The word innovation is often used to define novelty and it could refer to anything. This makes is complicated to comprehend what is actually innovation means for the company. Therefore, to make it more concrete, innovations are often categorized along several dimensions to provide better understanding of the phenomenon. Such a classification not only helps to understand the different opportunities offered but also clarifies demands posed by the innovation. These classifications are not mutually exclusive and are often based on the perspective of observer. The classifications include:
- Process vs. Product Innovations
Process innovation refers to novelty in an organization’s way of doing business. It could a novelty within its activities (be it in marketing or production or sales of goods and services) or it could be in the linkages between its activities. For example, factory to customer delivery of custom-built computers by Dell.
Whereas, product innovation is embodied in the output of firm’s activities i.e. goods or services. For example, Tablets, MP3 player, Plasma displays, etc. However, it should be noted that process and product innovation are inter-related. A process innovation can enable product innovation and vice versa.
- Incremental vs. Radical Innovations
Increment innovation involves a minor change to existing practices whereas a radical innovation is a larger leap in the practices. This perspective of classifying innovations is a relative one and could vary based on the observer. For example, Digital photography is a radical innovation for Kodak but perhaps not for Sony.
- Competence enhancing vs. Competence Destroying Innovations
This perspective of looking at innovation is very useful for companies. A competence enhancing innovation builds on company’s existing knowledge base whereas a competence destroying innovation renders current know-how obsolete and poses a threat it. A competence destroying innovation is often faced with resistance amongst firms.
- Component vs. Architectural Innovations
A component innovation results in modular changes within the system without altering the overall design of it. Whereas, an architectural innovation accompanies a modification in the overall system and/or linkages between different components of it. For example, electric vehicle is an architectural innovation whereas a novel petrol filter is a modular innovation.
- Disruptive Innovations
Disruptive innovation refers to a class of innovation which creates a new value network and a whole new market. It starts with seemingly inferior technology that caters the need of a niche market which is not highly interesting for existing players. But technology improvement trajectory is steeper than existing technology and it finally takes over the main market. For example, when gaming market was only focused on hardcore gamers and dominated by Sony and Microsoft, Nintendo introduced Wii for casual gamers with an inferior technology and sooner took over the market.
A company needs to classify the innovation in order to understand the risk and rewards involved. For example, a company with a disruptive innovation idea faces bigger risks and challenges than the one with incremental. Depending on the risk appetite of the company, it can focus on certain types of innovation and allocate its resources accordingly.