Types of innovations

1. Introduction to Innovation

Innovation is a critical driver of growth and competitiveness in today’s fast-paced business environment. It is the engine of the development of new ideas, products, and processes that create value for customers and organizations alike from scratch.
But.. Innovation could present itself in different forms, based on who is pursuing it and what the objectives are. Understanding the various types of innovation is a key component to propose a correct approach and create new value for the customer.

In this article we’ll give different names to innovation based on its context and give a highlight on frameworks for innovation.

2. Open vs. Closed Innovation

Starting from the first great categorization of innovation: “Open and Closed innovation”.

Before diving into their differences take into account that it’s a gray line, the one that separates open and closed innovation and mostly depends on what people and mostly companies consider open and closed. It is anyway useful to understand the concept behind it and what guides this categorization.

Open Innovation

Open innovation is a paradigm that encourages organizations to utilize external ideas and technologies alongside their internal resources to advance their innovation efforts. This approach seeks for collaboration and knowledge sharing even among distant corporate departments or workers, allowing companies to have access to a wider pool of creativity and expertise.

• Pros:

  • Broader Access to Innovations: Companies can benefit from the creativity of external sources, including customers, academic institutions, and other businesses.

  • Collaborative Problem-Solving: Joint ventures and partnerships can lead to more robust solutions and faster problem resolution.

• Cons:

  • Potential Intellectual Property Risks: Sharing ideas can lead to concerns about protecting proprietary information.

  • Alignment Challenges: Collaborating with external partners can result in conflicting goals or misaligned objectives, it could diminish in some cases efficiency in the project and be more difficult to handle.

• Examples:

  • Procter & Gamble’s Connect + Develop: P&G actively seeks external ideas and technologies to supplement its internal R&D efforts. Through this initiative, they collaborate with external inventors, entrepreneurs, and researchers to develop innovative products. For example, the Swiffer cleaning system was developed through an open innovation process, which included input from external sources.

  • Lego Ideas: This platform invites fans to submit their designs for new Lego sets. If a proposal garners enough support, Lego will produce and sell the set, providing royalties to the designer. Successful examples include the “Women of NASA” set, which highlights the contributions of female scientists and engineers.

Closed Innovation

Closed innovation, on the other hand, refers to a more traditional approach where organizations rely solely on their internal capabilities to generate ideas and bring products to market. This model emphasizes confidentiality and control over the innovation process, taking into account that there are always different degrees of closure.

• Pros:

  • Control Over Intellectual Property: Companies can safeguard their innovations without external interference.

  • Cohesive Company Vision: An internal focus can lead to a unified strategy and vision for innovation, having in mind primarily the value for the company and its customers.

• Cons:

  • Limited Perspective: Organizations may miss out on valuable insights and advancements from the outside world, when everything is generated internally, the perspective can be occluded.

  • Risk of Missing Opportunities: A lack of collaboration can lead to stagnant innovation and missed market trends.

• Examples:

  • Traditional Pharmaceutical Companies: Companies like Pfizer often rely on in-house R&D to develop new drugs, conducting extensive clinical trials and research to ensure efficacy and safety before bringing products to market.

  • Apple’s R&D Approach: Apple is known for its closed innovation strategy, where the company invests heavily in proprietary research and development. This focus allows Apple to maintain tight control over its product ecosystem, resulting in groundbreaking products like the iPhone and Apple Watch, which are designed and manufactured internally.

3. Upstream vs. Downstream Innovation

We can now move to another basic, but still extremely useful to know categorization in the process of innovation, upstream and downstream innovation. The difference here stands for when the innovation process takes place in the development of a product.

Upstream Innovation

Upstream innovation refers to innovations that take place at the beginning of the product development process, such as idea generation, research, and early-stage development. This type of innovation focuses on creating new concepts and technologies that can lead to new advancements.

In this case the innovation takes place in the design stage, such as developing new materials, business models and so on.

