Innovation is everywhere. A close look at your environment will help you understand that every object, every service, and every production process has been a successful innovation at some point. This exercise is designed to take away the unnecessary fear of dealing with innovation and also to dare to innovate yourself. If you are wondering what an innovation actually is, then first of all just let your everyday understanding guide you and assume that the word part ‘nova’ (=new) in innovation is important. It is less important for whom something is new – whether for the entire world, for a department or even just for a company.
Look around (in your mind) at your surroundings …
- Make a note of three innovations – either from your everyday environment or from your business environment – that were introduced between 2001 and 2018.
- Make a note of three innovations – either from your everyday environment or from your business environment – that were introduced between 1970 and 2000.
- Make a note of three innovations – either from your everyday environment or from your business environment – that were introduced between 1900 and 1970.
It is not important that you are able to locate the innovation in history to the exact year. Rather, it is important that you are able to place the innovation approximately.
If you have only noted innovations that still exist today, then you have merely picked up on comparatively successful innovations.
Do not be discouraged by this success of innovations that still exist today. To this end, consider why we believe the Romans were such great builders? The answer to this is as obvious as it is amazing. The Romans appear to us as so successful precisely because we only perceive the structures of Roman architecture that have survived the thousands of years. The poorer quality buildings are already in ruins; we no longer notice them. It is the same with the rather unsuccessful innovations – with the flops. These are often not in our memory. However, we will change that tomorrow in the next exercise.
What exactly do we mean by innovation?
First of all, innovation is something new, as the word component ‘nova’ already signals. However, we will have to take a closer look at this. At this point, however, we first want to point out that the term ‘innovation’ is not necessarily new. Already Dr. Samuel Johnson, the great English poet and author of an English dictionary, complained about innovation as follows: “The age is running mad after innovation. All the business to be done in a new way” (from J. Boswell, The Life of Samuel Johnson, 1791).
Let’s get back to the observation that there is something new about innovation. Note here that the concept of innovation in economics may differ somewhat from our general usage:
- Innovation is not a synonym for idea. An idea is an idea, a new thought that does not have to be implemented. Ideas become innovations when they are implemented. A mere idea for a new product is not yet an innovation. It is not an innovation until the product is also developed and (more or less successfully) launched on the market.
- In our everyday understanding, we assume that an innovation is only an innovation if it is completely new, i.e. if there has been nothing like it before. In economics, however, it does not matter whether the innovation is new to the world (our everyday understanding), new to the market, or even new to the company.
The ‘nova’ in innovation helps us to categorize innovations. You can first distinguish innovations according to what is new. According to the innovation object, we distinguish between product process and business process innovations (OECD 2018). Business model innovations would also be mentioned here, but we will not go further into these. According to the degree of novelty, a distinction is made between incremental and radical innovations.
Product innovations consist of changes in goods or services offered by companies. In the case of goods, for example, one could mention every new model series of a car manufacturer; in the case of services, one could refer to the new cloud computing services. Product innovations are attributed an important role in connection with maintaining and expanding the market position of companies, especially SMEs (Stummer et al. 2008, p. 14). In this context, product innovations can concern the core of the product or represent additional services. If, in the latter case, they are services, they are referred to as product-accompanying services, which can both accompany goods (maintenance and repair services for investment goods, such as KONE elevator systems) and be associated with services (Barmenia Versicherung has expanded its range of services and offers its policyholders additional assistance services in accident insurance). In the long term, product-related services can lead to a shift in the core business.
As the term implies, business process innovation is about changes in all possible business processes of a company. When you think of business process innovation, don’t just think of new processes for the production of goods and services.
Think also of new processes in distribution and logistics, in marketing and sales, in information and communication, in business administration and management, and ultimately in research and product development (OECD 2018).
Finally, process innovations do not only target price as a competitive factor by enabling companies to produce goods or services more cost-effectively. In addition to price, higher quality, reduced waste, better resource conservation, compliance with legal requirements, improved safety and delivery reliability, etc., can also be the goal of process innovations.
Furthermore, it is found that new processes are usually necessary when new products and services are introduced to the market. Product and process innovations are therefore often found simultaneously.
The distinction between incremental and radical innovations depends on the extent to which the technology underlying the innovations has changed. The difference between incremental and radical innovations thus depends on the degree of novelty of the innovation.
Radical innovations have a high degree of innovation or novelty. They permanently change the fundamental properties of goods and services, as happened, for example, through synthetic materials, the Internet, the steam engine. Radical innovations can contribute to so-called technological revolutions.
Dodgson et al. (2008, p. 58) provide an example of how management can respond to the challenges that arise when radical innovations are announced:
- Openness to new ideas from outside the company and the field
- Building up and acquiring new skills through further training and recruiting
- Continuous search for new technological and market opportunities
- Links to other actors in the innovation system such as universities, research institutes, etc.
- Networks and alliances also with players outside the field
- Investment in different technologies to be prepared for different future scenarios
Incremental innovations are small changes to existing goods, services or production processes that change them gradually but sustainably. Compared to radical innovations, incremental innovations occur much more frequently and can lead to considerable increases in earnings for the innovating companies.
Incremental innovations are the innovations with which the large numbers of innovating companies ensure their survival. Most small and medium-sized enterprises focus their innovation activities on incremental innovations.
For example, the continuous improvement of existing car models, additional features and capabilities of the latest generation of cell phones can be considered incremental innovations. An incremental service innovation is, for example, the expansion of a restaurant’s offering to include catering services.
Dodgson et al. (2008, p. 58) outlines these practices and approaches. Both the listing in Dodgson et al. (2008) and the list presented here are not all-inclusive. Other approaches are possible.
- Minor changes to existing products
- Additional features for existing products
- Price advantages over the competitor
- Standardization of processes to increase efficiency