Nowadays, the term innovation is on everyone’s lips and its understanding is often linked to creative efforts to develop new products or services. But in reality, innovation encompasses much more subtle definitions. Indeed, there are several types of innovations and the choice of innovation or the combination of innovations that a company undertakes can propel it or on the contrary ruin it. As we discussed in the previous article, a highly innovative company has 3 important pillars that allow it to succeed: a supportive structure, good practices and adequate processes. Unfortunately, this is not the case for the majority of companies and the choice of the type of innovation to adopt becomes very important. Indeed, it is the stage of maturity of a company that will generally dictate the roadmap leading to the construction of its innovation portfolio. In a future article, we will discuss the challenges of building a balanced portfolio of innovations.

In business, we generally talk about 4 types of innovations. Two types are related to technological development and in this case, we refer to incremental and radical innovations. The other two types of innovations are aimed at market development and in this case, we mention adjacent and disruptive innovations. In this article, we limit ourselves to definitions and explanations with concrete examples of the 4 types of innovations.

Definitions of the 4 types of innovations:

• Incremental innovation

Incremental innovation consists mainly in regularly improving existing products, generally from the same technological platform, and optimizing their production. Incremental innovation is very popular with established companies because it allows them, with less business risk, to continue to serve their traditional markets well and remain competitive. In this perspective, the metamorphosis undergone by the product or service leads to a succession of versions 1, 2, 2.1, 2.2, and so on. Many companies that embrace this type of innovation by adapting their business model to this strategy succeed in thriving.

Remember that Gmail, when it was launched in its Beta version, had very limited functionality except for email, which it did very well. Unlike its direct competitors, Google had a roadmap of incremental innovations to perfect the Gmail product, which led it to today’s success. Google used the same strategy for all its new services: Google map, Chrome, etc.

However, relying on incremental innovation alone does not guarantee sustainable prosperity! Many companies, once prosperous, depreciate and eventually disappear because of competitors who have adopted radical or disruptive innovations! Sears Canada, a pioneer in catalogue sales, did not innovate in time to adapt to online sales. Sears recently filed for court protection.

3 important elements to remember about incremental innovation:

1. It represents a low business risk for the companies that adopt it,
2. It is relevant for the consumer, as the latter continues to benefit from more reliable, better performing products, etc,
3. It allows efficient management of production cost reductions regardless of the industrial sector and, as a result, incremental innovation becomes the engine of competitiveness for a company.

Well-established companies that manage their innovation portfolio well adapt their existing products for use in an adjacent market.

• Adjacent innovation

Adjacent innovation consists in exporting to a new but familiar market an existing product that has not been transformed or has undergone an incremental type of innovation. Many well-established companies use this strategy to diversify their offering and gain new markets. For example, think of all the products with different quality grades. For example, a manufacturer of cooking ovens for domestic, commercial or industrial use. Adjacent innovation is a well-suited tool for segmenting markets and allows for diversified revenue growth planning while minimizing investments in new product development.

The combination of incremental and adjacent innovations allows less business risk to maintain an offering in line with existing customer expectations in addition to generating diversified growth.

• Radical innovation (Breakthrough)

Radical innovation involves inventing new categories of products or services that are both new to the market and to the company, which represents a high business risk. The companies that venture down this path are mostly startups and those that do well quickly become leaders.

There are many examples of companies that have succeeded through the strategy of radical innovation. Among the most popular are those from the digital technology scene such as Facebook, Microsoft, Google, etc. Other companies have taken the concept of radical innovation to the extreme. British tycoon Richard Branson has created a business model based on the principle of radical diversification. His company, Virgin, controls a constellation of more than 400 companies, all of which are challenged to radically innovate their offerings while pursuing incremental innovation in the marketing of their products and services. A hybrid innovation strategy that is quite successful for Virgin.

Technology companies are not the only holders of radical innovations. We all know how Guy Laliberté and his clique of 20 acrobats in the early 80s revolutionized the circus industry with their startup, Cirque du Soleil. The Quebec-based startup began at a time of decline in the traditional circus industry, and despite the downturn, Cirque du Soleil has completely revolutionized its industry by offering shows that focus on the dance, music and acrobatic performances of its artists. This new circus concept has created a new and very lucrative market for Cirque du Soleil, which has become a multinational company that has reached unimaginable levels of profitability.

The radical innovation that propelled Cirque du Soleil was explained by W. Chan Kim and Renee Mauborgne in their book Blue Ocean strategy. Rather than competing within the confines of the traditional circus industry or trying to take clients away from rivals, Cirque du Soleil has instead developed an uncontested market space that has made traditional competition obsolete. Thus, Cirque du Soleil found itself alone in a captive market ready to recognize the value of its performance. In contrast to the Blue Ocean strategy, the authors propose the notion of Red Ocean. All industries that do not create new markets as in the example of Cirque du Soleil remain in “Red Oceans” and as the space becomes crowded, the prospects for profits and growth diminish, the products become mere commodities and in the face of increasingly bloody competition, the color of the water changes and turns red! As they say, a picture is worth a thousand words.

There are two ways to create blue oceans. One is to launch completely new industries, as eBay has done with online auctions. But it is much more common for a blue ocean to be created out of a red ocean when a business spills over the boundaries of an existing industry. In theory, the Blue Ocean strategy sounds great! However, its authors admit that after a large study of 150 cases in 30 different industries, they are unable to clearly conceptualize their theory, as the companies surveyed are short of solid arguments as to how and why they succeeded in creating their blue oceans!

It is clear that the combination of a new technology and a new market represents a significant business risk. Does this mean that established companies should shun radical innovations? This question remains relevant because the majority of companies still manage to do well with incremental and adjacent innovations. However, here’s a good thought: the New York Times is one of the most prestigious newspapers in the world. Their objective is to take information, structure it and transmit it to the consumer. So why didn’t they dare to innovate radically to create Google? After all, the mission of both companies is almost identical.

• Disruptive innovation

The notion of disruptive innovation, not to be confused with radical innovation, was introduced by Joseph L. Brower and Clayton M. Christensen in 1995 in their article Catching the Wave published in Harvard Business Review. The topic was taken up by Christensen in his book The innovator’s dilemma. Christensen explains why companies that are leaders in their markets collapse when faced with certain technological changes brought about by new players.

The author contrasts the concepts “sustaining technologies vs. disruptive technologies” which I translate as sustaining technologies vs. disruptive technologies. Supporting technologies are fueled by incremental and/or radical innovations and as a result, customers who benefit from them remain up-to-date at all times. Most companies follow this approach in order to retain their customers and benefit from the high margins of high-end products

Sometimes, innovations called disruptive innovations produce products that perform poorly but are differentiated by certain technical specifications such as weight, size and ease of use. Ironically, some customers prefer these products to those from supporting technologies. The “new suppliers” of these “low-end” products are opening up new markets with a low-cost product offering. These new products in turn continue the maturation process and after some time manage to benefit from supporting innovations that make them very successful over time.

Since the disruptive solution has to be cheap in addition to having no existing customers to begin with, well-established companies do not dare to venture into this type of innovation, especially those selling highly profitable products. This is how some former market leaders disappear in favor of new players with disruptive technologies.

IKEA is an example of disruptive innovation. By creating the concept of the easy-to-carry, easy-to-assemble home kit, and by offering low-cost materials, IKEA has been able to reduce factory assembly costs as well as distributor costs since IKEA sells directly to the end consumer. Dell is another example for online computer sales.