• Pros:

  • Potential for Radical Breakthroughs: Upstream innovation can lead to developments that aim at redefining industries.

  • Foundational Changes: Innovations made at this stage can influence multiple aspects of product development and strategy. The impact of this innovation can fundamentally change the entire way a company propose itself.

• Cons:

  • High Uncertainty: Early-stage innovations can be risky, as they often involve untested ideas and technologies.

  • Investment Needed: Significant resources may be required to explore new concepts and technologies.

• Examples:

  • Research Initiatives in Renewable Energy Technologies: Companies like Tesla and Siemens are investing heavily in upstream innovation by developing new energy solutions, such as advanced battery technology and solar energy systems. Tesla’s research into solid-state batteries could significantly increase energy density and safety for electric vehicles.

  • Artificial Intelligence Algorithms: Google’s DeepMind has pioneered innovations in AI, such as the AlphaGo program, which was the first AI to defeat a world champion in the game of Go. This upstream innovation has broader implications for various applications, from healthcare diagnostics to natural language processing.

Downstream Innovation

Downstream innovation involves enhancements related to the commercialization and delivery of products and services. This type of innovation focuses on optimizing existing processes and improving customer engagement and market presence.

This innovation process takes place after the first use of a product or material, this includes reiterating existing products or technologies for example.

• Pros:

  • Immediate Market Impact: Downstream innovations can lead to quick improvements in sales and customer satisfaction.

  • Customer Engagement: This approach can definitely enhance the customer experience and can build loyalty around it.

• Cons:

This process may lead to incremental changes. While important, downstream innovations may not result in major shifts in market dynamics, but usually improvements of an existing product.

Alongside there is an inner risk of short-term focus, by focusing on short term initiatives the attention could move too much from long-term strategic innovations.

• Examples:

  • Innovations in Customer Service Delivery Channels: Businesses like Zappos are known for their exceptional customer service, utilizing chatbots and AI-driven customer support systems to provide timely assistance and enhance the overall customer experience.

Exploring Innovation Frameworks

Let’s delve into more specific frameworks that can highlight an approach to categorizing various types of innovation. These frameworks provide a more detailed list of types of innovation, grounded to the specific applicability and context of use.

Gartner Framework for Open Innovation

There is no one-size-fits-all strategy for implementing open innovation. The best way for an organization to work with both internal and external stakeholders depends on its goals and needs. Four customized strategies are offered by Gartner's open innovation framework, which businesses can use to stimulate innovation. These strategies—directed invitational, directed participative, suggestive participative, and suggestive invitational—offer distinctive ways to interact with a range of partners and support particular innovation objectives.

source: https://www.gartner.com/smarterwithgartner/develop-an-open-innovation-framework

1. Suggestive, participative innovation: generating broad idea pools

When a business wishes to produce a large pool of ideas without focusing on a particular issue, the suggestive, participative method is a valid option. Businesses can crowdsource creative ideas that might not come from within their own team by asking staff members, clients, or other stakeholders to participate. This approach is really inclusive, by allowing anyone to offer ideas and evaluate those of others, which frequently results in original and surprising contributions, you can enhance the overall outcome of the innovation process.

• Pros: This method stimulates unrestricted creativity, draws from a variety of perspectives, and cultivates an inclusive society. Innovative concepts that might otherwise go undiscovered can result from crowdsourced suggestions from a variety of viewpoints. This definitely enrich the overall perspective

• Cons: The drawback is that open-ended contributions may lead to vague concepts that aren't immediately applicable. Businesses must invest resources in reviewing and ranking submissions in order to filter and implement recommendations.

• Example: The effectiveness of a participatory, provocative approach could be seen in Dell's IdeaStorm platform. Dell directly addresses user requirements and preferences by asking users to discuss their preferences, provide product suggestions, and propose innovations. The most rated ideas determined by community voting, have influenced design modifications and new product features.

This approach works well for organizations that want to pursue inclusivity and maintain a steady flow of ideas that can be selectively developed as resources and demand allow.

