According to how well-defined is the problem and how well-defined the domain, we have four main types of innovations: basic research (problem and domain or not well defined); breakthrough innovation (domain is not well defined, the problem is well defined); sustaining innovation (both problem and domain are well defined); and disruptive innovation (domain is well defined, the problem is not well defined).
Innovation can come in several formats, depending on whether it uses the past as a foundation for building up the future.
And in that case, the process of innovation might be following a gradual and organic path.
In other cases, innovation follows a whole new set of principles, no longer attached to the past, and in some cases contrasting with that (see how Galileo refuted the previous paradigm).
According to the Innovation Matrix, the problem and the domain where the problem needs to be solved are not well defined in basic research.
The innovation loop is a methodology/framework derived from the Bell Labs, which produced innovation at scale throughout the 20th century. They learned how to leverage a hybrid innovation management model based on science, invention, engineering, and manufacturing at scale. By leveraging individual genius, creativity, and small/large groups.
Disruptive
the Godfather of Disruptive Innovation, Clayton Christensen, defined it as when new products or services enter at the bottom of a market and over time move up, thus displacing established incumbents.
Disruptive innovation as a term was first described by Clayton M. Christensen, an American academic and business consultant whom The Economist called “the most influential management thinker of his time.” Disruptive innovation describes the process by which a product or service takes hold at the bottom of a market and eventually displaces established competitors, products, firms, or alliances.
Breakthrough
While a breakthrough innovation takes a leap forward, it might start with a well-defined problem, which is extremely hard to solve (the domain is not well-defined).
Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the business model. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.
Continuous/sustaining/incremental
As an iterative process, in this case, innovation builds up over time, gradually.
There is a pretty clear idea of what problems need to be solved and what skill domains are required to solve them.
That is a process that requires a continuous feedback loop to develop a valuable product and build a viable business model. Continuous innovation is a mindset where products and services are designed and delivered to tune them around the customers’ problem and not the technical solution of its founders.
From technological innovation to business model innovation
In today’s context, when we hear the term innovation, most probably the reference is to IT innovation.
That’s not a surprise.
The PC, then the Internet, and all the platforms born on top of it enabled technological innovation to become ubiquitous.
Companies that didn’t exist at the turn of the century became the tech giants we know today.
As we’ll see throughout the guide, this is a misconception.
Technological innovation does provide the ground for business model innovation, but that isn’t always the case.
When in 1996, Google (still an academic project known as BackRub) built a new way to index the web, and its search engine took off.
Yet, by 1999, Google still hadn’t figured out a whole business model to enable revenue traction (it would come a couple of years later with Google AdWords).
Google is a platform and a tech media company running an attention-based business model. As of 2021, Alphabet’s Google generated over $257 billion in revenues. Over $209 billion (over 81% of the total revenues) came from Google Advertising products (Google Search, YouTube Ads, and Network Members sites). They were followed by over $28 billion in other revenues (comprising Google Play, Pixel phones, and YouTube Premium), and by Google Cloud, which generated over $19 billion in 2021.
It was the combination of technological innovation with a business model innovation (Google would redefine the way advertising was delivered, making it relevant and almost invisible to the average user) which made the company scale from a business standpoint.
Why business model innovation is critical
Business model innovation is about increasing the success of an organization with existing products and technologies by crafting a compelling value proposition able to propel a new business model to scale up customers and create a lasting competitive advantage. And it all starts by mastering the key customers.
A business model is a holistic concept to describe an organization and also helps it shape the overall business (from product up to profit formula) to evolve in the marketplace.
Business model (or business) innovation comes in many forms.
Those patterns have proved successful in other domains and industries or for other players in the same industry.
Therefore, a business can experiment with those patterns almost like a chef experiment with ingredients and how changing the dosage of an ingredient changes the final output.
Key Highlights
Types of Innovation:
Innovation can take various forms depending on its relationship with the past and its principles.
Some innovation follows a gradual and organic path, while others break away from existing paradigms.
The Innovation Matrix:
Greg Satell’s Innovation Matrix categorizes innovation based on the definition of the problem and the well-defined nature of the domain.
Well-defined problem and domain lead to sustaining innovation, while ill-defined aspects lead to basic research.
Types of Innovation:
Basic Research:
Problem and domain are not well-defined.
Disruptive Innovation:
New products/services start at the bottom of a market and gradually displace established competitors.
Breakthrough Innovation:
Addresses a well-defined problem in a less-defined domain.
Continuous/Sustaining/Incremental Innovation:
Gradual iterative development with clear problem-solving objectives.
Technological Innovation and Business Model Innovation:
Technological innovation often lays the foundation for business model innovation, but the two are distinct.
Business model innovation involves crafting a compelling value proposition to scale up customers and achieve a competitive advantage.
Google’s Example:
Google combined technological innovation (search engine) with a business model innovation (Google AdWords) to scale its business successfully.
Business model innovation can redefine revenue generation and customer interaction.
