What is innovation?

3 types of innovation: Incremental, expansive and disruptive

For a company looking at change, there are three levels of innovation you can implement:

1. Incremental innovation

These are small changes that increase the efficiency of your current business model.

“For instance, you could adjust your processes, increase your digital offerings, cut costs or upgrade your products and services,” Walkowiak says, adding that this type of innovation is typically ongoing and can be done in the short term.

Walkowiak suggests that small businesses should spend 60% of their efforts—whether in money or manpower—on incremental innovations.

2. Expansive innovation

This is change that results from exploring new ideas. Its purpose is to sustain and grow the company in the long term.

“Here, we are plumbing new depths, areas where competitors are not going,” Walkowiak says.

Expansive innovation is usually related to science and technology. Many of these innovations that we’re currently seeing will use artificial intelligence or become part of the Internet of things.

Expansive innovation also implies testing and prototyping, as well as evolving the business model. It can take 12 to 24 months to implement. A company should focus about 30% of its efforts on expansive innovation.

3. Disruptive innovation

Innovation at a disruptive level: This is what comes to mind when people think about innovation. It’s the new products and services that are being talked about.

A disruptive innovation is an innovation that creates a completely new business model, offering a novel value proposition.

“In practice, this means to invent or reinvent a product or service,” Walkowiak says. “While the rewards are potentially great, it comes with a lot of uncertainty. This type of innovation, when successful, takes three to five years to develop. Most companies should devote no more than 10% of their efforts to this kind of innovation.”

Real-world

innovators

What are some real-world examples of innovation?

WhatsApp – In 2009, WhatsApp launched a messaging service and platform. The company targeted anyone with a smartphone and an internet connection, regardless of device and location. It disrupted a very competitive messaging market dominated by both telecom and the free desktop messaging like Yahoo! Messenger and Skype. The company operated at a radically lower cost structure and benefited from the growth of smartphone use. In 2013, WhatsApp serviced 200 million users with only 50 staff members. In 2014, Facebook acquired WhatsApp for more than $19 billion.

Salesforce – In 1999, Salesforce disrupted the customer relationship management (CRM) arena by offering CRM-as-a-service over the Internet. Its goal was to make the enterprise software easy to use. Salesforce was visionary in predicting the potential of the cloud, which made it easy to scale to organizations of all sizes and with minimal cost. The company invested in hosting, monitoring, customer support and account management, and benefited from recurring revenues from a service subscription.

Source: The Invincible Company, Alex Osterwalder, Yves Pigneur, Fred Etiemble, Alan Smith

Business model innovation

Business model innovation takes place when the processes the business has been using or the way its product is brought to market have been transformed. It’s a challenging type of innovation and is often imposed on a company that has little choice but to radically change. This is not change at an incremental level but one that can threaten elements of the company’s brand.

Airbnb, Uber and Spotify are examples of companies that, respectively, disrupted the hotel, taxi and music industries. Many large operations had to completely rethink their business model because of these innovations.

How can CEOs lead innovation?

CEOs have a strategic role to play with innovation. They can be the true drivers of innovation, but they can also get in the way.

“To spur innovation, CEOs needs to be specific with their people about what they’re trying to achieve. Too often, we forget why we do things,” says Gutman.

CEOs should allocate a budget and allow a certain amount of freedom for their team to explore solutions. Innovating is like entrepreneurship and entails a degree of creative trial and error. The team, or the employee taking the lead, need to be given some autonomy to play out different ideas.

What are the three stages of innovation?

Innovation projects generally go through three stages: design, testing and scaling.

1. Design stage: This is the time for ideas, where you imagine a new business model or a solution that will address a product or service innovation. You then design a prototype that will become your minimum viable product, meaning it will have enough features to attract early adopters or investors.

2. Testing stage: This is where you quickly test the different versions of your innovation. “The faster you test your idea with potential users and customers, the faster you will learn about what works well or not,” says Walkowiak. “This will give you the opportunity to adjust your solution before you go too far and it becomes harder to make changes. It’s really a risk reduction strategy.”

3. Scaling stage: Once the design and testing have shown how your innovation can solve a real problem, you are ready to scale up. In practice, this means developing a detailed business plan based on evidence and making your product or service available to larger numbers of people and launching a dedicated marketing strategy.