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What Is Innovation? A Simple Definition & Introduction

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Innovation is such a constantly tossed about business buzzword, yet people very rarely stop to ask themselves: ‘what is innovation?’

It’s a question you could ask 1000 times and receive 1000 different answers – but that doesn’t mean there’s no consensus on the subject whatsoever.

The key is to look at what all these different definitions have in common (and to dispel with some of the common myths and misconceptions that exist around innovation).

So in this post, we’ll give you a simple working definition of innovation, and an overview of some of the main types of innovation and its importance in business:

Title image: 'What is Innovation? An Introduction'

What is Innovation?

 

Innovation is the formation of new products or services, new processes, raw materials, new markets or new organisations.

This definition, from economist Joseph Schumpeter, is a strong and simple one to refer back to – so why all the confusion?

Well, it’s mainly because people tend to disagree about what this means in practice.

Virtually all organisations talk about innovation, and the importance of “doing” it, but only a few are actually successful. Most companies only dabble in innovation and creativity, or confuse one with the other.

Simply put, innovation scares companies, because it’s inevitably linked to risk. Many of them pay lip service to the benefits and power of innovation, but most don’t apply the aggressive commitment and investment that it demands.

 

Some more thoughts on what innovation means:

  • The development and intentional introduction of new and useful ideas.[1]
  • The creation of a new product-market-technology-organization combination.[2]
  • The core renewal process in any organisation – unless it changes what it offers the world, and the ways it delivers those offerings, it risks its survival and growth prospects.[3]
  • The process that turns an idea into value for the customer, and results in sustainable profit for the enterprise.[4]
  • The search for, and the discovery of, experimentation, development, imitation, and adoption of new products, new production processes and new organisational set-ups.[7]
  • The work of knowing rather than doing.[8]

What most of these definitions have in common is the idea of newness – the notion that no one has ever launched something similar, experienced it or known about it.

What they all seem to suggest is that innovation must be something really unique to the market, or the market segment of the firm.[9]

 

4 Common Myths Around Innovation

 

Before we look at some of the many different types of innovation, let’s address some of the most common misconceptions around the topic.

1. ‘Innovation is about creativity’

Usually, firms don’t suffer from a lack of projects. Marketing offices and labs are regular theatres of brainstorming sessions that create lists of potential projects and ideas.

The production of ideas is not difficult. But it is difficult to identify the right ideas – those that will give rise to successful services or products.[10]

Companies need an efficient process to screen ideas and kill unsuccessful projects at an early stage – so that the right idea, which most likely leads to a successful service or product, can be identified quickly.[11]

2. ‘The manufacturer knows more than the user’

Despite much talk of user insight, customer focus, and customer orientation, the reality is that users are often not at the core of the innovation process.

Manufacturers still believe that manufacturing and designing a new product is a complex task.

The product development process is managed top-down – the manufacturers are designing, manufacturing, and launching new products for the passive user, who’ll decide if the innovation is going to be successful or not.

In more advanced companies though , customers are questioned during the innovation process in order to validate the ideas and provide peace of mind to the decision makers.

Indeed, users are often the major source of business innovation, and can be the actual developers of new products [10]

3. ‘With innovation, being first is critical’

There are two different strategies in terms of innovation – leadership (being the first on the market) and followership (bringing out a cheaper or better product later through creative imitation).

The advantages of the leadership approach are: pre-empting market channels or inputs, locking in of customers or technical features, and enhanced reputation.

But being the pioneer also means fronting the cost of developing the services or products, and the risks of marketing and technological uncertainty – risks and costs that can be avoided by a follower. [10]

4. ‘Innovation should be managed top-down’

Innovation does not only come from the top. It can be initiated anywhere in a company.

Innovation is a collaborative and collective process. Top management drive is required but – given the amount of risks and resources involved – it’s far from sufficient on its own.

Top management can create a vision, formulate the strategy and support the process from idea to market, but it rarely matches the power of an entrepreneurship culture – unleashing the creative and innovative power of hundreds or thousands of employees.[10]

 

7 Main Types of Innovation

Another reason that there are so many definitions of innovation is that business innovation can come in so many forms.

It’s likely you’ve come across a few of these before (and there are more even still), but let’s take a quick run through some of the major ‘types’ of innovation that can occur in an organisation.

Disruptive Innovation

 

Clayton Christensen (who coined the term) defined disruptive innovation as “a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors.”

However, by doing so, organisations open the door to new disruptive innovations at the bottom of the market.

A disruptive innovation allows a whole new consumer population at the bottom of a market to access products or services that were historically only accessible to consumers with a lot of skills or money.

 

Product Innovation

 

Product innovations emerge when a new product (or a new variety of an existing product) is introduced to the market place for the first time, aiming at satisfying a specific customer demand.[12]

One of the prime goals of product innovation is to introduce new products (or varieties) that allow the organisation to gain a monopoly position, giving it the freedom to set prices above marginal costs.