2. Suggestive, Invitational innovation: harnessing targeted expertise

A more focused open innovation process is made possible by the suggestive, invitational approach when businesses have specific innovation needs but yet desire various input. Organizations choose a particular group of participants with specific knowledge to concentrate on a given problem rather than making the forum accessible to everyone. By enabling invited individuals to exchange thoughts on a predetermined topic, this strategy achieves a greater balance between inclusion and pertinent knowledge.

• Pros: Because of this method's focus and diversity, businesses can ask experts or important partners who have insights relevant to the industry to contribute. It makes it possible for highly specialized contributions to be made without running the risk of getting off subject.

• Cons: The challenge here is to find the appropriate stakeholders and ensure that conversations are aligned with the innovation's strategic goals.

• Example: One of the best examples of suggestive, invited open innovation is IBM's "Jam" sessions. IBM brings clients and experts together to work together on solving urgent technical problems during these virtual gatherings. IBM puts creativity in a controlled setting by focusing expertise on client-specific issues through the selection of professionals and the development of a defined framework.

For businesses looking for innovative solutions with well-defined strategic directions, the provocative, invitational approach is perfect. It can speed up the production of workable ideas by allowing for creative freedom inside a more purpose-driven, better structured framework.

3. Directed, Invitational innovation: building a specialized partner ecosystem

Businesses deliberately choose and filter members in the directed, inviting framework in order to create a network of specialized partners. These partners collaborate on challenging projects and are selected based on their specific technological capabilities or areas of expertise. The strategy works especially well for businesses or industries that deal with highly technological developments that need specialized knowledge.

• Pros: With a focused approach, businesses can address difficult problems that call for specific expertise, which facilitates the integration of cutting-edge technologies or technology..

• Cons: It takes a lot of preparation and alignment for the business to choose and align with partners who have a similar innovation objective.

• Example: The guided, invitational approach is demonstrated by Boeing's creation of the Dreamliner. Boeing collaborated with more than 50 companies on this enormous project, including Rolls-Royce and General Electric, each of which contributed expertise in a distinct aircraft subsystem. Through cooperation, Boeing was able to take use of specialized technologies from reliable partners, resulting in a more sophisticated, fuel-efficient aircraft.

Businesses working on projects with high technological needs will find the directed, invited model especially helpful. Companies can leverage others’ skills to produce things that would be difficult to generate internally by establishing an effective ecosystem.

4. Directed, Participative innovation: focused solutions with diverse collaboration

When a business has a well-defined issue yet desires a range of viewpoints, the directed, participatory approach blends detailed instructions with general suggestions. The business asks a chosen group to work together towards a certain objective by outlining the project's goal and direction. This approach works well for utilizing the knowledge of a community while staying focused on a specific goal.

• Pros: With clear direction, this approach encourages varied groups to participate and optimizes collaborative problem-solving. It aligns with a predetermined strategic direction while bringing together a variety of expertise.

• Cons: A framework that directs participants towards the intended result without restricting creativity is necessary to support directed, participatory innovation..

• Example: The open-source community at Red Hat serves as an example of the directed, participatory method. To build and improve software solutions, the firm works with a global community of developers. Red Hat uses open-source innovation to create software that meets the practical demands of its users by offering targeted problems and a well-organized platform.

Companies that wish to continue to be actively involved in guiding innovation without limiting outside contributions will find that the directed, participative approach works best. By concentrating attention on certain issues and encouraging a sense of belonging and community among participants, this paradigm allows for targeted advancement.

The Innovation Ambition Matrix

Moving from Gartners’ open innovation framework, we can have a look at the Innovation Ambition Matrix, developed by Bansi Nagji and Geoff Tuff from the Monitor Group.

