Innovation seems to be one of those few evergreen words. It has never gone out of fashion as it is so intertwined with humankind’s development. So in today’s digital world it comes to no surprise that innovation has become nothing short of a religion with “innovate or die” as its battle cry. When a company succeeds, people attribute its good fortune to superior innovation. When it fails, people say it lacked the ability to innovate.

But unfortunately popularity has its own drawbacks. Sometimes it seems that innovation is used as a catch all word. From political debates to the board room and from startups to advertisements.

Using innovation as a catch all word is risky as it might lead to confusion, miscommunication and wrong expectations. The importance of clarifying what everyone around the table means when they say innovation become apparent to me during an engagement with an exhibition and trade fair organizing corporation. I was invited to moderate an executive off-site workshop during which the attendees were to come up with a medium term strategic road map. From the get go the CEO told everyone attending that, moving forward the company needs to be more innovative than it was. To which some of the directors replied that their respective units are already innovative enough. However, only through examples were both parties able to find common ground and avoid a heated debate that could have derailed the entire event.

You see, from the directors’ perspective moving away from paper-based maps to an app meant innovation. However, for the CEO that only counted as keeping up with the times. What the CEO wanted to see were use cases around the application of drone technology and virtual reality. Essentially the CEO wanted breakthrough innovation. But in the absence of a clear definition and classification of innovation in that company, the directors were only doing incremental innovation.

Innovation by type

In his book, Mapping Innovation, Greg Sattle identifies 4 types of innovation. And makes the case against treating innovation as one-size-fits-all from a process, strategy and KPI perspective.

The first type of innovation Greg is talking about is sustaining innovation. This is the most popular type, because most of the time companies are seeking to get better at what we’re already doing. They want to improve existing capabilities in existing markets. This innovation type is characterized by a good understanding of the customer base, its problems and the ways to solve it. These incremental innovations can be thought of as variations on an existing successful theme. For example, for an FMCG company doing household cleaners, a sustaining innovation might involve making a particular cleaning agent 10% stronger or pairing it with a new scent.

The second type Greg talks about is breakthrough innovation. Essentially this type of innovation is characterized by a good understanding of a problem that needs solving but a fairly poor understanding of the ways to solve problem. As Thomas Kuhn explained in the The Structure of Scientific Revolutions: ‘we advance in specific fields by creating paradigms, which sometimes can make it very difficult to solve a problem within the domain in which it arose — but the problem may be resolved fairly easily within the paradigm of an adjacent domain’.

To exemplify. With the increase in popularity of smart phones a new problem appeared — screen shattering. The problem was well understood but the solution wasn’t that trivial, and moving beyond the bulky covers was proving a challenge. Enter Gorila Glass, manufactured by Corning. The New York-based company produced the first glass light bulbs for Thomas Edison in 1879, pioneered Pyrex cookware in 1915, supplied the windows for the spacecraft Friendship 7 (which was flown by John Glenn for the first U.S. manned orbital flight), created missile nose cones during the Cold War, and was the site of Frank Hyde’s serendipitous discovery of high-purity fused silica in 1932 — the precursor to the optical fibers that connect us to the Internet today. One of the company’s most recent accomplishments is the development of Gorilla Glass, which on the 1962 invention of ChemCor. In addition to being strong, it’s also remarkably thin — from .5 mm to 2 mm — so the glass can replace acoustic glass and is superior to other glass in terms of power conduction and other technical aspects. Plus, its thinness means the devices it protects are lighter, which saves on shipping costs. Already in 2011 Gorilla Glass was found in 200 million devices, roughly 20% of the handsets in the world at that time. It was 20 times stiffer and 30 times harder than plastic, which explained its popularity in the consumer electronics world.

The third type, disruptive innovation. These are the sort of big ideas that many of us have in mind when innovation in mentioned. They are called disruptive because they disrupt the current market behaviour. Rendering existing solutions obsolete, transforming value propositions, and bringing previously marginal customers and companies into the center of attention. The iPod is a prime example of that. For it radically changed the way we listen to and buy music. But other examples can include Uber, Netflix and Airbnb.

In a nutshell, disruptive innovation changes the basis of competition. Because of technological shifts or other changes in the marketplace companies can potentially find themselves getting better and better at things people want less and less. When that happens, innovating your products won’t help — you have to innovate your business model.

Lastly Greg is talking about basic research as the forth type of innovation. To Greg basic research is needed when neither the problem (or market) nor the solution are well enough understood. Basic research is needed as pathbreaking innovations never arrive fully formed, they always begin with the discovery of some new phenomenon.

Image by Esther Gons

As you can see, clarifying the type of innovation one talks about will help sharpen the conversation, align expectations and help identify the right KPIs through which progress is measured. Since breakthrough and disruptive innovation are so different from incremental innovation, they need to be measured differently. For incremental innovation metrics need to focus efficiency: how efficient are projects going through the pipeline and how are they stacking up against forecasted and actual economic return. For breakthrough and disruptive innovation, given the inherent uncertainty of something that’s new, the measurements must be different — this is the focus of innovation accounting.

Zooming out you can very well view the four types of innovation as either complex or complicated. Complicated problems can be hard to solve, but they are addressable with rules and recipes. They also can be resolved with systems and processes, like for example hierarchical structure. Incremental innovation and basic research fall into this category. While complex problems involve too many unknowns and too many interrelated factors to reduce to rules and processes. A technological disruption like blockchain is a complex problem. A competitor with an innovative business model — an Uber or an Airbnb — is a complex problem. There’s no algorithm that will tell you how to respond.

Rick Nason, an associate professor of finance at Dalhousie University’s Rowe School of Business, explains in his new book, ‘It’s Not Complicated’ that: if you manage complex things as if they are merely complicated, you’re likely to be setting your company up for failure.

Innovation by form

Now that we clarified types of innovation we can zoom in and look at innovation from the perspective of form. Under each type, innovation can take many forms, and Larry Keeley’s book ‘10 Types of Innovation’ is a good resource for a deep-dive.

Understanding innovation by form is essential in aligning on what success look like for each initiative in a company’s portfolio and how it will be measured.
Take ‘customer engagement’ or ‘brand’ innovation as examples. These 2 forms have a direct impact on new revenue and the best way to measure their success (or failure) is though KPIs reflecting interactions. On the other however, ‘process’ and ‘structure’ innovations have a impact on cost reduction. Hence the best suited KPIs for the job of measuring success will be financial ones or time related ones (eg.: time-to-market, cost-of-sale etc.)

Wrapping up

  • Not having a clear definition of innovation in your company is dangerous as this will impact expectations, actions and most importantly KPIs.
  • Innovation should not be used as a catch all word as it comes in many types and forms — each needing a different methodology, KPIs and tools to give the best outcome.