As business processes are commodified in a developed economy, outsourced or transferred abroad, or both, leaving domestic companies with relentless pressure to create the next wave of innovation. Not innovating is the same as not differentiating is the same as not obtaining the profits and income necessary to attract capital investment. It is up to us all to use our brains to get through this Darwinian process.
To begin with, we must appreciate how broad the domain of innovation really is. Sure, it includes the kind everyone knows: disruptive innovation, tech legend stuff, and Silicon Valley lore. But we must not be blind to the existence of more mundane ways that are equally effective, as the following taxonomy illustrates:
Disruptive innovation. It gets a lot of attention, especially in the press, because markets appear out of nowhere, creating massive new sources of wealth. It tends to be rooted in technological discontinuities, like the one that allowed Motorola to rise to prominence with the first generation of cell phones, or in fast-spreading fads like the Pokémon collector card game.
Innovation in applications. It takes existing technologies into new markets to serve new purposes, such as when Tandem applied its fault-tolerant computers to the banking market to create ATMs and when OnStar introduced Global Positioning Systems to the automotive market for roadside assistance.
Product innovation. It takes established offerings in established markets to the next level, like when Intel launches a new processor or Toyota, a new car. The focus can be on increasing performance (Titleist Pro V1 golf balls), reducing costs (HP inkjet printers), improving usability (Palm handhelds), or any other product enhancement.
Innovation process. Makes processes for established offers in established markets more effective or efficient. Examples include Dell’s optimization of its PC supply chain and order fulfillment systems, Charles Schwab’s migration to online commerce, and Wal-Mart’s refinement of supplier-managed inventory processes.
Experiential innovation. Make superficial modifications that improve the customer experience of established products or processes. These can take the form of delights (you’ve got mail! “), Satisfiers (top line management at Disneyland), or reassuring (FedEx package tracking).
Marketing innovation. Improve customer contact processes, whether they are marketing communications (use of the Web and advancements for viral marketing of the Lord of the Rings movie trilogy) or consumer transactions (Amazon e-commerce mechanisms and auctions online from eBay).
Business model innovation. Reformulate an established value proposition for the customer or the established role of a company in the value chain or both. Examples include chestnuts like Gillette’s move from razors to razor blades, IBM’s shift to on-demand computing, and Apple’s expansion into consumer retailing.
Structural innovation. Capitalize on disruption to restructure industry relationships. Innovators like Fidelity and Citigroup, for example, have used financial services deregulation to offer a broader range of products and services to consumers under one umbrella. Almost overnight, these companies became sophisticated competitors to the old-guard banks and insurance companies.
