A radical innovation differs from an incremental innovation in that it refers to an innovation that:
Which of the following statements refers to incremental innovation? Show
It is a pricing strategy that a company uses to get paid for the value it delivers through its business model. It can be described as building on a competing firm's established knowledge base to steadily improve a firm's own product or service. It can be described as innovation that draws on a different knowledge base, technologies, or methods to deliver value in a truly unique way. It can be described as building on a firm's established knowledge base to create minor improvements to the product or service a firm offers. Innovation can be a confusing topic because there are so many different kinds of innovations out there and everyone seems to use the term differently. Although you often hear about innovation in terms of technology and although it’s true that technological innovation has been, and will likely continue to be, the most obvious form of innovation, it comes in variety of other forms too. Most innovations are smaller, gradual improvements on existing products, processes and services while some innovations can be those ground-breaking technological inventions or business models that transform industries. Because the environment and the needs of your customers are constantly changing, you need to be able to improve different areas of your business to solve emerging problems and to keep creating new value for your customers. Thus, knowing what types of innovations there are for an organization to pursue can help you discover the ones that are most suitable for your business. Understanding and focusing on the most potential ones not only helps you respond to these changing needs but also allows you to improve your ability to grow the business. In this post, we’ve decided to approach the topic by first presenting the most common ways to classify innovation, and then providing you with a few simple tips on how to get started in managing them within your organization. Innovation TaxonomyInnovation can be categorized in many ways, and some of those categorizations are more or less overlapping. The purpose of this post is to help you understand different approaches to innovation and how different types of innovations link to the big picture. Innovation MatrixOne way to categorize innovation is to classify it based on two dimensions: the technology it uses and the market it operates in. We can use the innovation matrix to visualize the most common types of innovation: Incremental innovation Most innovations are incremental, gradual and continuous improvements in the existing concepts, products or services in the existing market. Incremental innovations are just a little better than the previous version of the product or service and has only slight variations on an existing product formulation or service delivery method. Products can be made smaller, easier to use or more attractive without changing the core functionality of it and services can be made more efficient through constant improvement. Although incremental innovation does not create new markets and often does not leverage radically new technology, it can attract higher paying customers because it fulfils the customer needs identified from their behaviour or feedback. The product or service may also appeal to a larger, mainstream market if you’re capable of providing the same functionalities and value at a lower cost. TV is a classic example of both of these scenarios as it’s constantly improved and there are new models available while the core idea and the components remain mostly the same. The mainstream customer can, for example, have a 50” LED television with just a couple of hundred dollars while the more demanding customers can easily spend thousands on a 75” OLED TV. What’s convenient about incremental innovation is that it’s often easy to sell because you don’t need to explain the key principles of your product or service – people are already familiar with the way it works. A possible downside is that incremental innovations do not necessarily make a huge impact because they’re often just slightly better than what’s already out there. There’s also a risk of over-complicating products and adding too many features no one wants to pay for. Thus, you shouldn’t ignore the customers who just want a simple, low-cost alternative of your product unless you specifically choose to target the more demanding customer segment and to provide them with premium products. Another risk related to incremental innovation is that the market may (and will) change at some point because of disruption. If that is the case, relying on just incremental innovation isn’t going to be enough to keep up with the changes. Thus, it’s important to focus on simultaneously improving the core business while also looking for new ways to create value by searching for new business models and working on disruptive innovations. Disruptive innovationDisruptive innovation is a concept introduced by professor, academic and business consultant Clayton Christensen first in an HBR article and later in his book called Innovator’s Dilemma. Disruptive innovation is a theory that refers to a concept, product, or a service that creates a new value network either by entering an existing market or by creating a completely new market.In the beginning, disruptive innovations have lower performance when measured by traditional value metrics but has different aspects that are valued by a small segment of the market. These types of innovations are often capable of turning non-customers into customers but do not necessarily appeal to the needs and preferences of the mainstream customers, at least not just yet. What makes disruptive innovation difficult, is that established organizations are completely rational when making decisions related to their existing business. They fail to adjust to the new competition because they’re too focused on optimizing the existing offering or business model that has proven to be successful in the market so far. Thus, the market is generally disrupted by a new entrant rather than an incumbent. This phenomenon called Innovator’s Dilemma is actually quite logical because the existing market is often bigger, and the margins are better.