Businesses can use this useful tool to categorize their innovation efforts and maximize their investment across different levels of novelty. The framework helps businesses to manage and balance their innovation portfolios across three main levels: core, adjacent, and transformative innovation. It does this by assessing the familiarity of a company's market and the distance of its current offers. Different opportunities and levels of change are represented by each of these levels, and each is appropriate for a particular organization's strategic objectives.

source:. https://hbr.org/2012/05/a-simple-tool-you-need-to-mana

The Structure of the Innovation Ambition Matrix

The innovation Ambition Matrix's x-axis shows how original or unfamiliar an invention is in comparison to the company's current offerings, while the y-axis shows how closely the innovation is related to the current customers. The matrix is divided into three concentric regions, or waves, extending outward from the center and signifying escalating levels of innovative ambition:

1. Core Innovation (center circle)

2. Adjacent Innovation (middle circle)

3. Transformational Innovation (outer circle)

From low-risk, incremental improvements to high-risk, game-changing ideas, these concentric circles illustrate the growing level of innovation.

1. Core Innovation

Core innovation is at the center of the Innovation Ambition Matrix. The goal of this kind of innovation is to improve or refine current products in the company's target market. Expanding or upgrading product lines, developing supplementary services, or strengthening client retention tactics are common examples of core innovation. Instead of presenting completely novel ideas, it enhances the existing model to produce greater value.

• Characteristics: Even while core breakthroughs are frequently little, they can have a big influence. Organizations can satisfy immediate market demands and increase their value to present clients by improving their current services. Because they are relatively simple to implement and carry fewer risks, core innovations usually make up the majority of innovation programs.

• Application: When trying to reach short-term objectives or stabilize current revenue streams, many businesses concentrate on core innovation. It requires fewer resources and enables businesses to satisfy changing client expectations while enhancing customer loyalty.

Keeping a competitive edge requires this kind of innovation, particularly in established businesses. Businesses may meet urgent market demands while optimizing the impact of minor, incremental adjustments by maintaining core ideas at the forefront.

2. Adjacent Innovation

The following step outside of the core is called adjacent innovation. Here, the business makes use of its current advantages while expanding into new markets or bringing somewhat innovative products to its current clientele. This kind of innovation works well for businesses who wish to expand their current product offers or capabilities without moving too far outside of their comfort zone.

• Characteristics: Usually semi-familiar, adjacent inventions are something new but not totally revolutionary. They push businesses to investigate how their current resources, technologies, or expertise may be put to new uses, expand into new markets, or offer value to their existing clientele.

• Application: Businesses trying to use well-known resources and knowledge bases to diversify their revenue streams may find that adjacent innovation works especially well. This is typical of companies that want to reach a wider audience or add a moderate amount of uniqueness to their current portfolio without assuming the greater risks associated with revolutionary developments.

Businesses can explore new boundaries at a measured pace thanks to adjacent innovation. By entering adjacent markets or product offerings a company mitigates the risk if they remain connected to their core capabilities.

3. Transformational Innovation

The most drastic kind of change is represented by transformational innovation, which is the outermost layer of the matrix. New business models, technology, or strategies that have the power to completely alter an organization's identity are all part of transformational innovations, which bring about completely new products and/or markets that are frequently disruptive.

• Characteristics: Innovations that are transformational are very new and risky. Instead of serving already-existing markets or depending on well-known items, they open up whole new marketplaces and frequently draw in audiences that may not have previously interacted with the company. Although these breakthroughs can provide significant profits due to their disruptive nature, they often make up a lesser portion of a company's overall innovation portfolio.

• Application: Organizations with a high risk tolerance seek transformational innovations, usually in sectors that gain from disruptive innovations. To operate independently of current structures and establish a presence in new markets, companies may establish distinct business units for revolutionary ideas.

Transformational innovations, which involve a degree of uniqueness that can totally reconfigure a company's course, are frequently confused with "radical" inventions. These high-reward initiatives can reshape industries and generate sustainable competitive advantages, despite their resource-intensive nature.

