Types of Innovation in Business | The Innovation Matrix (2023)

Part of the problem is that innovation is such a catch-all term that it makes it very difficult to pin down precisely what it means. The reality is that the term can be applied to everything from business models to new processes.

This guide will help to demystify just what innovation can be, enabling you to innovate more effectively. It will also look at the various types of innovation that exist, and how to utilise them to the benefit of your organisation.

It is estimated that the largest 1000 companies in the world spend$782 billionon research and development. Whilst measuring innovation purely by R&D spending is an extremely blunt instrument, this should give you an indication of its importance in the global marketplace.

Research fromStanford Universityhighlights the growing cost pressure involved in this kind of R&D, with productivity declining by a factor of 41 since the 1930s, working out at around 5% per year. In other words, organisations need to spend considerably more to achieve the same outputs.

Despite this, jumping off the carousel has even worse consequences. Studies from theLondon School of Economicsshow that firms who achieve at least one new product launch per year boost their revenue productivity an estimated 17%, with each new product launch adding an extra 22% to this. What’s more, the University of Houstonfound that investing in one’s innovation capacity had a significant impact on both the profitability of firms and their share price.

Indeed, at a macroeconomic level, policy-makers and economists have long bemoaned the poor state of productivity growth in much of the Western world.Cambridge University researchers attribute this mostly to the uneven distribution of innovation across the economy.

The Innovation Matrix classifies innovations according to both the technology it uses and the market it operates in. Therefore, it allows us to conceive of four distinct forms of innovation:

Architectural innovation

What is architectural innovation?

Architectural innovation (also referred to as ‘recombinative’ innovation) involves taking an approach, technology or methodology from one field to another. This type of innovation is incredibly common,research suggests that around 40% of the patents registered over the past 150 years fall into this camp, with the ratio growing each year.

Examples of architectural innovation

Consider the app Uber. Ride-sharing, geolocation and freelance workers were nothing new. Combined, however, they became a game-changing innovation that served as a standout example of the sharing economy – so much so that the term ‘uberisation’ has become a term in and of itself.

A slightly less glamorous example but a pertinent one nonetheless: desktop vacuum cleaners. A common household staple, but repurposed for the world of work, desktop vacuum cleaners typify the concept of adapting a classic product for modern needs. We hope this shows that you don’t need to reinvent the wheel to be innovative.

Radical innovation

What is radical innovation?

Examples of radical innovation

Incremental innovation

What is incremental innovation?

Examples of incremental innovation

Some of the world’s most recognised companies have maintained their position at the top due to incremental innovation. You may not notice the changes, but many ‘legacy’ brands have become industry mainstays because they do not allow themselves to become complacent. Take Gilette, for instance. From inventing the world’s first ‘safety’ razor they have slowly but surely refined their product to better suit customer needs.

Disruptive innovation

What is disruptive innovation?

Popularised by the late Clayton Christensen, the term ‘disruptive innovation’ refers to when an innovation creates a fundamentally new value network. This can be achieved by either creating a new market or by entering an existing market and changing how consumers interact with it.

Christensen’s theory sees innovations typically entering the market at a lower performance point, at least when measured by the traditional metrics of that market. They nonetheless offer value in an alternative way to a subset of the market for whom that feature is highly important. This bridgehead is then used to rapidly scale and disrupt the whole market.

From Netflix to Aldi, it is highly likely that you benefit from disruptive innovation on a regular basis. Ultimately, in a competitive market it’s the risk-takers that rise to the top, and these two companies are prime examples of disruptive innovation done right. Take a look at our article on examples of disruptive innovationto explore this in more detail.

Doblin’sInnovation Framework defines innovation within 10 distinct categories, providing a more practical perspective than the more strategic viewpoint offered by the Innovation Matrix.

The 10 categories are broadly divided across business model innovations, product innovations and marketing innovations:

The classifications highlighted above are not intended to be an exhaustive list, nor indeed a prescription that requires you to innovate in each of the ways that are possible. Rather, they are intended to showcase the breadth of innovations that your organisation might seek based upon your specific circumstances.

The most innovative companies seldom operate across all of the categories, but rather find the right mix for them. Just as the most successful investors don’t put all of their eggs into one basket, neither do the most successful innovators. The key is to ensure that the approaches you do employ work together effectively, propelling your organisation towards a common goal.

The above frameworks provide a degree of structure and inspiration for your efforts to do that, but there are limitless possibilities when it comes to employing innovation tactics.

John Kotter famously advocates the dual operating system approach to innovation, Vijay Govindarajan proposes a three box method. Henry Chesborough is a strong advocate for open innovation, with Kaihan Krippendorff making the case for intrapreneurship. The lean startup methodology has been strongly promoted by Eric Ries, with the likes of Amy Edmondson and Carol Dweck looking at the cultural and individual aspects of ‘bucking the norm’ respectively.

There are many approaches one can take, but perhaps the first step is to recognise that innovation has to be a priority. A recent survey from Harvard Business School revealed that just 30% of executives believe this to be so, which perhaps underlines why executives placed innovation as the 18th strongest capability in their organisation, some way behind areas such as compliance and financial planning.

This perhaps underlines why just 14% of companies surveyed by Accenture thought they were getting a return on the £2.5tn they had spent on innovation over the past 5 years. Accenture sagely remind us that the amount you spend is less important than how you spend it, and they argue that the best innovation tends to:

• Tackle the most pressing concerns of customers
• Harnesses the power of the crowd, including internal employees and external stakeholders
• Tap into the best talent you can, regardless of whether that’s inside or outside the business (find out more about open innovation here)
• Ensure that data drives everything you do (find out more about data driven innovation in this blog post)
• Tap into the latest technologies (such as idea management software) to drive your innovation
• Involve a wide range of stakeholders to not only tackle the needs of customers, but society as a whole.
• Embrace agile innovation methods as it leads to increased productivity and greater innovation output

Innovation is anything but straightforward, and there are many ways you can approach things, but hopefully the above will provide a degree of guidance to help you on your way.

Now you know the many different ways of defining innovation, you can begin to unleash its possibilities for your organisation.

Innovation can be a single idea on how to do things more efficiently, or it could be the start of large-scale transformation. Whatever form it may take, the Idea Drop platform helps to make innovation possible.

Businesses can use our idea management software to source new ideas from across their organisation, and then refine and implement those with the potential for real impact. Not only is our platform entirely cloud-based and easily incorporated into daily operations, but our innovation experts are also on-hand to guide you through the implementation process.

Are you ready to take ownership of innovation in your organisation? Contact the Idea Drop team today!