Types of innovation
|Types of innovation|
Innovation is described to be one of the most important factor for a company's prosperity, survival and continuous competitive advantage. The first one to describe it was the German economist Joseph Schumpeter who characterize it as "the driving force of development" (Murat Atalay 2013, p. 227). Thanks to the innovation, companies are able to boost their performance and serve value to their stakeholders (A. T. Karabulut 2015, p. 1355).In the last years innovation become much more unavoidable term in not only business strategy and politics agenda but also in academic thinking (Byron Acosta 2016, p.295).
There are several categories and types of innovation.
Main types of innovation (according to object of innovation)
The most common types of innovation (OECD 2005, p. 47-51; Sam Tavasolli 2015, p. 1889-1891):
- Product innovation (launch of products or services which are new or slightly upgraded but with respect to its essence or destination; it is targeting at pleasing specific customers demands).
- Process innovation (implementation of a new or very modernized production or delivery mechanism; its main goal is to cut down the unit cost of the goods produced and/or to maximize quality of products).
- Organizational innovation (start of a fresh organisational plan in a company's business practice, workplace management or outside relations; it is often used when enterprise wants to improve efficiency, profitability, elasticity and orginality of the company by using bodyless knowledge).
- Marketing innovation (introduction of a new marketing method which include transformation in product packaging, design, placement, promotion or pricing to improve the amount of total sales to lower exploitation of production economics).
Types of innovation according to degree
Types of innovation divided by their degree:
- Innovation within one company,
- Regional innovation,
- Country level innovation.
- Global innovation.
Other types of innovation
Types of innovation, which are less common (Byron Acosta 2016, p. 296, 297):
- Technological innovation,
- Non-technological innovation,
- Radical innovation (new goods and processes),
- Incremental innovation (if there was an innovation in already existing goods and processes),
- Disruptive innovation (it is used only in reference to creating new goods and processes like in radical innovation),
- Open innovation (it is a system of making new goods and processes as well as marketing and organizational practices).
Examples of Types of innovation
- Product innovation: Product innovation is an example of innovation in which a company creates an entirely new product or substantially improves an existing one. A good example of this is Apple's iPhone. The iPhone was an entirely new product that was not available before, and it significantly improved upon existing mobile phone technology.
- Process innovation: Process innovation is an example of innovation in which a company modifies or changes the way it produces goods or services. A good example of this is Intel's development of the semiconductor fabrication process. This process allowed Intel to produce semiconductor chips faster and more efficiently, giving them a competitive advantage in the industry.
- Business model innovation: Business model innovation is an example of innovation in which a company changes the way it sells its products or services. A good example of this is Amazon's move to an online retail business model. This shift allowed Amazon to sell products more quickly and efficiently, and it gave them a competitive edge in the retail industry.
- Organizational innovation: Organizational innovation is an example of innovation in which a company changes the way it is structured or the way it operates. A good example of this is Google's flat organizational structure. This structure allows for more cross-functional collaboration and faster decision-making, which has allowed Google to become one of the most innovative and successful companies in the world.
Advantages of Types of innovation
The following are the benefits of the four main types of innovation.
- Product Innovation: Product innovation refers to the development of new products and services to meet customer needs and wants. This type of innovation brings new products to the market, increasing the customer base and providing an edge over competitors. Additionally, it allows companies to stay ahead of the curve and develop products that meet customer needs better than existing products.
- Process Innovation: Process innovation involves streamlining and improving existing processes or creating new and efficient processes. This type of innovation can increase the efficiency of a company's operations, allowing it to produce better products in a shorter amount of time. It also reduces costs, leading to higher profits.
- Service Innovation: Service innovation refers to creating new services or improving existing ones in order to meet customer needs. This type of innovation allows companies to provide better customer service, creating customer loyalty and increasing customer satisfaction. Additionally, it can lead to increased revenue and market share.
- Business Model Innovation: Business model innovation involves changing a company's business model in order to make it more efficient and profitable. This type of innovation allows companies to stay ahead of the competition by creating new ways to make money. Additionally, it allows companies to adapt to changing market conditions and customer needs.
Limitations of Types of innovation
Innovation is essential for a company’s success and survival, however, it has several limitations. These include:
- Limited resources: Companies often lack the resources necessary to invest in innovation, or the capacity to explore and develop innovative ideas.
- Time constraints: Companies are often limited in the amount of time they have to develop new ideas, products and services.
- Regulatory hurdles: Regulations and legislation can often impede a company's ability to innovate and develop new ideas, as they have to comply with the relevant laws.
- Risk averseness: Companies may be reluctant to take risks and invest in innovation due to the potential for failure.
- Competitive pressures: Companies may be unwilling to innovate if they feel they are at a disadvantage compared to their competitors.
- Cultural constraints: Innovative ideas may be seen as too radical or challenging to the company’s culture and values.
Overall, companies need to take into account the various limitations of innovation when planning their strategies and approaches to ensure it is achievable and beneficial for their business.
One approach related to Types of innovation is that of categorizing innovation into three types: radical, incremental and disruptive.
- Radical Innovation: This is the most radical form of innovation, where a company creates a completely new product or service that revolutionizes the market. It is often associated with risk and high costs, but if successful, can lead to huge rewards.
- Incremental Innovation: This refers to incremental improvements of an existing product or service. It is often less risky and less expensive than radical innovation and can lead to small, but important, improvements for customers.
- Disruptive Innovation: This refers to innovations that disrupt the status quo and overthrow traditional business models. It is often associated with new technologies, but can also refer to new business models or processes.
In conclusion, Types of innovation can be categorized into three types: Radical, Incremental and Disruptive, each of which has its own benefits and risks. Companies should carefully consider which type of innovation best fits their goals and capabilities before pursuing it.
- Acosta Byron (2016). Understanding innovation based on company optics: interpretation mistakes on the types of innovation developed, RAI Revista de Administração e Inovação, vol. 13
- Atalay Murat (2013). The Relationship between Innovation and Firm Performance: An Empirical Evidence from Turkish Automotive Supplier Industry, Procedia - Social and Behavioral Sciences, vol. 75
- Damanpour, F., Szabat, K. A., & Evan, W. M. (1989). The relationship between types of innovation and organizational performance. Journal of Management studies, vol. 26, no.6
- Karabulut A. T. (2015). Effects of Innovation Types on Performance of Manufacturing Firms in Turkey, Procedia - Social and Behavioral Sciences, vol. 195
- OECD (2005). Guidelines for collecting and interpreting innovation data, Oslo Manual, 3rd eddition
- Tavassoli Sam (2015). Persistence of various types of innovation analyzed and explained, Research Policy, vol. 44
Author: Olga Marmuszewska