Business Innovation: The “why” the “what” and the “where”

Innovation is a subject that attracts a lot of attention in business. In a previous article I explored a key aspect of the “how” around innovation: the management capability that organisations require to enable them to develop innovative products and services. But “what” specifically is innovation and “where” should I apply it in my business?

Innovation is a subject that attracts a lot of attention in business. Organisations large and small are encouraged to innovate as a means of getting ahead of their competitors. Businesses are constantly reminded that those who do not innovate are at risk of being overtaken by those that do. Indeed, the “why” for innovation is very well covered in management literature. In a previous article I explored a key aspect of the “how” around innovation: the management capability that organisations require to enable them to develop innovative products and services. But “what” specifically is innovation and “where” should I apply it in my business? As with most definitions these days, the increasingly reliable Wikipedia is a great place to start with the “what”:

Innovation is about finding a better way of doing something;
Innovation can be viewed as the application of better solutions that meet new requirements or existing market needs and which is accomplished through more effective products, processes, services, technologies or ideas that are readily available to markets, governments and society;
Innovation can be defined as something original and as a consequence, new, that “breaks into” the market or society;
While something novel is often described as an innovation, in economics and management science it is generally considered to be a process that brings together various novel ideas in a way that has an impact on society.

We can also consider what Innovation is not:

Innovation differs from invention in that innovation refers to the use of a better and as a result, novel idea or method, whereas invention refers more directly to the creation of the idea or method itself.
Innovation differs from improvement in that innovation refers to the notion of doing something different rather than doing the same thing better.

I’ve previously referred to the work of Harvard Business School Professor Clayton M. Christensen in proposing that there are three central choices when seeking innovative ways to grow business:

Chasing new business;
Extending products; and/or
Driving business efficiency and effectiveness.

In 1995, Professor Christensen along with Joseph L. Bower published a seminal article in Harvard Business Review titled “Disruptive Technologies: Catching the Wave”. In this article two key categories of innovation were explored: those innovations associated with sustaining technologies and those innovative technologies that disrupt an established industry, causing new leaders to emerge in the industry and previously dominant players to decline and even disappear. Christensen and Bower differentiate between these two types of innovation using the concept of performance trajectories. A performance trajectory is the rate at which the performance of a product or service has improved and is expected to improve over time. Almost every industry has a critical performance trajectory, which relates to the rate at which the industry is improving in meeting customer needs in terms of key attributes (cost, timeliness, quality). Sustaining technology based innovations tend to maintain the industry rate of improvement along the performance trajectory; that is, they give customers something more or better in the attributes they already value. On the other hand, the technological innovations that disrupt existing industries have two important characteristics:

They typically present a different package of performance attributes – ones that, at least at the outset, are not valued by existing customers; and
The performance attributes that existing customers do value improve at such a rapid rate that the new technology becomes relevant to existing customers.

Disruptive technologies introduce a very different package of attributes from the one mainstream customers historically value. Indeed, they often perform far worse along one or two dimensions that are particularly important to those customers. As a rule, mainstream customers are unwilling to use a disruptive product in applications they know and understand. Disruptive technologies tend to be used and valued at least initially in new markets or new applications; over time they may make possible the emergence of new markets. So “where” should businesses seek to innovate? The answer to this question could lie in any aspect of the business (refer to the diagram below) and may cover the full spectrum of strategies from: