Brussels, Belgium
Munich, Germany
Pula, Croatia
Abu Dhabi, UAE

Innovation Object & Types of Innovation

Innovation is the practical application of ideas that lead to various new types of new offerings such as products, services, processes, and business models, with the goal of improving or disrupting existing applications or creating new solutions. It doesn’t matter if the ideas come from outside the organization, through brainstorming, combining existing ideas, or through radical new thinking within your unit. But it should be at the heart of your business and it should be done constantly to ensure the survival of the company. Much more about the types of innovation and approaches to innovation you will find in our brandnew FREE book “How to Create Innovation”. Register for the download now!

Innovation object - What is being innovated?

Innovation can happen anywhere, whether it is a for-profit or non-profit organization. It can affect the performance of the organization itself, that is, the product or service, but also the structures of how the service is delivered. The first classification before we break down the types of innovation is thus the subject of what is to be innovated.

Product innovation

Products concern both tangible products and intangible services such as services that satisfy customer needs and are thus purchased by the customer.  Product innovation is how a company makes its money and tries to differentiate itself from the competition.

Product innovations are components of a company’s product policy: a company launches a new product on the market and thereby expands its product range. The company can either develop the product innovation itself or “buy in” it through, for example, a corporate acquisition or the purchase of a patent / license.

Depending on whether a company enters existing or new markets with its product innovations, a distinction is made between product differentiation and product diversification.

Product innovations often require a high level of investment (research and development, production, market launch) and naturally entail the risk of flopping or, in the case of market innovations, of coming to market too late (competitors were faster).

Product innovations Examples

An automotive company launches its first electric car.

A beer manufacturer includes a particularly malty beer in its sales program.

A computer manufacturer develops a robust variant based on an existing laptop model for a special target group (construction site managers, development workers, fitters, etc.) with a special housing, insensitive storage medium, etc.

Service innovation

Service innovations are like product innovations in that they are sold directly to the customer, e.g., an insurance company or a management consulting firm. Therefore, service innovation aims to develop new business models, services or services. It is part of innovation management and takes an exogenous innovation perspective. With its particular focus on customer needs, service innovation is dedicated to increasing customer satisfaction. Furthermore, it can help increase profits, drive the use of digital technologies, and open up new markets. This technology- and organization-driven type of innovation can thus not only effectively increase the value of a company. Positive network effects through an increasing number of users are also the result.

Even if services are not actively sold, as in the case of manufacturing companies, every company nevertheless brings services to its customers, for example in logistics, complaints, sales advice, etc. This is also where innovation comes in when it comes to differentiation and customer delight.

Service innovation examples

Example of a service innovation are:

  • Fast food chains
  • Home banking
  • Car sharing
  • Streaming
  • E-commerce

Business model innovation

The business model is the way a company operates and makes money. In contrast to product development, business model innovation is primarily concerned with the monetization of products and services, i.e., activities in which a new customer benefit is generated, innovative sales channels are implemented, and new monetization models are introduced.

Especially in the age of digitization and digital transformation, business model innovation plays an increasingly important role.

In many companies, innovation is equated with technical development. Business model innovation includes innovations in strategy, marketing, supply chains, value creation, pricing or cost structures.

With the help of innovation management and a clear innovation process, the various stages in the development of new products are structured and controlled with the help of innovation controlling. Through technology management, potential new technologies that could be interesting for development are evaluated.

Business Model Innovation is much more complex. It includes marketing (the formulation of an innovative value proposition), sales and the sales model, and monetization. Changing a monetization (e.g., a rental model instead of buying a product) can also constitute a business model innovation in certain markets.

Example of Business Model Innovation

In our everyday lives, we encounter innovations every day that are based on business model innovation. The example of car sharing will be used to explain this.

Providers such as Share Now were launched by classic car manufacturers in order to achieve an alternative monetization of vehicles. The classic business model consisted of manufacturing and sales. With the help of carsharing, manufacturers are trying to generate revenue from changing the business model. At its core, carsharing represents another monetization option for the car product. While the classic business model served the customer need to own, the value creation in car sharing occurs by solving a different customer problem: getting from point A to point B quickly. Using a car without owning it.

Process and technology innovation

As the name implies, these are technological innovations in how products are created or services are delivered. In principle, they are also process innovations. These include, for example, production processes or IT technologies for apps. Product innovations, quality improvements or cost savings often go hand in hand with process and technology innovations.

Example of Business Model Innovation

Touchscreens, continuously variable automatic transmissions and OLEDs are classic technology innovations. They are novel, technical solution concepts, but not independent, directly usable products. Novel because they are neither known nor have been used in this form before.

Organizational innovation

Organizational innovations affect the process and organizational structure. Structural extensions or redesigns of internal work processes are referred to as organizational innovations. The aim of such innovative changes is to increase efficiency and/or form new internal organizational forms that facilitate adaptation to the market.

These can be organizational process innovations or management innovations, e.g. new tools to measure customer satisfaction or optimization of delivery processes to reduce costs.

Social innovation

Social innovations are innovations where the benefit is with society and the purpose is not primarily profit. 

Within social innovation, the focus is on employees and planned changes in the human resource area. Focal points such as improving job satisfaction, motivation, health management, employer branding, willingness to perform or performance are considered in an innovative way.

Examples are innovations in the areas of education, poverty reduction, equal opportunities or health.

