Understanding Three Key Innovation Types

Innovation is an essential part of business, now more than ever. The average lifespan of a company is now just 18 years, compared to over 60 years in 1958. Today, businesses are dying faster because technology, customer needs, and business models are evolving more quickly than some organizations can keep up with. If companies want to continue to prosper, they have to innovate. It was a hard lesson that many businesses had to learn during the pandemic. Those that couldn't keep up with the sudden economic changes had to close their doors, often permanently. Companies that we're able to innovate not only survived the pandemic but, according to the OECD, are now thriving.

Innovation requires companies to have stamina, drive, and determination. They have to develop something new that can change their industry or create a new one while boosting their bottom line. Innovation is a catch-all term for many different types of innovation. This includes disruptive innovation, breakthrough innovation, and traditional research. Understanding these different kinds of innovation can help you think about how your organization can use innovation to pivot in the future. 

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Disruptive Innovation

Disruptive innovation is a business theory introduced by Harvard Business Review in 1995. The journal specifically defined disruption innovation as one where a smaller business with fewer resources can challenge an established market leader and eventually overtake it. The newcomer might introduce a better product, offer a more convenient business model, or deliver better functionality at a lower cost. The challenger starts at the bottom of the market but quickly rises to the top, becoming more mainstream as their customer base grows. Eventually, they may cause the downfall of established industry leaders.

Since its original publication, disruptive innovation has been an ever-expanding definition. Today, it is often used to describe any innovation that creates new markets or fundamentally alters existing ones. However, that definition would more accurately describe breakthrough innovation. A lot of the latest technology entering the business world, like self-driving cars and delivery drones, might be innovative but aren't disruptive. They are unlikely to change current businesses fundamentally, but they are still something existing business models will want to consider if they stay competitive. 

There are numerous examples of disruptive innovation; a good case study on disruptive innovation would be Netflix. Video streaming fundamentally changed the way we consume media, and it ended up revolutionizing the entire industry. It became the standard way to watch movies and television, gaining an audience as people enjoyed the convenience of having video-on-demand in their own homes. Eventually, the technology drove home movie rental stores out of business. Netflix may have been the forerunner of video streaming, but now companies like HBO, Apple, and Disney all want in on the action. 

Video streaming certainly wasn't the first disruptive innovation, though. Inventions like radios, photography, and even smartphones have created new markets and disrupted old ones. 

Disruptive innovation is surprisingly rare. However, it's something that companies strive to achieve because of the high revenue potential. Startup companies are the primary grounds for disruptive innovation, but large corporations are increasingly eager to develop their disruptive innovations. 

Breakthrough Innovation

Breakthrough innovation is often a more accurate term for frequently mislabeled disruptive innovation. Breakthrough innovation is something that changes the existing dynamics of a market. That innovation could be incremental or radical, but the changes force existing businesses to pivot or suffer. 

Breakthrough Innovation is more common now, thanks to increasing access to inexpensive technology. This allows more established organizations and startups in a wide range of industries to access the means to make breakthrough innovation possible. Recent breakthrough innovations include things like blockchain technology and artificial intelligence. These technologies can potentially change the way many industries operate, but they probably won't end up putting any of those industries out of business. That's what makes them a breakthrough innovation rather than a disruptive one. 

One of the clearest examples of breakthrough innovation is Uber. The ride-sharing app targeted the existing market of taxi riders instead of creating a new one. It offered a way to get a ride in a more convenient, and often less expensive, way than traditional taxi companies could offer. Existing cab companies have had to pivot their business models in response. They ended up creating apps to make it easier to hail a driver or leverage safety standards to maintain their hold on the market.

Breakthrough innovation is a high-risk, high-reward form of innovation. It often requires large amounts of investment, in both capital and workforce, to become successful. However, it can be incredibly profitable when it works. Uber reported nearly $1.5 billion in profits in a single quarter of 2021. 

Traditional Research

Traditional research innovation is more in-line with the work happening in R&D departments. Typically, this kind of innovation will involve research in two areas: 

• Innovation within the company's current core business: means exploiting what the company is already doing and finding ways to do it better, more quickly, or cheaper. For example, a car company may innovate their vehicle's braking system with the addition of cameras or an automatic braking system. 

• Innovation in a market adjacent to the core business: This might be research into an industry in which the company isn't directly involved but could quickly pivot. For example, a car manufacturer might research driverless technology to start a fleet of driverless taxis. 

In some cases, traditional research can lead to a breakthrough or disruptive innovations that create new markets. However, R&D will usually target improving a company's existing products and services. These methods can lead to massive profit generation for an organization, and R&D has been a mainstay for businesses for centuries.

Many companies rely heavily on their R&D departments to create new products, but perhaps the pharmacology industry more than any other. Pfizer spent $8.65 billion on R&D in 2019 alone. Their R&D department develops new, often innovative, medications with that investment. 

There is a famous example of a time R&D failed to innovate. An employee in Kodak's R&D department, Steven Sasson, accidentally invented the digital camera in 1975. When he showed it to his bosses, they "were convinced that no one would ever want to look at their pictures on a television set." The company ended up sitting on the technology but made billions on the patent until it expired in 2017. However, they failed to innovate with their innovation. Kodak ended up filing for bankruptcy in 2012.

There are no easy methods of achieving innovation. Companies are constantly trying to perfect the formula of the right idea, the proper funding, and the right moment to launch to achieve high ROI on innovation efforts. Larger corporations can struggle to innovate around existing internal processes and biases. But it's possible, and it's something that companies are focusing more of their resources on to create sustainable profitability. 

What kind of innovation is your company trying to achieve? Visit the Think Global Forum for in-depth discussions to help spark innovation in your organization.