What innovation types do you know? When confronted with this question, most businesspeople think of product innovation, process innovation, service innovation, customer experience design, strategy innovation, and so on. Thereby, we use the kind of value offering that an innovation targets as a criterion to classify different categories of innovation types.

So far, so good. But are you aware that there is another way to think about innovation types? Another viewpoint that focuses more on the ends than on the means? Today, let me introduce this impact-related view on innovation types to you — and more importantly, explain what this more recent perspective on innovation types means for your businesses.

Draw the Innovation Type-Impact Matrix.

In his book Change by Design, Tim Brown suggests classifying innovations using a 2x2 matrix based on their impact and the degree of change that they cause. The horizontal axis of the matrix focuses on users (or customers), with “Existing users” on the left and “New users” on the right, while the vertical axis looks at the degree of new value offered, with “New value” by the upper box and “Improvement of an already existing value” by the lower. The result is the following matrix with four quadrants:

• The bottom left quadrant contains innovations that target existing users with variations or feature changes of existing value offerings. An example of such incremental improvements is a new vanilla-flavored coffee drink offered in the Ready To Drink-coffee category.
• The bottom right quadrant captures evolutionary innovations that allow a firm to extend existing value propositions by adapting them to the needs of a new user group. For example, when an FMCG firm in the hair care category wanted to reach out to the less affluent consumers in South-East Asia a few years ago, it started to offer its shampoo in small sachets (rather than in plastic bottles) that sold at a low price and neatly fitted into the cramped space of the archetypical Asian Mom & Pop store.
• Evolutionary innovations can be found in the top left, too. In this case, however, the evolutionary innovation enables a firm to extend its relationship with existing users by offering them a new value proposition that often ties in to another value offering that the customer already uses. For example, Google’s Gmail extended its lead in search engines by offering e-mail services for small businesses with personalized address-options.
• Finally, the top right quadrant will contain innovations that offer a new value proposition to new users. These revolutionary innovations are game-changers that create new categories or radically new value propositions. Amazon.com offered a radically new solution to conveniently buy books that revolutionized the traditional book sales channel; and Apple’s iPad is a wonderful example of a game-changing product — it created a new category of devices, and enabled senior citizens (such as my Mom) to finally appreciate the computer age.

Linking the Innovation Type-Impact Matrix to your Innovation Pipeline.

Approaching innovation types by considering their impact and the degree of change that they cause is an important perspective for every firm when looking at their historic innovation achievements, and more importantly, at their current and desired future innovation pipeline:

• When you take a close-up look at the innovation track record of many firms, then the vast majority of examples cited as innovation success represent incremental improvements of already existing value propositions that are marketed to the firm’s existing user or customer base. While it is normal to have a healthy base of incremental improvements in your innovation pipeline, realize that they don’t drastically alter the value differential in either the customer’s or your favor, and tend to cannibalize the revenues of your existing value offerings.
• In contrast, adding a significant number of evolutionary innovations to your innovation pipeline allows you to markedly boost your revenues — but only in the short- to medium-run, as these innovations often can relatively easily be copied by your competitors.
• No doubt about it: It’s really the revolutionary innovations that change the game in your favor, set you apart from your peers and enable you to achieve significant volume- and margin growth in the medium- to long-run, as it will take competitors significant time, costs and effort to catch up with your big idea.

What do these insights mean for you and the innovation direction of your firm? Contemplate these questions:

• Looking at the historic innovation achievements of your firm, and the degree of change each of them caused: What quadrant does each of your past innovation results fall into? What is the proportional mix for each of the four quadrants?
• What do you want the proportional mix of your innovation pipeline to look like in two years from now? Why? And what do you plan to do to get there?

Acting on the Innovation Type-Impact Matrix.

When a prospective client is interested in booking an X-IDEA Innovation Project with Thinkergy, we usually expose them to the Innovation Type-Impact Matrix and query: “How much innovation do you want to produce with your project? What degree of change do you target?”

We ask these questions to make the project sponsor realize an important aspect: In innovation like in many other areas of life, there is a close connection between what you put into a project and what you get out of it. As a rule of thumb, we observed the following relations between input and output to be true for innovation projects:

• The more important an innovation project, and the more evolutionary or even revolutionary the desired innovation results, the more generous the overall resource commitment should be to the project.
• First of all, it takes time to move beyond incremental improvements of the existing offerings and to produce evolutionary and particularly revolutionary innovation results.
• Secondly, you need to have the right number (at least 16-20) and composition of people (ideally a diverse mix of business functions or divisions across different hierarchy levels).
• Finally, you need to have a sufficient monetary budget for renting a spacious venue and hiring a quality innovation firm to guide you through the project toward evolutionary and revolutionary results.

A popular truism in the world of IT is: “Garbage in, garbage out.” Realize that this maxim applies to your next innovation project, too: What you put in is what you get.

© Dr. Detlef Reis 2011. This article was published in parallel in the Bangkok Post under the same title on 18 August 2011.