as production blocking and group thinking bias
• Disruptive Innovation: one of the favorite buzzwords in innovation and tech (and, as such, often misused)! A more specific kind of radical innovation, defined by Clayton Christensen in his seminal work The Innovator's Dilemma. It happens when market leaders concentrate efforts on serving their most valuable customers, doing incremental improvements, and focusing on the bottom line, but then changes in the technological or social landscape transform the basis for competition. New competitors can disrupt the market leaders by initially offering products that underperform in traditional metrics, but satisfying a market niche ignored by the leaders by delivering a novel value proposition. From that point, the disruptor improves the product and grows in market share, commonly using an innovative business model against which the former market leaders have a hard time competing. There are good templates to help creating or modifying business models and value propositions, which can be handy both if you're trying to protect your company from disruption or cause it

Navigating the innovation possibilities

Understanding the innovation landscape in all its diversity can be very useful: from exploring more alternatives in the ideation phase to selecting the right tools to manage the execution, and then making sure your innovation portfolio is properly balanced.