The 4 Types of Innovation From a Strategic Point of View17 min read
A lack of focus is always associated with a lack of progress. That’s because the energy and other resources that should be spent are either lacking or else, misdirected.
That’s why it’s beneficial to know the different types of innovation. When the idea touches all the points, it’s hard to focus on a single area only. You will be tempted to do them all.
Naturally, you should be able to link your idea to a single type of innovation. Understanding each of the types will enable you to find better sponsors and teams and allocate your resources accordingly.
What are the types of innovation?
Usually, when people talk about innovation, it’s always about the new “cool” thing. Most people think that innovation is always about the “new product” or “new technology” that will turn the market upside-down.
But the truth is, innovation can be applied in a lot of fields, interests, and disciplines. It’s even more than groundbreaking ideas.
“Innovation is the process of realizing new products, processes, propositions, or business models to create added value for customers and/or employees.”
From that definition alone, you can see how innovation can be about everything that can add value for your customers and employees, not only about the next new thing.
In 2013, a book by Larry Keeley and company created a somewhat controversial topic when it implied that the best way to fail at innovation is to do product innovation (alone). As you may know already, products rarely add value — and most of these innovations fail.
That book was titled “The Ten Types of Innovation”. Larry established an easy way to classify innovation into ten types and educate everyone concerned that there’s more to innovation than product innovation.
But to make it easier, let’s narrow his classification from ten to four types:
Finance (business model and network)
Process (structure and process)
Product (product, product system, and service)
Delivery (channel, brand, and customer experience)
Let’s start with the first type — finance innovation…
This type of innovation primarily involves how to make money and who you innovate with. It includes new business models, ways to pay for products or services, and how the network is working between suppliers.
You can spot this type of innovation from companies that have started using different monetization models like flexible pricing, subscription, membership, and others.
A good example of this is the American ebook and audiobook subscription service, Scribd. If you’re not familiar with it, it’s basically one of the fiercest competitors of Amazon’s Audible.
Scribd’s product is basically the same as most ebook and audiobook companies out there. Even the experience of reading or listening to those materials hasn’t changed.
The difference between Scribd and those other companies is how you don’t pay per book. Instead, you pay the subscription price and you will get unlimited access to all the available content.
You might say…
Well, it’s quite easy to do with digital goods. You can simply exchange the pay-per-item model into a subscription model and you’re good. However, this innovation isn’t solely for companies that sell digital products or services.
One of the turning points in Gillette’s history compared to other companies that sell similar products is when they started selling cheap handles but charge more for the razor blades. They essentially flipped out from charging more for razors and cheap refills.
Since then, Gillette has also started a subscription-based model for its products — a rare feat for companies that sell physical goods.
This next innovation type deals with how the products are made available. No changes are made to the products. It’s more about the processes involved in the production (or sales) of the product.
A classic example of process innovation is the popular retailer brand, Zara. In 2012, the company made headlines in The New York Times because of its growth into one of the world’s largest fashion retailers.
Zara turned the fashion supply chain upside down by being able to shorten the production time from sketch to the final product.
This process innovation that Zara started has led to a dramatic increase in sales in the whole fashion industry as other similar companies like H&M followed suit and introduced new lines more frequently — guided of course by new trends.
Furthermore, process innovation also pertains to innovation with the tangible and intangible assets in the company that can generate profits. This includes the talents and leadership within the company itself.
Such innovation gave birth to Holacracy — a method of decentralized management and organization governance.
The company Zappos is a practitioner of such a method. Zappo’s former CEO, Tony Hsieh, admits that Holacracy made their employees “more responsible for their own thoughts and actions”.
This type of innovation essentially deals with anything that has to do with the product, the product line, and the service. The goal of product innovation can be to enlarge or protect (and grow) the current market share of the company and make it future-proof.
It’s product innovation that most people know about and usually focuses on too much. But note that this innovation type doesn’t always concern the product as much as the whole ecosystem of the product.
For example, the popular company, Apple, isn’t simply releasing new iPhones and iPads every year. They are also growing the ecosystem of their products in general and allow connectivity from one device to the next.
Below is a good representation of Apple’s business model from the Gary Fox website. Notice how Apple is investing in products and services to broaden its ecosystem and increase customer lifetime value.
Aside from the ecosystem, product innovation also has something to do with service and how the company seeks to understand and support the customers…
Good customer service is one of the most effective ways to advertise a company.
The WordPress booking plugin Simply Schedule Appointments is a good example of a company that uses such innovation. They will not hesitate to jump into a Zoom call with you to help you out with any technical difficulties.
Users of the plugin definitely love it as can be seen with their perfect 5.0 rating in the WordPress plugin repository.
This type of innovation deals with three things — channel, brand, and customer engagement. The focus of this innovation is on delivering the product to a certain market or to a new channel and optimizing customer satisfaction.
“Can there really be an innovation in terms of delivering the product line to customers?”
Indeed. As of now, there are various ways to deliver the product line to the market. It could be via B2B, B2C, ecommerce stores, outlet stores, and many others.
To see delivery innovation in action, let’s take a look at Nike’s NikeTown flagship store…
Even if you’re not that interested in sports and fitness, you must surely be familiar with Nike. Nike made the news in 2016 via Business Insider when it opened a 55,000 square foot “store of the future” in New York City.
This flagship store offers unique experiences to shoppers. Many people even go as far as calling Nike’s new flagship store a “powerhouse of experience-driven retail”.
Imagine having an entire basketball half-court with adjustable hoops, a soccer trial area, a treadmill, and other high-tech tools within the retail store.
The advanced equipment in the store allows assistants to analyze the results of shoppers testing out their products in real scenarios and recommend the best products.
Nike’s delivery innovation has strengthened its direct-to-consumer business by changing the retail experience of shoppers through immersion.
Better focus leads to better results
Having a laser focus enables you to attain better results as you’re able to allocate your resources to the right things. On the other hand, that doesn’t mean that you can’t work with multiple types of innovations.
As your company grows, you will have to deal with different types of innovation to grow. You simply can’t focus on one area alone — there should be a balance. It’s important that you know which innovation type you’re currently working on, so you can begin with the end in mind.
Remember these four types of innovation:
Finance: Deals with how your company makes money (new business models, ways to pay, or products or services) and who you innovate with (how the network is working between suppliers).
Process: Deals with how the products are made available (production and sales of the product). Also pertains to the innovation of tangible and intangible assets like talents and leadership.
Product: Deals with anything that has to do with the product, the product line, and the service.
Delivery: Deals with the innovation of the channel, brand, and customer engagement.