Whether we’re talking about coming up with innovative ideas and strategies to launch a new business or to grow an existing business, it’s difficult to overstate the importance of innovation strategy.
Why is it important for businesses to innovate? At a high level, innovative businesses are better-positioned for relevance, differentiation, and growth (vs. their non-innovative counterparts). And most businesses understand the critical importance of innovation, as demonstrated by the following statistics gathered from McKinsey & Company:
- 84% of CEOs believe that innovation is critical to their growth.
- 80% of business models are at risk (in need of innovation).
It’s well-established, then, that innovation is vital to a business’s success, sustainability, and growth. Are these businesses effectively innovating, though? The same McKinsey research offers a gloomy outlook—only 6% of CEOs are satisfied with their company’s overall innovation performance. Yikes!
It’s not like these companies aren’t trying. As summarized by Harvard Business Review, despite companies’ “massive investments of management time and money…[their] innovation initiatives frequently fail.” Surprisingly, the reason for these initiatives’ failure isn’t simply a “failure to execute,” but it instead “is rooted in the lack of an innovation strategy.”
In this article, we’re going to look at the importance of innovation in business and offer some tips for developing innovative ideas and strategies to keep your business competitive and primed for future growth. Finally, we’ll also explore how business innovation consulting can help you create the right culture and processes to get the wheels turning.
What Are the Three Types of Innovation?
There are three innovation strategies for new products and technologies, based on their focus and scope—these are product, process, and business model innovation.
A product innovation strategy primarily focuses on either developing new products or improving an existing product. For software-as-a-service (SaaS) companies, the software and related services are the “product.” The main objective of product innovation is to add value to product/service offerings in order to retain customers while attracting and converting new business as well.
Product innovations may entail the development of a brand new product, improving an existing product’s performance, or adding new features. For modern companies, product innovation is usually driven by either technological advancements within a given industry or shifts in customer preferences or expectations. In either case, successful product innovation examples usually address a clear problem or challenge, or add new value to a product or service.
Process innovation focuses on the underlying production or delivery processes that support a business’s offerings. Process innovation can serve a number of objectives, from decreasing the cost of time or materials involved in a product or service’s creation or delivery to creating a novel user experience as a means of differentiation.
Customer expectations are always changing—typically expecting more from the companies they do business with— organizations that are adept at process innovation have a distinct advantage when it comes to understanding and meeting those expectations in a timely manner.
One of the most famous, impactful process innovation examples is the world’s first moving automobile assembly line, credited to the one and only Henry Ford.
Types of Process Innovation
Depending on the business and its objectives, we can define a few different types of process innovation. These types are incremental, disruptive, sustaining, radical, and open innovation.
- Incremental: Involves relatively minor (yet impactful) changes to an existing product or service’s design, development, or delivery.
- Disruptive: Attempts to create a new market for an existing product or service, or invents ways to introduce an existing product or service into a new (but already existing) market.
- Sustaining: Similar to incremental innovation, updates existing products or services to better-meet customers’ evolving needs and preferences—primarily to retain existing customers and remain competitive within an industry.
- Radical: Explores (big) ways to solve global or industry-wide challenges by experimenting with bold new tactics and technologies to attract and retain customers and establish authority or thought leadership among competitors.
- Open: A sort of catch-all, encompassing unique and creative ideas through collaboration or consultation with one or more outside organizations.
Business Model Innovation
While product innovation focuses on the core product or service offerings and process innovation focuses on the development and delivery of those products and services, business model innovation takes a wider aim at how a business exists and functions within its industry or market.
One relatively-obvious business model innovation example that has been impacting a number of different industries (but especially technology companies), is the move from on-premises software applications to the software-as-a-service (or SaaS) business model. An easy example to point to is the emergence of Microsoft Office 365 as a subscription-based SaaS deployment. Others include Netflix’s business model shift from familiar DVD rentals to a digital subscription service and the emergence of streaming music giants like Apple Music and Spotify redefining how we consume and curate our music libraries.
What Are the Different Approaches to Innovation?
Innovation can be approached four different ways—it can be proactive, active, reactive, or passive. Note that these aren’t mutually exclusive, and a company may pursue multiple types of innovation at the same time. Individual innovations may also include elements of multiple approaches.
- A proactive approach relies on market and customer research to identify opportunities to be a trailblazer in how products/services are developed and delivered. Companies with a proactive approach are driven to be market and thought leaders within their industry , even if that means taking some calculated risks. Proactive innovations can be relatively minor, incremental changes, or they can be radical and transformative. The main objective is to get out ahead of the competition, to potentially identify customer pain points before they become widely recognized.
- An active innovation strategy has two sides to it. First, it involves keeping a close eye on how customers are using and reacting to a company’s products or services so that they can be sure they’re holding their own against the competition. Secondly, then, active innovation means being agile and ready to react quickly as customer needs or market trends change. Active innovation is less risky than the proactive approach, as it’s more about incremental change than industry transformation.
- Companies with a reactive approach to innovation are generally more risk-averse (and budget-constrained) than their proactive/active counterparts. They attempt to innovate quickly, but only after a wait-and-see period during which they observe how the developments of competitors or related companies play out in the market.
