There are three types of innovation. Nigel Bairstow’s research shows that, to be successful, companies should understand what they are trying to achieve, and work to their competencies.
Every company seeks innovation, but many find it elusive. It is, however, the only sustained source of competitive advantage and growth. You can cut expenses only so much, and imitating competitors’ inventions can only go on for so long.
Honest profit is achievable by companies that offer products or services that are viewed by customers as new or perceived to be highly desirable. Innovation equals new ideas plus action. Done right, they result in an improvement, gain, or profit. But how should companies think of innovation? There are three fundamental types of innovation.
The first, type A, is the most radical innovation, which gives birth to a brand new market or industry. For example, today’s information technology industry was shaped by two breakthroughs:
- the first internet website created by Tim Berners-Lee in 1990, and;
- the first web browser invented by Netscape in 1994.
These inventions re-shaped the information technology industry. They were the genesis of the dot.com era and the rapid development of e-banking, iTunes, amazon.com and the myriad other internet-enabled services that make life today so radically different to that of twenty years ago.
Today, we can see this type of innovation taking place in the nanotechnology and biotech industries, creating the new markets and industries of the future.
Type B innovation changes the basis of competition. Such innovations create a new competitive position or niche within an established field.
Sony created a market with its Type A Walkman in the 1980s. But Apple followed up with a killer Type B in the iPod. Apple built on the market that Sony developed in the early stages and is now the dominant market leader in this personal entertainment category.
The third innovation type, Type C, is closely aligned with explicit customer needs. These are small incremental changes that extend the product life cycle and occupy many companies’ marketing activities.
There is significant value to be created even with this incremental form of innovation. For example, Nokia released the Nokia 1100 mobile phone for the Indian market and, like most new model mobile phones, made only small changes to previous versions. The 1100 was dust resistant and had an inbuilt flash light – useful in a country that suffers from numerous electricity blackouts. The company ended up selling 20 million units.
The three innovation types can be applied to different kinds of customer relationships to produce a matrix of possibilities. Figure 1 displays a matrix of how 3M has developed a culture of innovation with its Post-it® notes.
When Art Fry developed this idea it was new business (Type A) for 3M which created a successful new market. 3M were able to innovate further by changing the basis of competition (Type B) with the introduction of Post-it® Flags. Finally, its incremental changes (Type C), represented by line extensions that lengthened the product life cycle and sales growth, were introduced through the development of different colours and sizes of its original Post-it® notes.
Companies that have innovation at their heart have an ability to develop solutions in search of real-world problems.
To be successful requires companies to understand their strategic competencies, strengths, and weaknesses and develop strategic alliances with other companies to increase speed to market for their products and services. The age of globalisation has meant the world is indeed flat and requires increased collaboration and quick response to be first to market or perish.
Companies need to understand what their innovation objectives are, and build an environment in which these can be fulfilled. Managing innovation also requires risk-taking and investment, particularly for Type A innovations. Type A innovations require individuals that are entrepreneurial and have the ability to grow a new business from scratch. Type B and C innovations require individuals in organisations that that can maintain and generate profits over the long term.
Innovation doesn’t just happen, at least not consistently. Like talent, cash and other company assets, it needs to be fostered, managed and have an underlying strategy that can be adapted as the organisation, and its environment, changes.
Nigel Bairstow is a lecturer in the school of Marketing at UTS. This article is based on his experience working at 3M for 12 years in the 3M management team.