Innovate and Grow: Part II

De-risking Radical Innovations

Mid-Year Check on Your Innovation Strategy

A few months ago, I wrote about managing the uncertain future and the need to innovate toward growth. I hope it inspired you to develop a strong innovation strategy. So, where are you with your innovation pipeline, and is everything going according to plan? I hope that you deployed a systematic process across all three horizons of innovation.

As a reminder, the Innovation 360 framework provides a systematic approach to innovation management, focusing equally on company aspirations and abilities. In fact, misalignment between aspirations and abilities is the main reason companies don’t meet their strategic goals, so please focus on improving your capabilities in the remaining months of 2024!

Types of Innovation

However, not all innovations serve the same purpose. We generally divide innovations into two categories – incremental innovations and radical innovations.

Incremental innovation is a minor, gradual improvement to a company's product, service, or process. Its goal is to optimize the current business and serve the existing or adjacent market. An example may be a Six Sigma process improvement or the next version of the software.

?On the other hand, radical innovation is transformative and breakthrough, and it may disrupt the current market or create new demand outside of it. Contrary to popular opinion, radical innovation is safer in the long term because it is the only way to close the growth gap between your current portfolio and future enterprise strategy goals.

There are three ways to create radical innovations. We can disrupt an existing market and shift most of the demand to a new solution. Uber is a classic example of this approach. We can also innovate across the industry barriers, creating a demand that is generated from a few industries and a new demand. A good example of this approach is Spotify, which not only created a new way of listening to music through a subscription but also got customers from podcast platforms and video streamlining services. Finally, a radical innovation can be non-disruptive if it is based on an entirely new demand without destroying any industry. An example could be a new drug or medical device for a disease that was not treatable before. Many recently approved rare disease drugs fall under this category.

Radical Innovation

I frequently meet with the opinion that a radical innovation is too risky. But in reality, it is the opposite. The lack of radical innovation is very risky because it prevents a company from growing sustainably. Incremental innovations can only improve current business but will not prevent the flattening and decline once the market changes based on new trends or the entry of new generation competitors. Radical innovations are also more profitable. However, it is true that radical innovations require a systematic approach to de-risk them, as we operate in markets that may be less known to us and bet on future market forces and technologies that might still be uncertain.

The famous authors of the bestselling book Blue Ocean Strategy analyzed the business launches of 108 companies. They concluded that only 14% of these launches were radical. However, they contributed 38% of total revenue and 61% of all profits.

Also, the analysis of the biggest business innovation database, which includes 5,000+ companies from 105 countries, showed that radical innovators surpass incremental innovators in all aspects of innovation capabilities, leadership, and culture. In other words, incremental innovators lack innovation capabilities entirely.

It means that only radical innovators are real innovators. They can create both incremental and radical innovations, and they mastered all phases of the innovation process – ideation, selection, development, and commercialization. If you are not a radical innovator, the future of your company is uncertain, and you may succumb to market forces that you decided not to address.

Conclusions

My takeaways are the following:

1.????? Radical innovation is necessary to meet long-term business objectives.

2.????? Radical innovation can be disruptive or nondisruptive.

3.????? A systematic innovation process is necessary to de-risk radical innovation.

What are yours?

Kasia Hein-Peters, MD, is the founder of Abante Scientific in Las Vegas, NV. Every business has different challenges, and the approach to the company growth strategy and innovation management may be different. Dr. Hein-Peters has a Green Belt in Innovation Management and can work with you to improve your company’s performance and meet strategic goals. You can schedule a meeting here.

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Sources:

1.????? Innovation 360 Group (https://innovation360.com/)

2.????? W. Chan Kim and Renee Mauborgne “Blue Ocean Strategy” (2005)