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Growth Through Innovation Series: Types and Sources of Innovation
This article is the second in a series about decoding the black boxes of innovation and incubation. Each article in the series is intended to be a self-contained unit, so please bookmark the first article in this series, so that you can find any piece you wish to see at any time.
The Language of Innovation
Next time you’re having a conversation with someone who likes to have meaningful discussions, ask that person what they think innovation means. Unless the two of you have had the same experiences in life, it is incredibly likely that you will have different ideas about what “counts” and how it is defined. The more people you ask, the more definitions and explanations you will encounter. There will obviously be common threads among them conceptually, but the deeper answers are unlikely to be very homogenous.
Back to our Roots
Looking at the word itself, there is even room for debate about the strict definition. From the latin root novus (new), we get the most common thread you will hear in answers to your question; “innovation involves something new.” As a rule, we know that we can convert any word into any part of speech in the english language, simply by adding certain suffixes, and -ation is among the most common for nounifying something that is not a noun. In this particular case, -ation nounifies the latin verb innovare (to make new). Even here, however, you’ll hear at least two different perspectives on the definition; does innovation refer to the (noun) process of innovating, or does it refer to the (noun) result of innovating? Why not both? Seriously consider this idea, because considering innovation as a process vs. considering innovation as a result will be a common theme throughout other articles in this series.
Let’s start where we all agree, just so we can move into the important questions that will define the rest of this theoretical exploration, and get to some things that you can apply to your organizational or personal worldview right now. We all agree that innovation, at the core, involves doing something new, so the important question for today becomes… “new to whom?” When you hear or think, “we need to innovate” in a business setting, ask yourself the Reference Questions: “for whom do we need to innovate?” and “what does new mean to those people?”
Beneficiaries of Innovation
A large part of sharpening an organization’s innovation tools is understanding the people who should be affected by changes, and what positive change means for those people in particular. When asking Reference Questions, the answer to the first question (“for whom do we need to innovate?”) will often dictate the type of innovation one should pursue. The answer to the second question (“what does new mean to those people?”) is the benchmark for what constitutes innovation, regardless of the type.
Innovation vs. Disruption
In many cases in the business world, “we need to innovate” mutates into “we need to be disruptive,” which became the splashier and more pervasive innovation-related buzzword about a decade ago. While many people hear “disruptive” as a new version of innovative, the fact is that the two are not simply variations on the same term, nor is either any better than the other. Not all innovation is disruptive, but all disruption requires innovation, and disruption also catalyzes innovation, so it is better to think of disruption as part of a greater, interdependent innovation spectrum. In effect, innovation and disruption are cyclically linked, and they foster one another by nature. To finally summarize, disruption is the culmination point of innovative changes, leading to new innovation that was not previously possible.
Outcomes of Innovation
- Change the way people do things
- Change which people can do things (augment access and capability)
- Stop people from doing things (automation of tasks and processes)
These outcomes rarely dictate or define the quality of innovation, but they certainly influence the perceived value of an innovation, which can have significant effects on budgeting and resource allocation for development, or on purchasing decisions in the market. As a rule, more investment goes toward innovation that achieves the latter two bullets above, as the upside is significantly greater. Innovations that change the way people do things, however, are often the easiest ones to sell or upsell to existing customers, and savvy managers will often leverage them for stable growth.
Innovations that focus on changing accessibility or capability typically lean on their altruistic value or on the increase in productivity or decrease in cost. These innovations are also the second-most subject to ethical considerations, as they very often change the labor paradigm, moving job functions previously allocated to skilled professionals away from higher-paying jobs and more toward entry-level workers.
The third outcome of innovation is to remove people from the equation entirely, which is a very appealing business proposition, but rarely does well among those concerned with ethics and the labor market. For this outcome, the beneficiary of the innovation often dictates popular reception.
Outcomes of Disruption
- Makes it possible for people to do things
- Makes it so that the thing no longer has to be done at all
The rarest outcomes of innovation are the ones that result in true disruption. If considered as outcomes of innovation, disruptive events are those that either create an entirely new market, environment, or condition within which innovation can start fresh (think major technological revolutions like the invention of batteries, the development of telecommunications, the birth of the internet, and the release of the first smartphone). By the nature of creating this greenfield opportunity, however, they also tend to completely eliminate “the old way” instead of simply changing it. Disruptive events rarely occur instantaneously, but regularly involve a single, defining moment or breakthrough cascading indefinitely.
Now that all of that is out of the way, and we’re all speaking the same language, let’s take a deeper look at the types and sources of innovation.
Types of Innovation
The three major categories of innovation in business are the targets of innovation goals: Product, Process, and Culture. Within these major categories are various forms of innovation, which are more defined by the outcomes listed above. For example, you can have a product innovation that changes the way people in your industry do business, or you could introduce an innovative design process that opens your development model up to tools that automate dangerous tasks, or an innovative work from home policy that opens the door to hiring talented candidates with mobility hardships. With so many iterations on the types of innovation and the stakeholders that innovative changes can affect, it’s clear that stagnation isn’t always about knowing how to innovate, but can often be about not knowing how to identify or define it.
Product Innovation is the most commonly implied type of innovation when referenced in normal conversations, and refers to the creation of new products and/or better versions of existing products. Product innovation has a number of different value drivers, and the majority of them involve sales and marketing, which is another reason it so commonly becomes the tunnel-vision default definition of innovation.
Companies that prioritize shareholder value tend to have executive and management teams that devote significant resources to making sure existing products remain competitive, but also to developing and releasing new products that create sales opportunities with new market segments or with existing customers.