Balancing the Innovation Portfolio

In order to develop a balanced portfolio, the Innovation Ambition Matrix advises organizations to allocate resources among these three levels. A typical allocation might invest strategically in transformative breakthroughs for future potential, devote a lower amount to adjacent innovations for incremental growth, and concentrate mostly on core innovations to ensure stability.

Businesses can evaluate their innovation efforts and make sure that resources are distributed for both long-term growth and short-term stability by using the Innovation Ambition Matrix as a strategic guide. Organizations can address present market demands while preparing for potential future opportunities and disruptions by striking a balance between core, adjacent, and transformative innovations.

Satell’s Innovation Matrix

We present here another framework for innovation that is the Greg Satell’s Innovation Matrix, introduced in the Harvard Business Review in 2017, which centers on the idea that innovation is fundamentally about problem-solving. 

The framework is structured around two questions:

1. How well can we define the problem?

2. How well can we define the skill domains needed to solve it?

Four categories of innovation—sustaining, breakthrough, disruptive, and basic research—are distinguished by these two questions. Each category helps organizations select the best innovation strategy by addressing a distinct confluence of domain expertise and problem clarity. Based on their resources and talents, this matrix assists teams and leaders in determining where innovation is needed and the strategy that has the best chance of succeeding.

source: https://hbr.org/2017/06/the-4-types-of-innovation-and-the-problems-they-solve

Sustaining Innovation
This type focuses on well-defined problems and familiar skill domains. For our home goods retailer, sustaining innovation could involve improving their existing product lines, like upgrading materials to be more durable or increasing the percentage of recycled content in their furniture.

The retailer sources more sustainable materials for their furniture, improving quality and reducing carbon footprint while maintaining traditional craftsmanship. They continue to offer the same products but with better quality and more eco-friendly attributes.

Pros: Sustaining innovation enhances existing products, fosters customer loyalty through quality improvements, and reduces risk by leveraging familiar knowledge and capabilities.

Cons: However, it often results in limited market expansion, potential complacency in a rapidly changing environment, and a dependence on current skills that may restrict the exploration of new growth opportunities.

Breakthrough Innovation
Breakthrough innovation frequently results in new ideas that challenge conventional wisdom. The problem is clearly defined, but the talents needed to tackle it may emerge from unexpected places.

Pros: Through innovative solutions, breakthrough innovation gives businesses a competitive edge, generates cross-industry insights that can lead to expansion, and improves their reputation as pioneers in using new technologies.

Cons: However, it often involves high costs, execution challenges in integrating new technologies, and market uncertainty as customers may be hesitant to adopt complex innovations.

An example of potential applicability would be if a retailer introduced smart furniture in collaboration with a technology company. Customers can now connect with their furniture in new ways thanks to features like ambient LED lighting and built-in wireless chargers on their tables and shelves. This called for the skills of user interface designers and electronics specialists, which were new to the business.

Disruptive Innovation
When a solution is widely understood but the issue it tackles is unclear or new—often as a result of recent changes in customer behavior—disruptive innovation takes place.

Pros: By meeting new customer demands, disruptive innovation creates new markets, facilitates digital transformation for a company that is prepared for the future, and provides scalability as new technologies gain traction..

Cons: However, it creates early uncertainty that necessitates strategy changes, runs the risk of upsetting current clients by upending established products, and complicates implementation because new system investments are required.

As an example, you can consider the time a merchant uses augmented reality (AR) technology to let clients virtually arrange furniture in their homes. Although it necessitates modifications to the business's e-commerce platform, this results in a fresh selling experience that complements the trend towards digital-first shopping.

Basic Research
Basic research, which frequently yields ground-breaking findings or products, attempts to investigate whole new fields without a particular issue or skill set in mind.

Pros: Future innovation is built on the foundation of basic research, which also builds a reputation for social and environmental responsibility and creates beneficial academic alliances for resources and ideas.

Cons: However, it has an unclear return on investment (ROI) with unpredictable results, frequently necessitates lengthy durations that postpone profits, and is resource-intensive, requiring a substantial investment with no immediate rewards.