Importance of Business Model Innovation:
Business model innovation enhances organizational success with existing products by creating a compelling value proposition.
Mastering key customers is crucial for successful business model innovation.
Business Model Innovation Diversity:
Business model innovation can involve recombining successful business patterns from other industries or players.
Type of Innovation
Description
1. Product Innovation
– Product innovation involves the creation of new or improved products and services. It aims to meet customer needs more effectively or offer unique features. Product innovation often includes enhancements to existing offerings or the development of entirely new products. – It can lead to increased market share, revenue growth, and competitive advantage.
2. Process Innovation
– Process innovation focuses on improving and optimizing internal operations and methods within an organization. It aims to enhance efficiency, reduce costs, and increase productivity. – Innovations in processes can result in streamlined workflows, better resource utilization, and higher-quality outputs. – It is essential for operational excellence and sustainability.
3. Business Model Innovation
– Business model innovation involves reimagining how a company creates, delivers, and captures value. It may encompass changes in revenue models, customer segments, distribution channels, or partnerships. – Business model innovation can lead to the discovery of new markets, revenue streams, and growth opportunities. – It is critical for long-term sustainability and competitiveness.
4. Service Innovation
– Service innovation focuses on improving the delivery and customer experience of services. It may involve creating new service offerings, enhancing customer interactions, or optimizing service delivery processes. – Service innovation is particularly relevant in service-oriented industries such as healthcare, hospitality, and finance. – It aims to increase customer satisfaction and loyalty.
5. Marketing Innovation
– Marketing innovation revolves around novel approaches to promoting and communicating products or services. It includes innovative marketing strategies, branding efforts, advertising campaigns, and customer engagement tactics. – Marketing innovation aims to create stronger brand awareness, connect with customers, and gain a competitive edge in the market. – It is vital for effective market positioning.
6. Open Innovation
– Open innovation is a collaborative approach that involves partnering with external organizations, individuals, or communities to access new ideas, technologies, or expertise. It breaks down traditional organizational boundaries and fosters knowledge exchange. – Open innovation can accelerate product development, reduce research costs, and lead to breakthrough innovations. – It leverages external creativity and resources.
Business model innovation is about increasing the success of an organization with existing products and technologies by crafting a compelling value proposition able to propel a new business model to scale up customers and create a lasting competitive advantage. And it all starts by mastering the key customers.
The innovation loop is a methodology/framework derived from the Bell Labs, which produced innovation at scale throughout the 20th century. They learned how to leverage a hybrid innovation management model based on science, invention, engineering, and manufacturing at scale. By leveraging individual genius, creativity, and small/large groups.
According to how well defined is the problem and how well defined the domain, we have four main types of innovations: basic research (problem and domain or not well defined); breakthrough innovation (domain is not well defined, the problem is well defined); sustaining innovation (both problem and domain are well defined); and disruptive innovation (domain is well defined, the problem is not well defined).
That is a process that requires a continuous feedback loop to develop a valuable product and build a viable business model. Continuous innovation is a mindset where products and services are designed and delivered to tune them around the customers’ problem and not the technical solution of its founders.
Disruptive innovation as a term was first described by Clayton M. Christensen, an American academic and business consultant whom The Economist called “the most influential management thinker of his time.” Disruptive innovation describes the process by which a product or service takes hold at the bottom of a market and eventually displaces established competitors, products, firms, or alliances.
In a business world driven by technology and digitalization, competition is much more fluid, as innovation becomes a bottom-up approach that can come from anywhere. Thus, making it much harder to define the boundaries of existing markets. Therefore, a proper business competition analysis looks at customer, technology, distribution, and financial model overlaps. While at the same time looking at future potential intersections among industries that in the short-term seem unrelated.
Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the business model. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.
Sociologist E.M Rogers developed the Diffusion of Innovation Theory in 1962 with the premise that with enough time, tech products are adopted by wider society as a whole. People adopting those technologies are divided according to their psychologic profiles in five groups: innovators, early adopters, early majority, late majority, and laggards.
In the TED talk entitled “creative problem-solving in the face of extreme limits” Navi Radjou defined frugal innovation as “the ability to create more economic and social value using fewer resources. Frugal innovation is not about making do; it’s about making things better.” Indian people call it Jugaad, a Hindi word that means finding inexpensive solutions based on existing scarce resources to solve problems smartly.
A consumer brand company like Procter & Gamble (P&G) defines “Constructive Disruption” as: a willingness to change, adapt, and create new trends and technologies that will shape our industry for the future. According to P&G, it moves around four pillars: lean innovation, brand building, supply chain, and digitalization & data analytics.
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).
An innovation funnel is a tool or process ensuring only the best ideas are executed. In a metaphorical sense, the funnel screens innovative ideas for viability so that only the best products, processes, or business models are launched to the market. An innovation funnel provides a framework for the screening and testing of innovative ideas for viability.
Tim Brown, Executive Chair of IDEO, defined design thinking as “a human-centered approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success.” Therefore, desirability, feasibility, and viability are balanced to solve critical problems.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
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