Radical, improved new products are seen as particularly important for long-term growth, and maintaining competitive position.[12]

 

Market Innovation

 

Market innovations involve the opening of new markets, or improvements to your mix of target markets (including market segmentation), and to your methods of serving these markets.[13]

Innovations concerning the market mix include manipulation of the ‘four marketing P’s’ (product, price, promotion and place).

The main aims of market innovation include increasing sales volume, catching a larger share of the ‘consumer surplus’ (the difference between what a customer is willing to pay and what they actually pay), :

  • increasing total sales volume
  • catching a larger share of the ‘consumer surplus’ (the difference between what a customer is willing to pay and what they actually pay)
  • offering product characteristics that increases the customers’ willingness to pay for these products.[12]

 

Process Innovation

 

Process innovations involve introducing new production methods, including new ways of handling a service or good commercially.

The main goal is normally to reduce unit costs (full cost of producing, storing and selling a single unit of a product), which can often be achieved by introducing new machinery knowledge.

Another important aim of process innovation is to increase or preserve product quality. In particular, a product innovation that involves the launching of completely new products, demands associated process innovations. [12]

 

Organisational Innovation

 

An organisational innovation involves changes in the routines of an organisation – aimed at improving productivity, profitability, flexibility, efficiency and creativity.

Nevertheless, they often have same goal as process innovations – quality improvements and cost reductions such as:

  • Introducing and implementing new strategies
  • Introducing ‘knowledge management systems’ that improve skills in adopting, searching, coding, sharing, diffusing and storing knowledge
  • Introducing new administrative and control processes and systems
  • Introducing new internal structures and types of work organisation
  • Introducing new types of external network relations with other organisations
  • Mergers & Acquisitions [12]

Breakthrough innovation

 

Breakthrough innovations can be defined as new services or products that create entirely new markets or change the existing ones. They’re also a potential (crucial) source of competitive advantage.

Additionally, they’re a fundamental mechanism for restoring growth in advanced economies, which were hit by the global financial crisis.

Breakthrough innovations are rare and difficult to achieve. Startups are often considered the most natural engine of breakthrough innovations. [17]

Business Model Innovation

 

Business model innovation is the implementation of a business model that’s new to the organisation.

It’s often contrasted with product innovation (more on that in a bit), which involves implementing a service or product that’s a significant improvement or is new to the organisation, or to the world.

Business model innovation does not discover new services or products. However, it may redefine an existing service or product, how it’s delivered to the customers and how the organisation profits from the customer offering. [18]

 

The Importance of Innovation

Hamid Tohidi describes innovation as one of the most important and complex issues facing organisations today, as well as the key to their success (or failure).[19]

Every company should have some kind of process in place for promoting innovation. There’s a rapidly growing global culture of entrepreneurship, and businesses can harness this as a tool for economic growth.

 

Some more reasons why innovation is important:

  • Innovation is pro-active – it allows companies to act on the offensive, rather than scrambling to react to industry changes brought about by someone else.
  • It’s necessary just to keep up with technological advances – look at the changes in the music industry over the last two decades alone, and you’ll see why innovation is vital to a company’s continued survival.
  • Innovation enhances an organisation’s reputation – generally, firms that drive progress and change are seen as desirable employers.
  • Consumers have increasingly high expectations and demands – customers have more choice and control than ever before, and they’ll favor firms who work hardest to improve their services and products.

 

Innovative Thinking

 

The question of ‘What is innovation?’ is so often interpreted as ‘What does innovation mean to you?’ that it’s no surprise there are so many conflicting answers.

An even harder question can be ‘How do I put innovation into action?’ or ‘How do I think innovatively?’

For more on this, check out the recording of our webinar on Disruptive Thinking, where our MBA Programme Director, Dr Ian Heywood, looked at how disruptive thinking can empower us to challenge existing business models.

We want to hear your own thoughts on business innovation too. Do you have your own ideas of what it is, or what it means to your company? Let us know in the comments below.


  1. Bledow et al., 2009, p. 30
  2. Boer and During, 2001, p. 84
  3. Bessant et al., 2005, p. 1366
  4. Carlson and Wilmot, 2006, p. 4
  5. Crossan and Apaydin, 2010, p. 1155
  6. Damanpour, 1991, p. 556
  7. Dosi, 1988, p. 222
  8. Drucker, 2002
  9. Lazarotti et al., 2011
  10. Bell, 2013
  11. Bell, 2010
  12. Karlsson and Tavassoli, 2015
  13. Johne, 1999
  14. De Brantani, 2001
  15. Tushman and Romanelli, 1985
  16. Engen and Holen, 2014
  17. Schneider and Veugelers, 2011
  18. Bjorkdahl, 2009b
  19. Tohidi, 2012

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