‘Innovation’: Giving Structure & Meaning to an Ambiguous Term
Despite the fact that it is in my title, I am really conflicted about the word “innovation” because, across all industries and solution practices, there is often no real agreement on what exactly the word means. For some insight into what I’m talking about, just Google the term and see the following two equally ambiguous definitions of the noun:
- “the action or process of innovating”
- “a new method, idea, product, etc.”
Beyond the dictionary definition, everybody has a seemingly different understanding of what innovation is and, consequently, how to make it happen. I deal with this ambiguity on a daily basis, since my job is to help our clients become more innovative. For one client, innovation means inventing a new product while for another, innovation means taking an existing client-server app and moving it to the cloud. I have learned that to be effective in helping clients solve their challenges, we need to meet them where they are, rather than have a linguistic debate about the word’s true meaning.
When I first meet with clients, there is a lot of clearing the air on what exactly innovation means for them. There is an educational component to initial conversations where I share how various companies view innovation and how it affects their Innovation Program goals, budget, impact, team, timeline, and many other aspects. This discussion helps us agree on common vocabulary, and most importantly, it helps us focus on what is actually valuable and relevant to the specific client.
In lieu of a discussion, I’ve created this blog to share my thoughts around building structure and basic nomenclature around this inherently ambiguous word. There are many lenses through which you can look at innovation – it’s time to have a glimpse through some of them.
Innovate Based on Business Goals, Not Impulse
Before getting into some of the definitions for innovations that we’ve realized for EPAM clients, I think it’s important that we recognize that companies must not innovate just to innovate – rather, they must do it with a specific goal in mind.
In order for Innovation Programs to be effective and for individual initiatives to have a chance to see the light of day, innovation goals need to be aligned with the business goals of an organization. Here are some examples:
- Increase revenue and market share by improving products and services while finding ways to expand and potentially tap into new markets
- Achieve operational excellence by removing the waste and making processes as efficient as possible
- Gain greater customer loyalty and brand recognition by caring about each user and taking a thoughtful approach to marketing
- Make the world a better place by finding novel and affective ways to tackle sustainability and equity challenges
Without this alignment between business and innovation, all efforts will yield inconsequential results due to a lack of strategy, regardless of how “successful” they are. As with most other things in life, always ask “why?” before taking action.
The Six Types of Innovation
In an effort to inject some clarity into what exactly we’re talking about when we talk about innovation, I’ve put together six definitions that capture the basic types I encounter on a day-to-day basis. Because all innovations are geared toward providing higher value to individual customers, scaling the delivery of value to a larger set of customers, or some combination of the two, these definitions can be grouped into two categories: Customer Experience Innovation and Company Transformation Innovation.
Customer Experience Innovation focuses on directly affecting how customers experience products, services, and the brand in general, and can come in a variety of forms:
- Product Innovation – This refers to releasing new products to the market or significantly updating existing products in novel ways. A lot of innovation happens in this category. As a matter of fact, most companies that produce physical or virtual products focus on innovation in this category. For example, Apple and Samsung release new versions of their flagship mobile phones every year that are full of new hardware and software innovations.
- Service Innovation – This type impacts customer experience through new ways of delivering products or services that leave end users with the feeling of being cared for and delighted. Service Design has become popular in recent years specifically due to the fact that many companies realize the power of this type of innovation. Companies like Zappos and Starbucks have capitalized on it to become dominant in their corresponding industries.
- Marketing Innovation – This happens when innovation promotes loyalty to the brand. Companies that succeed at this type of innovation turn their users into long-time fans and loyal supporters. For example, whenever Apple releases a new product, inevitably thousands of people are willing to stand in lines for many hours in order to get the newly released iPhone or iPad.
- Business Model Innovation – This refers to a new way of operating business in order to provide drastically better products or services to customers. Think of the many companies that have disrupted whole industries with successfully-implemented new business models. Uber, Airbnb, and Netflix are some examples of companies that have abruptly disrupted the Travel, Hospitality, and Entertainment verticals.
Company Transformation Innovation impacts the inner-workings of organizations and can be either process-focused or people-focused:
- Process Innovation – This kind of innovation results in operational optimizations or new ways of carrying out specific tasks. Ford’s assembly line or Toyota’s lean manufacturing are good examples in car manufacturing, while Scrum and Kanban Agile Project Management methodologies are examples in software engineering.
- Culture Innovation – This type of innovation affects values and mission of organization as well as engagement and loyalty of its employees. For example, organizational paradigms like Holacracy replace the traditional management hierarchy with a new peer-to-peer “operating system” that increases transparency, accountability, and organizational agility.
All of these types of innovations mean offering something new to customers, employees, or both. Remember: pinpoint your business goal first, and then consider which type makes the most sense based on that.
The Impact of Innovation
Finally, it’s time to think about the big picture and the risks of innovation. Innovation can be tactical or strategic, and there are pros and cons for each type. This is yet another thing to consider when figuring out your innovation roadmap.
Tactical innovation tends to be less risky, easier to validate, and quicker to implement. It often falls into a category of incremental innovation, which usually means updating already existing products, processes, services, or experiences. For example, every iteration of the iPhone after its original release is an incremental tactical innovation, no matter how many new features it provides and regardless of what Apple claims it to be.
Strategic innovation, on the other hand, is more radical, disruptive, untested, and, as a result, riskier. On the flipside, if successful, these innovations give competitive advantage to companies. They often manifest in new types of products, services, or business models. One example of strategic innovation is the iPad, as it was not only a new device in the Apple product line, but it was also the first of its kind on the market and created a new type of devices – tablets.
Conclusion: Innovation is an Ongoing Effort
Succeeding is not a question of finding an appropriate focus for innovation, be it business model, product, marketing, service, process, and/or culture. Nor is it a question of identifying the one and only goal for the Innovation Program, or even deciding on tactical vs. strategic investment. Instead, companies must look at innovation as an ongoing, multi-faceted program that continuously generates and validates incremental and transformative ideas for new and existing offerings, as well as for the business model itself, to generate more and more value – and provide that value to more and more people. Only then can a company be positioned to survive in the short-term and thrive in the long-term.