At this point, new entrants are already delivering an alternative solution that require new capabilities the traditional companies don’t necessarily have, eventually adding things that the mainstream customers want. Tesla, for example has different capabilities compared to the more traditional car manufacturers. Its software, battery technology and the ability to iterate quickly are capabilities that traditional car manufacturers aren’t very good at, and which will take time and resources for them to acquire. However, Netflix did not reach the mainstream until after disrupting itself from its DVD mail service to web streaming. Now there are tons of online movie subscription services available for customers to choose from and this model has slowly become a norm, gradually transforming the industry. Despite the connotation, disruption doesn’t usually happen abruptly. The SaaS business model, for example, wasn’t very successful when it was first introduced in the beginning of 2000 but has gradually become the standard in the past 20 years. To avoid being disrupted, you want to keep an eye on the new entrants in your market and how they do things. Typically, disruption always strives to strike at superfluous margins. For example, digitalization strikes hard at all the middlemen and these companies and professions will mostly disappear in the coming years. So, instead of just relying on your past success in serving the most profitable customer segment, you should also work on business model innovation to discover new profit centres that may not necessarily seem as appealing just yet but may have a significant growth potential in the near future. Sustaining innovationSustaining innovation is the opposite of disruptive innovation as it exists in the current market and instead of creating new value networks, it improves and grows the existing ones by satisfying the needs of a customer. Just like incremental innovation, the product performance of sustaining innovation is made slightly better with every iteration, reducing defects. The new improved version of the product can be more expensive and have higher margins than the previous one if it targets more demanding, high-end customers with better performance than what was previously available. However, it might as well be cheaper if it leads to higher volumes and thus higher absolute profits.
Sustaining innovations, in turn, continue to grow the market slowly, but no longer in the same proportion. At this point, the focus shifts to increasing profits. An example of a once disruptive, currently fully sustaining and profitable innovation is iPhone, where the recent versions of the phone appeal to the same customer segments and do not create new value networks. As the criticism of lack of innovativeness of the new iPhone has increased, the firm’s profits have grown at the same pace. New models of the phone sustain the existing business model in the premium segment of the market to meet the needs of a more demanding customers who are willing to pay more for a newer, slightly better version of the phone.
Radical innovationRadical innovation is rare as it has similar characteristics to disruptive innovation but is different in a way that it simultaneously uses revolutionary technology and a new business model. Radical innovation solves global problems and addresses needs in completely new ways than what we’re used to and even provides solutions to needs and problems we didn’t know we had, completely transforming the market, or even the entire economy. Although radical innovations are rare, there have been more and more of them in the recent past. Technological innovations, such as personal computer and the internet are examples of radical innovations that have transformed the way the entire world functions and communicates. These disruptive innovations provide our society with a platform to build on top of, leading to highly accelerated economic growth. According to ARK Invest, an investment management company, there’s a new, even bigger wave of radical innovations that they consider to be on the verge of the becoming mainstream. These are robotics, artificial intelligence (AI), blockchain technology, energy storage and genome sequencing. Source: ARK Invest, used with permission. Because radical innovation is so different from what people are used to, it does usually face significant resistance at first. These types of innovation typically require a lot of time and technological development before they’re ready for the mainstream markets. However, when executed successfully, it often means the beginning of a new era that affects many sectors and geographies. Other Types of InnovationWhile the aforementioned four types of innovation in the innovation matrix are a common way of describing the technology an innovation uses and the impact it has on the market, it’s not the only way to categorize innovation. You wouldn’t necessarily start your next innovation initiative by just telling people to come up with new disruptive business ideas that are going to transform the entire industry, or simply to make more incremental innovation happen. To get more concrete and actionable results, innovation should be approached holistically. In this part of the post, we’ll introduce other types of innovation that can be used to improve and unlock new value in different parts of your business.
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