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What are the 4 types of innovation?

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Whenever you see a successful business, someone once made a courageous decision.

Peter Drucker (author and theorist)

If a company’s success depends on its ability to innovate continuously, then bravery would be one of the primary qualities of a successful entrepreneur. At least, that’s what management guru Peter Drucker seemed to imply with this quote.

Innovation is a bit like Aladdin’s lamp or a magic wand that everyone wants to get their hands on. Without knowing how to use it. Like turning lead into gold is a well-kept secret for alchemists, converting ideas into innovative products or services is just as important to understand for companies that want to transform.

According to EY, 65% of innovation and human resources departments expect transformation to provide new opportunities for profitability.

In this article, we will unpack this much-desired concept. To do so, we will first define what innovation is in concrete terms. Then we will discuss the four most commonly accepted types of innovation.

What is innovation?

If there is a term that is difficult to define, it is “innovation”. However, there are common delimiters to the concept of innovation, such as novelty or that a new product or service creates value for its stakeholders and can meet the needs of its main market. 

For a 21st-century company, one mantra reigns: growth velocity. In a world of constant change, the organizations that thrive are those that innovate, that can make decisions in real time, and whose processes are continuously improving. It is a matter of keeping up with market demands and scaling fast.

While the debate about its meaning could take hours, the idea is to give the most accurate definition of innovation. According to the Organization for Economic Co-operation and Development (OECD), innovation is:

The implementation of a new or significantly improved product (good or service) or process, a new marketing method or a new organizational method in business practices, workplace organization or external relations.

As such, the new version of a product is always more attractive than the previous one, even if the innovation lies in the marketing message of that product. Take Apple for example, they present each new iPhone model as the innovation of the year when in reality it’s almost identical to its predecessor.

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How many types of innovation are there?

Defining the exact number of innovation types that are out there is hard but perhaps also unnecessary.

For example, economist Joseph Schumpeter proposed five types and introduced the famous concept of creative destruction, which means that new technologies destroy and replace old ones. Then, the OECD listed four, while the industrial designer Jay Doblin identified 10. This doesn’t even include the multitude of concepts such as Jugaad innovation, which was a big hit a few years back in the startup world.

So, in this innovation jungle, which concepts should you consider in your strategy? Which ones are most likely to optimize your growth?

Based on thousands of innovation programs we’ve launched with enterprise innovation leaders, we’ve identified four types of innovation that many like to leverage.

What are the 4 types of innovation?

These are the four types of innovation that stand out and seem to be the preferred ‘solution’ among organizations looking for groundbreaking ideas, concepts, products, or talent.

1. Incremental innovation

Incremental innovation, also known as continuous improvement, refers to improving a product or service that already exists. It is less ‘spectacular’ and disruptive than other types of innovation, but incremental innovation is effective when addressing transformation issues within the company.

Moreover, incremental innovation is especially powerful thanks to its collaborative and collective nature. Value-creating ideas often come from client-facing employees, those who talk with customers on a daily basis. In addition, successful human resource development leaders have made it an asset in building a collective culture of improvement. In this article, we dive deeper into the best ways to create such a culture

The iPhone is a good example of incremental innovation, going from the iPhone 13 to the 14 and beyond.

To unleash the value of incremental innovation, you must have an idea management solution in place. Our platform helps corporates engage talent, collect and assess ideas in a central hub and integrates with systems through API. Learn more about how idea management platforms work here.

2. Adjacent innovation

Adjacent innovation is a typical example of a successful expansion. It refers to using existing capabilities (like technology or knowledge) to appeal to a new audience or enter a new market. This provides a competitive advantage to the original product or service that allows it to be differentiated in the market.

Let’s illustrate the concept of adjacent innovation. Big companies want to integrate groundbreaking products and services into their portfolio. Rather than developing solutions themselves, they’ll look at their startups ecosystems. They will use startup scouting programs to identify existing technologies, buy them and integrate it in their own portfolio.

3. Disruptive innovation

Disruptive innovation refers to the actions taken by a smaller company to shake up an industry by targeting its large, existing competitors’ overlooked segments. 

Over time, the disruptive innovation party will accelerate and start taking over the main segments of the industry. When the adoption of the new innovation by the main segment happens, we speak of disruptive innovation. 

Netflix is a very good example of disruptive innovation. The company started out by targeting a less essential segment of Blockbuster’s audience with its relatively unpopular offer of mailing rental DVDs. They then moved on to improve its services while keeping a low price, which appealed to and conquered Blockbuster’s main audience completely.

4. Radical innovation

Radical innovation is the “one more thing” of our article. And for good reason, it is the creation of a brand new product or service that nobody expected and that tends to impose itself on the life of users. Television and the smartphone are two typical examples of radical innovations that have changed our daily lives. 

Not all the results of an innovation are easily measurable. The method proposed in the Oslo manual from OECD consists of distinguishing the result of innovative activities from the resources invested to carry them out.

It is no longer surprising that, in large companies, the results of an innovation are assessed in terms of accounting and financial indicators. It’s measured in profit, revenue growth, changes in share value, market capitalization, or productivity. 

Interested in trying out radical innovation? Consider the importance of two things. You need to thoroughly understand, or even anticipate, the market. Secondly, you must be able to develop advanced solutions rapidly. The answers to both can be found in external communities. Agorize has seen many global clients co-create solutions based on customer insights with innovation programs. Whether you’re in IT, HR, Marketing or CSR, you can build the innovation program that fits your needs.

Learn more about innovation management.

My two cents

Innovation is a subject as complex as it is exciting. Innovation also a strong expectation within today’s companies. They can no longer sleep on their assets without fearing for their survival.

“The species that survive are not the strongest, nor the most intelligent, but those that adapt best to change.” This quote from Darwin about the evolution of species seemed to foreshadow the context in which businesses operate today.

Whatever type of innovation you focus on, make sure you’re well-equipped. It’s necessary and worth the effort.

What is Agorize?

Agorize is the most comprehensive innovation management platform, supported by a team of experts and community of innovators. For over a decade, we’ve been providing technology powered by a community of 5 million innovators to foster change and accelerate innovation. Our clients and partners worldwide crowdsource, evaluate and develop solutions from startups, employees, developers and students using Agorize.

We’ve helped over 300 global enterprise companies in Europe, North America, and Asia Pacific, including Enterprise Singapore, Huawei, Microsoft, LVMH, PepsiCo, Bayer, Schneider Electric, Hitachi, L’Oréal and many more by running their innovation programs.

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