Wednesday, November 4, 2009

4 types of innovations: BusinessWeek classification

There are many ways to slice innovation. In this article we look at one such way which BusinessWeek uses while listing its 50 Most innovative companies. For example, it says that Apple is a product innovator, while Google is a customer experience innovator; IBM is a process innovator etc. This classification can help us answer questions like: What are we innovating around? How many levers are we turning?

There are 4 types:

· Process innovation: If Coffee CafĂ© Day uses a new and perhaps faster machine to make cappuccino, it is changing an internal process. Process innovation involves changing internal business processes and making them more efficient. Toyota is considered the role model of process innovation through its “continuous improvement” or “kaizan” methodology.

· Product/Offering innovation: When 3M offers Post-It notes or when SBI offers a new type of card called SBI gift card, it would be a product/offering innovation. It is about providing a new product or service to customers.

· Customer experience innovation: When a retail shop re-arranges the layout in its stores or when Intel runs an “Intel Atom inside” advertising campaign, they are trying to change customer experience. Visual merchandizing is a discipline that focuses on customer experience innovation in retail industry. Innovating a brand would fall under type of innovation.

· Business model innovation: When a company re-configures a value-chain by (a) creating a new customer and/or (b) by creating or eliminating a channel and/or (c) by re-defining a pricing model, it is doing a business model innovation. Tata Nano created a new customer (offering 4-wheeler to 2-wheeler owner). UFO Moviez eliminated the movie distributor in the value-chain. Google’s AdSense created a new way of monetizing Internet search.

In many organizations, these types of innovations happen in different departments. For example, delivery or product departments operationalize process innovation. New Product Development (NPD) or Business Development (BD) or Portfolio Management departments work on product/offering innovations. Brand managers work with customer experience innovations. Business model innovations are usually with strategy departments. Many of these departments speak their own language and usually don’t talk to the other innovators. It would be interesting to get a few representatives in a single room and see what concoction happens.

Related article: Joseph Schumpeter's 5 types of innovations (100 years old classification)