What makes innovation important? The introduction.

Why an innovation strategy is important for one’s company has become a repetitive question to answer, because innovation means different things for different companies. Not only in terms of where they are on their innovation maturity scale, but also the type of innovation that is important for the business they are driving, the challenges they are facing, the vision they want to strive for, and the disruptions that are forcing them to change. Every customer I engage with brings different complexities to the table and different values to unravel. But one part of the answer remains the same, if you want to stay competitive in this digital era, you really need to shift your business strategy into high gear and continuously create value people are willing to use and pay for. Having an innovation strategy to do so, is simply non-negotiable.

In the upcoming weeks, I hope I can give you a glance at what makes innovation important and how to move forward with it. Because the truth is that too many companies still fail to build and even maintain the capacity to innovate.

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The three categories of innovation

I would like to start by categorizing and explaining three different kinds of innovation strategies: 1. Efficiency Innovation, 2. Sustaining Innovation, and 3. Growth Innovation. You may hold more or fewer categories or use different labels, but for me, this work quite well to at least establish in what field we are playing. Side note, they are not exclusive to one another. Your company can be part of all categories, or just one, with the ambition or need to move to another. But in all cases, one is dominant, and one is always heading to extend or move to a new stage.

1. Efficiency Innovation

Let’s start with Efficiency Innovation. This innovation strategy is about reducing the costs of existing products and services by making operations, distribution, and processes more effective and efficient often by leveraging improvements in technology. Think of automation, the use of robotics in warehouses, or simply migrations to the cloud. It’s not about creating new market opportunities, but rather about releasing more capital. I put this category first, because when you already running a business – the next logical step is to find out where you can bring in efficiency. It will free up resources, and budget, or creates even more room to optimize your existing products or services and scale your business. That brings me to the second category of Sustaining Innovation.

2. Sustaining Innovation

Sustaining Innovation or also referred to as incremental innovation, is to enhance or transform existing products or services that already have demonstrated value in response to market demand to stay competitive. Or to be even more concise, this strategy is to sustain ‘business as usual’ to create better-performing products to sell for higher profits. Think of the smartphone market, where almost every year new updated, and improved models are released to integrate new technology and meet customer demand. To know where to apply a sustaining innovation strategy, you need to be on top of customers' feedback and the competitive landscape, to figure out where to provide value to the market. You can imagine when your operations run smoothly and effectively - as you laid out in your Efficiency Innovation strategy, you can enhance and build out your existing business more easily.

When your business is healthy and performing well with the products or services you offer to the market, Sustaining Innovation is a sound strategy to pursue. Yet, some of the most successful companies built on sustaining innovation fail. Disruptions are around the corner and only relying on sustaining strategies can be a risky business. We are of course familiar with the disrupters such as Netflix, Airbnb, and Uber for instance, who put the traditional way of watching, staying, and traveling upside down. But have you also thought of 3D printing which is already disrupting and challenging the manufacturing industry? Why? Because 3D printing is not about producing just a copy, but producing a widget or thing from scratch, based on digital design. It suddenly makes specialty items that are not formerly mass-produced – accessible and no longer have premium prices. As a traditional player, you suddenly struggle with the new product and may be forced to either adapt or lose market share as such. And that brings me to the final category of innovation strategies – Growth Innovation.

3. Growth innovation

Growth innovation is about the search for additional sources of revenue with ‘new value propositions’ for a customer segment. It does not necessarily mean a radical technological breakthrough, it can be don’t get me wrong, but it also means a business model that can be seen as ‘new’ or disruptive for a specific customer domain.

Let’s take SnappCar as an example. They definitely are disruptive but did not bring new revolutionized technological appliances to the market. There are disruptive for the short lease and rental cars industry and its customers, by approaching and combining the renting and sharing cars in a different way.

Another growth innovation example is Nike. They bring in the Nike Speed Shop. It allows customers to order shoes online and try them in-store. Customers unlock a specific shoe locker via their smartphone, try the shoes on, and can check out on mobile without having to interact with a person. They figured out a new business model that did not require any R&D but innovated in the domain of services and can be seen as growth innovation.

The Why of Innovation

I hope it is clear by now why having an innovation strategy is important and is non-negotiable and that innovation has a different meaning at different moments in time. Also, pursuing just one type of innovation strategy is not sustainable and the chance of being surprised by either a disruptive competitor or even something like a pandemic is very much there.

So no, you should not rely on one type of innovation but incorporate and develop innovation strategies that enable you to compete at either end of the market. It also doesn’t mean you have to jump into every innovation strategy pool at once.

Maybe you just need to start in the kiddy pool of innovation. Maybe you want to run your current operations more efficiently and reduce costs by implementing digital solutions. Or you decide to sustain and enhance your products and services first to stay relevant and competitive. All to release capital that you are then able to invest in growth innovation and explore new business models to stay ahead of the curve and lead the market.?

Either way, innovation is crucial in moving forward and staying relevant to your customers. So, let us take the next step in your strategy journey now we lay down the land of the three categories of innovation, and figure out the why to be able to accelerate the ‘problem to value' chain in the next post.

Stay tuned!