As an instance, a shop can fund sustainable materials research by collaborating with a nearby university to create biodegradable polymers that resemble wood. Despite being exploratory at first, this might eventually result in a line of items that have no effect on the environment.

Introduction to Henderson & Clark’s Component/Architecture Innovation Matrix

source: https://www.researchgate.net/publication/200465578_Architectural_Innovation_The_Reconfiguration_of_Existing_Product_Technologies_and_the_Failure_of_Established_Firms

We now introduce another framework, the Component/Architecture Innovation Matrix, which was created by Kim Clark of Harvard and Rebecca Henderson of MIT. It examines innovations according to how they affect a product's components and how those components interact with one another, which is collectively referred to as the "architecture" of the product.

The matrix defines four innovation types:

1. Incremental: enhancing components without changing the product’s core structure.

2. Modular: replacing core components while retaining the original structure.

3. Architectural: reconfiguring how components interact.

4. Radical: transforming both the components and their interactions.

The framework developed by Henderson and Clark sheds light on product development and design, emphasizing the strategic value of comprehending a product's components and their interrelationships. This matrix helps businesses understand the breadth and character of innovation initiatives, particularly when deciding whether to develop completely new solutions or improve current services.

Incremental Innovation
Incremental innovation improves components without altering their overall function or the relationship between them.

Pros: Incremental innovation enhances individual components, leading to improved product quality and durability without changing the overall design, which can appeal to existing customers.

Cons: However, it can limit creativity by focusing on minor improvements and may struggle to differentiate the product in highly competitive markets.

For example while keeping the phone's basic functionality and general style, Apple improves the camera quality with every iPhone release, whether it's by adding features like Night Mode, increasing durability, or improving lens resolution. Without significantly altering the iPhone's design or functionality, these small updates maintain user engagement and enhance the user experience.

Modular Innovation
Modular innovation replaces existing components with new ones while maintaining the product’s overall structure and use.

Pros: Modular innovation updates specific components, like eco-friendly packaging, providing sustainability benefits while keeping the core product familiar to customers.

Cons: It may offer limited impact on the product's functionality and may not significantly attract new customers seeking transformative features.

For instance, LEGO substituted sustainable, plant-based material for some of its standard plastic bricks. The bricks still fit together with older pieces even though the individual parts have changed, preserving the traditional LEGO building experience and supporting the company's sustainability initiatives.

Architectural Innovation
Architectural innovation changes how components interact within a product’s structure but retains the fundamental concept of each component.

Pros: Architectural innovation changes the configuration of components to offer new uses and adaptability, enhancing product versatility and appealing to a broader audience.

Cons: Yet, it can be challenging to implement without disrupting existing design workflows and may require additional customer education to highlight new functionalities.

As an illustration, consider how Dyson redesigned their vacuums with a new motor structure and modular battery system, making them lighter, cordless, and more versatile. The motor, brush, and dust collector are still the necessary parts, but their structure and interactions have been changed to make cleaning various regions easier and more flexible.

Radical Innovation
Radical innovation transforms both the components and architecture, resulting in a completely new design that fundamentally alters the product.

Pros: Radical innovation completely redefines both components and structure, potentially creating groundbreaking products that set new industry standards and draw significant attention.

Cons: On the downside, it often involves high development costs, increased risk, and may face resistance from customers unfamiliar with the new design approach.

For instance, Tesla has transformed the architecture of the vehicle as well as its component parts (such as machine learning processors and autopilot sensors) to produce electric automobiles with self-driving capabilities. By pushing the limits of automobile design and altering consumer expectations of what a car can accomplish, this radically redefined the vehicle.

Conclusion

There isn't a certain method for creating and fostering innovation both inside and outside of businesses

Alignment of the company's innovation goals, and the availability of resources all influence the best choice for the innovation step to take place

Whether looking for highly specialized technical improvements, targeted problem-solving, or broad ideation, firms can maximize their innovation efforts by connecting the strategy with strategic goals.