The truth is, Product Innovation is the most prominent form of innovation because it is the type with the shortest line between investment and ROI. It is incredibly easy to justify and validate Product Innovation expenditure through sales projections, market opportunity analysis, and go to market strategy because those aspects of business are constantly measured for performance. People can very easily understand the value of creating new and better products.
Process Innovation is the second-most prominent form of innovation, and the first of two types that focus on internal value drivers. Process Innovation refers to the ideas that define how a company operates, how they make their products, how they administer their services, how they define their operational roles, and what tools they use, among other things. Typically, Process Innovations are born out of need, but also regularly emerge from managerial operational evaluations or emulation of other companies.
Like Product Innovation, a very direct relationship between investment and ROI for the majority of Process Innovations can be drawn with measurable performance indicators, like increased productivity or decreased costs.
Process Innovation, however, comes with significant risk, especially when the source of the innovation is external instead of internal (see section below on Sources of Innovation for more). It is very common for mergers, acquisitions, or reorganization events to result in measurable positive benefits to certain things almost immediately, but at the long-term cost of unforeseen consequences.For this reason, Process Innovation requires a much more detail-oriented analysis and strategic plan, with regular, targeted, and thorough performance evaluations built in.
Cultural Innovation is the second type of innovation that focuses on internal value drivers, and refers to the definition of who the company actually is, what it’s like to work there, and what it’s like to be a customer of theirs. The company’s brand image and reputation are very closely tied to its culture, so it is critically important to constantly be considering whether or not company culture is strong enough.
Cultural Innovation can refer to a number of different human resources practices, perks and benefits, work environment, diversity considerations, and operational focus. The benefits and ROI from Cultural Innovation is rarely directly measurable, but can certainly be extrapolated to measurable outcomes like employee retention, talent attraction, productivity, and quality of work.
Cultural Innovations are those that help an organization create, cultivate, or maintain other types of innovation (Product or Process) in other areas of business by remaining competitive in the talent market, and they are critical components of a truly innovative company. Companies who espouse a Culture of Innovation are also those who often invest the most in Cultural Innovation, which is a topic we will cover extensively in the fifth article in this series.
Sources of Innovation
The much easier part of innovation theorycrafting is understanding the sources of innovation at a fundamental level. When it comes to it, the two major sources of innovation are internal and external, within which there are copious examples. Throwing it back to undergrad business school basics, your strategy classes introduced you to the concept of a SWOT matrix analysis. While this applies to business strategy, it’s also the easiest way to explain the sources of your innovation strategy as well.
To quickly recap: SWOT analysis involves looking at the company’s Strengths, Weaknesses, Opportunities, and Threats. Strengths and Weaknesses focus on internal factors that contribute to success or failure, and Opportunities and Threats focus on factors outside the organization that contribute to success or failure. While it is possible to have strong strategic positions in each area, a complete strategic vision would account for all four areas. The same is true with innovation. Many organizations are incredibly familiar with the external sources of innovation, but fail to properly and effectively identify or cultivate internal sources. To quote the old adage, “ya gots ta do both.”
External Sources of Innovation
In this section, it will be helpful to consider replacing “sources of innovation” with “ideas,” so that’s how we will proceed here. External sources of ideas can certainly come from performing the OT section of a SWOT analysis on a regular basis. Are there new laws and regulations since your last review? Has another technology finally become powerful, accessible, or inexpensive enough to reignite an old idea? What has the market been doing? Are clients and customers shifting their tastes, expectations, or purchasing habits? These are all critically important developments that need to be tracked by any company that wants to remain innovative with their products.
Successfully importing ideas and inspiration requires far more than simply being able to identify good sources. The key is having a strategy and implements for gathering the ideas that are available, analyzing them, and coming up with a plan to convert them into actionable product, process, or cultural innovations for your company. This is a large part of the value of feedback networks, and if you have those established, but haven’t been leveraging them for the purpose of driving innovation, you’re doing it wrong. If you haven’t established feedback channels, that’s an even greater opportunity to immediately improve business practices.
Getting ideas and inspiration from customer feedback, from your competitors’ products, and from industry thought leaders is a great way to keep pace with the rate of and need for change, but will hardly position your company to get ahead of the curve. To successfully become an innovative organization, there has to be a mix of external and internal sources of innovation.
Internal Sources of Innovation
Internal sources of innovation are typically the much more ubiquitously available, but simultaneously untapped or under-developed resources. While employees are ultimately the largest untapped source of new ideas, the mechanisms for getting those ideas can be incredibly difficult to develop and implement.
At the surface level, employees can be a source of ideas via direct feedback, special events, internal hackathons, and other fun events that encourage product, process, and cultural innovation. Potential for ownership of these initiatives is often a leading driver of daily innovative thinking, as employees who feel empowered to make their own job better, or to make the company’s products better, often feel more fulfilled.
In addition to employees, however, internal data also provides countless opportunities for innovation of all kinds. Collecting data on the usage of tools, the nature of interactions with clients, time spent with various resources or doing particular tasks, and analyzing it can help managers quickly identify opportunities for Process Innovations that could save time and make their employees more productive.
These data and feedback loops between companies, their employees, and the tools and resources they use to do their jobs can lead to better comprehension of what makes successful employees stand out. Cultural Innovation can close the gaps between motivated and unmotivated employees as quickly as Process Innovations can close gaps between new and experienced employees.
With the understanding that internal sources of innovation are just as valuable as external sources, companies can leverage all of the opportunities available to them in pursuit of their innovation goals.
Join the Conversation
This article series will be published monthly until the end of 2021, with two articles going up in September. I encourage everyone to reach out to me using "Inno Growth" in the subject line with any questions, and to subscribe to the rest of this series. I will be answering mailbag questions publicly and anonymously throughout the series, so I sincerely look forward to hearing from you.