Three Core Types of Innovation
by Jim Stikeleather, Chief Innovation Officer at Dell Services
Thursday, December 22, 2011
Jim Stikeleather, Chief Innovation Officer at Dell Services, discusses the three core types of innovation and how they impact on organisations.
Much has been written on the topic of innovation and people have categorised the types of innovation in various ways over the years. In Dell’s view, there are simply three core types of innovation: sustaining innovation, breakthrough innovation and disruptive innovation.
Sustaining innovation refers to the continual improvements in existing goods, services, and processes. This type of innovation focuses on incremental performance and productivity enhancements of existing products and services that come from improved or “innovative” materials, technologies, sources of capital, streamlined process flows, better employee training, improved supply chains, and many other ways. This type of innovation is generally, consumer driven. Six sigma methods, theory of constraints analysis, process re-engineering are all approaches that result in sustaining innovation which can generally be predicted in terms of costs to create, time to manifest and resulting value generated. As a consequence, the market generally expects and anticipates this form of innovation and factors it into its decision criteria and purchasing patterns.
Breakthrough innovation is the introduction of new usage patterns and applications of existing technology, products and services in novel combinations of existing off-the-shelf components, applied cleverly to create a new value proposition within an existing business process or model. They can also be totally new business models or processes based upon existing technology, products and services. Breakthrough innovation could be considered a discontinuous form of a sustaining innovation because they create a new usage pattern that is unexpected, but are more predictable than a disruptive innovation as they can be somewhat anticipated.
It is important to note, that regardless of the type of innovation under consideration, the degree with which the innovation changes the way things are done, impacts on manageability, value and business continuity. At some point innovations move from being simply pragmatic (better, faster, cheaper ways of doing what we always have done) to being transformative, as a result of changing the entire way things are done.
Disruptive innovation is the introduction of new, radically different inventions, products, processes, or services into the market, which deeply impact on people’s lifestyles and purchasing patterns, to the extent of creating an entirely new segment of consumers.
This type of innovation can cause significant leaps in value delivered to customers, although historically, disruptive innovation has required longer adoption periods because it generally required societies to change their current behaviour into something very new and very different. Disruptive innovation is usually design‐driven and may result in the cannibalisation of existing sales, as current products and services become substitutes for the new innovative product or service.
Often a disruptive innovation is the result of combining multiple breakthrough innovations. For example, the iPod was a breakthrough innovation on MP3 players due to factors such as its form and ease of use. Alongside this, the service iTunes was a breakthrough business model for the delivery of content. The two combined to create a content consumption disruptive innovation with technology, process and business model implications.
Disruptive innovation does not mean the elimination of previous technology, processes or business models, but does force them to change. Disruptive innovation can also bring with it unintended consequences. For example, the rapid movement to internet telephony has caused the loss of sustained operation with power failures.
S‐Curves and Innovation
Once innovation occurs, innovations may be spread from the innovator to other individuals and groups. This process, the life cycle of innovations, can be described using the “s‐curve” or diffusion curve.
The s‐curve maps growth of revenue or productivity, against time. In the early stages of a particular innovation, growth is relatively slow because the new product needs to establish itself. At some point, customers begin to demand the new product and consequently, product growth increases more rapidly. Sustaining innovations, new incremental innovations or changes to the product, allow and encourage growth to continue. However, towards the end of its life cycle, the rate of growth begins to slow down and may even begin to decline. In the later stages, no amount of new investment in that product will yield a normal rate of return.
The s‐curve derives from an assumption that new products are likely to have “product Life,” i.e., a start‐up phase, a rapid increase in revenue and eventual decline. In fact, the great majority of innovations never get off the bottom of the curve, and never produce healthy returns.
Innovative companies will typically be working on new innovations that will eventually replace older ones. Successive s‐curves will come along to replace older ones and continue to drive growth upwards and potentially yield even greater growth than the previous innovations. In particular, successful disruptive innovations that have the power to create new divisions of consumers, will completely wipe out previous s-curves.
A typical disruptive innovation will induce at first, a slow growing s-curve that will (once consumers have adapted to the innovation) become sharp and steep, whereas a sustaining innovation will generate a more stable, gradual and longer s-curve. On the other hand, an s-curve reflective of a breakthrough innovation tends to sit somewhere in between the disruptive and sustaining s-curves: it is stable yet unpredictable.
Choosing your Innovation
When a company is preparing for innovation, it must measure what exactly its business needs now. If a company is looking for a major re-vamp of personality within its offerings then as long as finances can afford the possible slump of interest in existing products and services, alongside adjustment time, disruptive innovation is their best bet. Alternatively, if budget can’t fully accommodate such a change or full blown disruptive innovation is too big a step, then working on a break through innovation is a more suitable option.
This option not only offers excitement but incorporates reassurance into the package too. However, sustaining innovation, although driving smaller effects, should not be dismissed. Implementing sustaining innovation is crucial if an organisation wants to keep ahead of the game and meet the expectations of the demanding consumers, grown out of our fast paced, highly technological era. As Steve Jobs correctly pointed out, “you can’t just ask customers what they want…by the time you get it built, they’ll want something new.”