When thinking about innovation, most people immediately think about new products like the next iPhone or electric vehicle. I, however, have always believed that business innovation comes in many different flavors. For example, Dell re-engineered the way we buy computers, Apple revolutionized the way we buy music and Zappos.com provided a service never before seen online.
I recently read “Ten Types of Innovation: The Discipline of Building Breakthroughs” by Larry Keeley and found it to be a great way to think about all the ways we might innovate within our own companies. All companies must continually improve or they will eventually die. According to Keeley, the most powerful strategies typically consist of several of the following types of innovation:
Profit Model — Gillette pioneered one of the classic business model innovations by creating the razor/razor blade system. The company taught consumers that razor blades could be discarded rather than sharpened for reuse.
Network — Network innovations enable companies to focus on their core strengths while leveraging the strengths of partners. Franchisors license their proprietary systems to franchisees to achieve much faster growth than they could do on their own capital.
Structure — Southwest Airlines was able to achieve faster turnarounds, lower maintenance costs and achieve more efficient operations by standardizing its fleet of Boeing 737s. The company’s unique structure resulted in much lower costs than its full-service competitors and increased profits.
Process — Toyota became the leading car company in the 1980s by creating the lean production system, which reduced waste, improved quality and lowered costs.
Product Performance — Before the launch of the iPhone, Corning Glass created Gorilla Glass at the request of Steve Jobs. This tough, scratch-resistant glass is now used in more than a billion devices worldwide.
Product System — Oscar Meyer wanted to do more than just sell cold cuts, so it created Lunchables — a lunch system that includes crackers, meats, cheese and dessert in a single fun package.
Service — Men’s Wearhouse promises free lifetime pressing of any purchased suit, sport coat or slacks at any of its stores, a service that is valued by business travelers who hate ironing.
Channel — Amazon created a closed wireless network that is free for Kindle customers so they can purchase and download e-books in less than 60 seconds.
Brand — Intel created the Intel Inside campaign to increase the perceived value of computers that use Intel processors.
Customer Engagement — Blizzard Entertainment created the most profitable online game in history, World of Warcraft, by designing the game to encourage and provide incentives to players to connect and collaborate, which increases their engagement and loyalty.
According to Keeley, the “heart of innovation is understanding when a broad shift is called for and driving it forward with courage and conviction.” Low-risk innovations improve existing products or systems by providing higher quality, improving speed or creating better service. The next level of innovation is to “change the boundaries” by bringing new products or services to an adjacent market.
The highest level of innovation is the rare occasion when you attempt to radically change an entire industry structure. Keeley says, “Transformational innovations erase the boundaries between once distinct markets and irrevocably change what is expected from competitors and consumers alike.”
So how can you decide which type of innovation will work for you? Opportunities are often discovered when observing how customers are either delighted or disappointed by current offerings. Keeley discusses how most innovation strategies focus on changes in three primary areas: 1) business models 2) platforms 3) customer experience.
The most radical and transformational strategies employ more than just one strategy at a time. It’s the CEO’s responsibility to determine when the opportunity for strategic innovation exists, and whether the organization is capable of making the necessary changes to succeed.
Paul Witkay is the founder and CEO of the Alliance of Chief Executives. The Alliance of CEOs is the most strategically valuable and innovative organization for leaders anywhere. The Alliance strives to provide the creative environments where breakthrough ideas happen. Paul can be reached at [email protected]