What is Innovation?

May 5, 2021

Innovation is one of the most important topics concerning the long-term competitiveness of companies. But what is innovation exactly? Why is innovation management so important for organizations? And what different types of innovation are there?

What is Innovation? (Definition)

The word “innovation” is derived from the Latin verb innovare, which means to renew. In essence, the word has retained its meaning up until today. Innovation means to improve or to replace something, for example, a process, a product, or a service. In the context of companies, however, the term needs a definition:

Innovation is a process by which a domain, a product, or a service is renewed and brought up to date by applying new processes, introducing new techniques, or establishing successful ideas to create new value.

Why is innovation so important?

Organizations have several options to increase their competitiveness: they can strive for price leadership or develop a strategy of differentiation. In both cases, innovation is essential.

  • Companies that choose price leadership must secure their long-term competitiveness by developing innovative, highly efficient processes. Process optimization and continuous improvement in terms of costs are important for them.
  • Companies that strive for a differentiation strategy need innovation to develop unique distinguishing features to their competitors.
  • Many start-ups launch their activities by developing an innovative product or service.

Continuous innovation is, therefore, crucial for all companies. The main difference is in the focus of the innovation strategy, which varies considerably from company to company.

This makes innovation one of the most important drivers for the long-term success of companies.

The Right Mindset for Innovation

Innovation requires more creativity and more willingness to take risks than the implementation of typical projects. To successfully realize innovation projects, a different mindset is needed.

  • Break the rules! With traditional approaches and conventional methods, you will often not get anywhere in the field of innovation. Challenge the status quo consistently! And explore new paths off the beaten track.
  • Collect ideas everywhere! Innovation projects constantly need new ideas: To overcome obstacles, to change concepts, and to optimize strategies.
  • Believe in the impossible! Imagine how your innovation will look like in reality. And believe that you will be able to overcome all obstacles on the way to realization.
  • Put together an innovation team of individuals with different perspectives and thinking styles! Innovation needs the diversity of various competencies and diverse ways of thinking.

The Different Types of Innovation

In the context of businesses, there are different types of innovation.

  • Process improvement and organizational innovation: The improvement of processes through continuous improvement and the development of new solutions.
  • Product development: The development of innovative products or product features.
  • Service innovation: The creation and introduction of new services for customers and partners.
  • Business Model Innovation: The development of innovative business models and new revenue streams.

Digitalization and digital transformation also require companies to rethink and develop new approach.

Many Companies Focus on Incremental Innovation

There are different degrees of innovation. The mere improvement – for example, of processes or products – is called incremental innovation. Major innovations that lead to substantial changes are called disruptive innovation or radical innovation.

  • Incremental innovations are, for example, the optimization of existing processes and procedures or a product line extension.
  • Disruptive Innovations are, for example, major innovations such as iTunes and Google Android. These are often referred to as “digital disruption”: Innovations that change the logic of existing markets.

The Difference Between Incremental and Disruptive Innovation

For many companies, innovation means taking existing products and changing details: The color, the form, the functionalities, the size, etc.

  • This form of incremental innovation ensures the competitiveness of companies in existing markets.
  • In future markets, incremental innovation is often no longer sufficient. Companies must radically reinvent products and services.

To ensure their long-term innovation capability, companies worldwide have established an idea management and innovation management system that provides a structured approach: From the development of an innovation strategy to setting up an innovation roadmap and successfully implementing innovation.

Managing Incremental and Disruptive Innovation

For companies, setting up an innovation management is important in order to keep pace with changing customer needs.

Incremental innovation provides competitive advantages in terms of production costs, functionalities, or equipment.

  • Conventional innovation management often does not go beyond incremental innovation: products are improved, but not reinvented.
  • With methodologies like the Stage-Gate Model for the innovation of process and product development, however, companies quickly reach their boundaries.

Disruptive Innovation Needs Different Approaches

Companies that want to drive disruptive innovation forward need to take a different approach and pursue a revolutionary path in addition to traditional methods.

  • More and more businesses realize that different approaches are critical to long-term growth.
  • Innovation has to be more radical in the future.
  • This requires rethinking. New management techniques are being sought. More courage and willingness to take risks are necessary.

Methods for Managing Innovation

The methods of innovation management are as diverse as the types of innovation:

  • Innovation processes, with which developments are steered by a clearly defined procedure through different stages and levels.
  • Open innovation and Customer co-creation: methods that integrate customers directly into the development process.
  • Innovation labs: Business units in which employees work on the development of innovations outside the daily business
  • Innovation challenges: Competitions in which employees are asked to contribute solutions to overcome a company’s challenges.

It is essential to select the right tools for innovation projects and to build up the innovation culture as well to increase the innovation capability of a company.

Reference: https://innolytics-innovation.com/what-is-innovation/

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