“Operational and Marketplace Innovation tend toward a left-brain orientation, whereas Transformational Innovation requires a strong right brain orientation. Category Innovation straddles the fence. All four types of innovation benefit from whole-brain thinking and the innovation flow it creates."
–from the book BREAKING AWAY by Jane Stevenson & Bilal Kaafarani
WHAT IS INNOVATION?
Over time innovation has come to be used as an umbrella term for everything from true breakthroughs, like the hybrid car, to the modification of product features or processes that could then be labeled "new." Renovations are not innovations. Tweaking technology to make a product more current or loading it with features to keep up with the competition is not setting the bar any higher.
To be a true innovation, an offering has to have three essential elements.
It has to
- Be one-of-a-kind unique
- Bring real value to the consumer or customer
- Be commercial—or worthy of exchange
THE FOUR TYPES OF INNOVATION
While most people think of innovation as "light blub" big, the truth is opportunities for innovation, large and small are all around us. By looking at innovation as a multilevel construct, continual innovation is open to all facets of the company. In this expanded vision there are four distinct levels—Transformational, Category, Marketplace and Operational. Each level, while remarkably different from one another, is a viable and valuable resource for
1. TRANSFORMATIONAL INNOVATION
This is the granddaddy of innovation. It comes along rarely and is so big and powerful that others continue to build on it for generations to come. In fact, that is one of the hallmarks of Transformational Innovation—it's a disruptive breakthrough that changes society and so impacts the way we live that over time we can't thrive without it. Few companies commit to the resources and risk that allows Transformational innovation to succeed, but those that do can eventually reap tremendous rewards.
Examples: the automobile, the light bulb, and the Internet.
Defining Characteristics of Transformational Innovation
- Driven by curiosity
- Changes society and the way we live
- Is disruptive, revolutionary in scope, and sustainable in dimension
- Creates follow-on Innovation at Category, Marketplace, and Operational levels
- Becomes something we depend on
- Provides benefits to our culture
Business Attributes of Transformational Innovation
- Adoption rate unclear
- Full market potential difficult to define
- No defined P&L or timeline
- Risk-reward ratio exponentially higher than any other type of innovations
- Can't survive in a large corporate environment unless it's buffered from standard success metrics
- Legacy vs. current
More evolutionary than revolutionary, Category Innovation originates at the industry level and builds off of proven Transformational innovations. Breakthroughs at this level are often found in the new application of ideas, products or services rather than in the creation of inventions. This level of innovation is primarily market driven and geared towards meeting customer needs often before customers even know they need it.
Examples: automobile service stations, lamp manufacturing, virtual bookstores.
Defining Characteristics of Category Innovation
- Driven by felt or anticipated consumer needs and insights
- Builds on or stems from Transformational Innovation
- Are usually new breakthrough applications or new customer segments
- Guided by a valid business case
- Allows for follow-on innovation at the Marketplace and Operational levels
Business Attributes of Category Innovation
- Provides significant and completely new revenue streams
- Has predictable revenue and timelines
- Fits well with Wall Street expectations
- Led by business opportunity rather than technology
3. MARKETPLACE INNOVATION
Whereas Category Innovation is building new industries our next type of innovation is building or expanding new markets. Living in the realm of features, benefits and sales. Marketplace Innovation is all about devising new ways to reach and delight the customer in engaging new ways. By coming up with unique modifications for products, services, and delivery methods, its aim is to have a positive impact on people's lives.
Examples: folding side view mirrors on cars, light bulb packaging, and PayPal.
Defining Characteristics of Marketplace Innovation
- Driven by competitive market needs
- Generally defined by new features or benefits
- Creates new ways to delight the customer
- Impacts multiple categories
- Keeps category innovation fresh and current
- Is opportunistic and anticipates or creates market changes
Business Attributes of Marketplace Innovation
- Revenue is completely incremental
- Is often the most profitable
- Like dating - there's no commitment by the customer or company
- Doesn't have to be core – can be an in-and-out proposition
- Exciting for everyone - company and customer
- Maximizes cross functional participation
- Can impact business short term but has long term potential
4. OPERATIONAL INNOVATION
This type of innovation is more about the how of business than the what. Whether it's finding efficiencies that save time, improve quality, increase productivity, improve work environment or upgrade technology, running a forward moving, continually evolving company is essential to success. One word of caution though, like all types of innovation, Operational Innovation has to be tied to more than saving or making money. It has to benefit the customer. Every company and 100% of its workforce should be engaged in Operational innovation at all times.
Examples: assembly line automation, retail display racks, online inventory control.
Defining Characteristics of Operational Innovation
- Driven by internal insights and needs
- Creates or changes organizational structure and processes
- Improves work life
- Improves productivity
- Improves financial performance
- Improves the customer experience through efficiencies and processes
Business Attributes of Operational Innovation
- Focused on how to improve the company
- Allows for cost savings that can benefit the company and customer
- Requires focus on details
- Operates on the project management level