Environmental innovation

All innovations that contribute to the improvement of the environment are counted as environmental innovations. For example, this involves environmentally friendly products, contributions to environmental protection or the avoidance of emissions.

An innovation can affect several innovation objects at the same time. Logically, there is no clear demarcation here. For example, a product innovation can be a process and environmental innovation at the same time. Or a business model innovation usually also involves a product and organizational innovation.

The Types of Innovation

First, we need to understand that there are different ways innovation can impact products, services and processes. Most often we distinguish between 4 levels of innovation – incremental, disruptive, architectural and radical.

1. Incremental innovation

Existing technology, existing market

One of the most common forms of innovation we can observe. It uses existing technology within an existing market. The goal is to improve an existing offering by adding new features, changing the design, etc.

The best example of incremental innovation is the smartphone market, where most innovation is just updating the hardware, improving the design, or adding some additional features/cameras/sensors, etc.

2. Disruptive innovation

New technology, existing market.

Disruptive innovation is usually associated with the application of new technologies, processes or disruptive business models to existing industries. Sometimes new technologies and business models appear to be inferior to existing solutions, especially in the beginning, but after a few iterations they outperform existing models and take over the market due to efficiency and/or effectiveness advantages.

Disruptive innovation Examples:

Amazon used Internet technologies to disrupt the existing industry for bookstores. They had the existing market for books, but changed the way they were sold, delivered, and experienced by using disruptive technologies. Another example was the iPhone, which replaced existing technologies in the market (phones with buttons, keyboards, etc.) with touch interface-centric devices combined with intuitive user interfaces.

The best example of incremental innovation is the smartphone market, where most innovation is just updating the hardware, improving the design, or adding some additional features/cameras/sensors, etc.

3. Architectural innovation

Existing technology, new market

Architectural innovation is something we are seeing right now with tech giants like Amazon, Google and many others. They are taking their expertise, technology and capabilities and applying them to a different market. This allows them to enter new markets and expand their customer base.

Architectural innovation Examples:

In particular, digital ecosystem orchestrators like Amazon and Alibaba are using this innovation strategy to enter new markets. They leverage existing expertise in building apps, platforms, and their existing customer base to offer new services and products for different markets. A recent example of this: Amazon recently entered the medical care space.

4. Radical innovation

New technology, new market

Although it is the stereotypical way most people view innovation; it is the rarest form of all. Radical innovation involves the creation of technologies, services, and business models that open up entirely new markets.

Radical innovation Examples

The best example of radical innovation was the invention of the airplane. This radical new technology opened up a new form of travel, invented an industry and a whole new market.

A deeper look into practice

A deeper look at processes, procedures and actions in entrepreneurial practice reveals that the understanding of radical innovations already differs greatly. According to the study by Herrmann et al.  mentioned above, the vast majority of industrial experts claim to know what is meant by radical and incremental innovation. However, a closer look reveals clear difficulties in differentiating between the two. A radical innovation is often declared as “something that has never been done before” or as “something that does not yet exist”. Thus, changes to the existing are described, which, however, can address many different perspectives. These changes can relate to existing company products, strategies, target markets, approaches or even customer behavior. Radical innovations are often used to describe a continuation instead of a progress, which rather suggests incremental innovations.

Radical innovations are usually accompanied by greater risk for the implementing company. In addition, however, time, cost and quality advantages are also achieved if the radical innovation is successfully implemented. In addition, from the customer’s point of view, a radical innovation offers a major leap in benefits or added value. From a market perspective, it can also bring about a profound change.

How to encourage innovation in your company

Innovation is sometimes a critical area for the survival of many businesses and industries. But encouraging your employees to come up with new ideas can sometimes be exhausting.

Here are some tips on how to get more innovation going:

  • Register for the download of our free book “How to create Innovation
  • Actively motivate employees
  • Ask customers for feedback / invite customers to feedback rounds
  • Regularly read our innovation blog
  • Ask stakeholders for feedback
  • Invest in training your employees
  • Actively invest resources in research and development (R&D)
  • Establish a reward system for innovative thinking
  • Partner with startups and innovative companies
  • Build an intrapreneurship program
  • Actively research on the Internet (industry news, tech news, etc.)
  • Survey / interview / meet with experts
Innovation is a calculated risk that must be dealt with. Not all projects will be successful, and the business process needs to be managed to filter out potential failures before they have too big an impact on your innovation budget. Try to streamline the process and perhaps create your own innovation program that covers some of the above points. This way you can manage it better and get a better overview.

Other Types of Innovation

In addition to the object of innovation and the degree of innovation, there are other classifications.

One is the innovation trigger – what triggered the innovation? A distinction is made between market-pull and technology-push.

Market-pull innovations

Market-pull innovations originate in the market and are initiated by a specific customer requirement.

Technology-push innovations

Technology-push innovations arise from new technologies for which suitable application possibilities are sought and realized.

In the literature on types of innovation, one also finds the division into closed and open innovation, although this refers more to innovation management than to the innovation itself.

Closed innovation involves only internal resources for idea generation, development and implementation of innovations. In open innovation, external partners such as customers, research institutes or suppliers are also integrated into the innovation process.

1 comment

  1. […] innovation, although in many cases these can be quickly imitated. In our blog article on the types of innovation you can find out more about each innovation […]

Post a comment

Your email address will not be published. Required fields are marked *