- Finally, the passive innovation mindset doesn’t necessarily describe companies that are against innovation, but instead refers to businesses who wait until customers request or demand new products or services (or changes to how existing products or services are delivered and supported).
Which Approach Works Best?
If you can’t decide which innovation approach is best for your business, here are a few questions to ask yourself and other stakeholders:
- What are our objectives? When you think about how you stack up against competitors, is your company a leader or follower? Are you looking to change your position (e.g., go from being a follower to a leader)? Based on your priorities, you can determine whether product, process, or business model innovation is in order.
- How much risk can we tolerate? Risk-tolerance questions can help you determine whether a proactive, active, reactive, or passive approach will be best-suited to achieve your objectives.
- Do we have the resources? Budgetary or other constraints can limit an organization’s potential to innovate, so it’s important to set appropriate targets for innovation. When brainstorming innovation ideas or mapping out how to achieve them, keep an eye on your resources. How much can you afford to invest in research and development initiatives? How much flexibility do you have in your business processes or vendor relationships?
- What are our competitors doing? Study the competitors who lead your industry. What are they doing—and are they experiencing success? It’s also important to monitor industry trends in general. While you might not have the resources or agility to lead the charge, knowing what’s happening in the industry can help you see potential opportunities for innovation before they become customer requirements.
How Does a Company Develop Strategic Innovation?
Once you have an idea of your objectives for innovation, you can begin developing an innovation strategy. While there are countless variables that will impact your specific process, the following innovation strategy framework outlines a general process to get you on the right track.
How Do You Create an Innovation Framework?
A strategic innovation framework helps ensure that the time and resources you dedicate to innovation will lead to successful outcomes, and consists of three phases: objectives and approach, strategy development, and implementation.
1. Define Your Objectives and Approach
You’ll want to think about outcomes first. What do you want to accomplish, and will your approach be proactive, active, reactive, or passive? Here, your position within the competitive landscape is extremely relevant, so you should play to your advantages. If you have the resources available and are comfortable taking risks, you can think big with proactive and active strategies. If, on the other hand, your resources are limited or the organization is generally risk-averse, then maximizing the opportunities of reactive or passive innovation is likely to be the most successful approach.
Additionally, during this phase of the innovation process, you’ll need to determine your main focus—whether you can make the most impact with product, process, or business model innovations, for example.
2. Develop a Strategy
Once you’ve defined some basic competitive objectives and a general approach to take, you can begin devising an actual strategy for developing and implementing one or more innovations. Here, it’s vital that you keep customer value in mind, making sure you can easily answer the question “what value will customers see in this?”
Whether you’re pursuing product, process, or business model innovation, it should be all about adding value to your product or service to better-position your company against the competition. “Adding value” can mean a lot of different things, too: maybe you can make it easier for customers to acquire or learn to use your product or service (saving them time and frustration), for example. Or, you might add new features or functionality that make your product or service more valuable to customers.
3. Innovate and Implement
Finally, based on all of the above considerations, you’re ready to think through the actual implementation. This process will look drastically different from one industry to another, one company to another, and one innovation to another. That being said, as you begin plotting out your innovation strategy, you’ll want to consider the following project details:
- Research and development: What problem or opportunity provides our best chance of success (and competitive advantage)? What pain points do prospective customers have? Does customer feedback reveal any opportunities for strategic innovation? What are our competitors doing?
- Timeline: How much time will it require to research and implement innovative ideas?
- Budget and resources: What advantages or limitations will we encounter, based on the resources we have available?
- Existing products and services: What are the positive product features that differentiate our existing product or service and provide the most customer value? How can we build off of those with new innovations to either catch up to—or further distance ourselves from—the competition?
- Implementation challenges: What challenges or limitations might impact implementation? Will we need to hire any additional employees or consultants? Will employees or customers need to be educated and trained in order to understand the innovation and the value it brings?
- Culture and framework: Is our company culture conducive to innovation? Do we have processes in place to help solicit ideas for innovation, vet them, and plot out their development and implementation? Note that significant innovations may require significant training or education for the workforce or customer bases; incorporate principles of change management into the implementation framework.
- Communication and collaboration: For innovation to be successful, what stakeholders will we need to keep in the loop? Throughout implementation, how will we gauge our progress?
If this sounds like a lot, or like you might not have sufficient time or resources available to pursue the type or types of innovation that could make a substantial difference, you may be a prime candidate for business innovation consulting. And you don’t have to look too hard—NEXT Consulting is just a click away.
Next-Level Business Innovation Consulting with NextStudios
At NextStudios, we can help you with each and every stage of business development and innovation—from developing a culture of innovation to identifying innovation opportunities and developing strategies to execute them.
We have a dynamic team of experienced entrepreneurs and professionals to act as an engine of intentional innovation. Not only can we help you strategize, but we can offer the support you need along the way, whether that means helping you set your budget, build the right team or framework, and develop a culture of innovation to help you lead the way in your industry.
Get in touch today to start developing a blueprint for an innovative future. It’s what’s next—and NextStudios is here to get you there.