Innovation is an extremely counterintuitive business.
For most people outside the innovation space, Innovation means radically new or significantly improved products. Interestingly enough, product innovation is the least successful model. There are various ways to innovate. Highly successful and radically disruptive innovations today come from business model innovation. For instance, in my old company, Computer 2000, we changed the business model for tech distribution from the ground up. With our tiny startup in the 1980s, we took on competitors of multi-hundred million dollars in revenue. It looked like the chance to survive is exactly 0.00%. Today it is a $37 billion business leading the tech distribution in the world. And still, most competitors did not notice the difference and why we could become a global market leader. It was a business model disruption that went unnoticed. Another example is Airbnb. The company caters to travelers’ needs to stay in a more individual apartment or house instead of a small room in a hotel. Hotels, however, perceive the competition as a price war since there are less expensive apartments too. The hotel industry managers, who never understood the competition, fought back with legal acts and did not compete on the service. As a result, they never brought their services in alignment with customer needs. Zappos, an online shoe dealer, changed both. Their business model and commitment to organizational innovation. Soon thereafter, they also started an experience innovation project and became a great example of multi-facet innovations. Let’s explore the big five innovation types.
The Big Five Innovation Types
Obviously, the topic can split even further. Still, we realized that these five innovation types need different approaches, different methods, have different financial or operational impacts, and call for a different innovation team composition.
Product Innovation
Focused on the product side. This is the classic way to innovate and the most obvious to be recognized by the market. However, it is also the easiest to copy and to outperform quickly. Product innovation offers room for different degrees of innovation like a profound improvement of a product that changes the way users work or introduces a radically different product that may change a whole industry segment. Competing with product innovation is oftentimes done by starting a price war, and very quickly, the innovator may be forced to reduce pricing, increase marketing effort, or take a much longer time to grow market share. Alternative products as such innovation can quickly substitute product innovation is the most obvious, the most visible, and the fastest to understand. In the past 20 years, business model innovation, experience innovation, or organizational innovation continuously won over product innovation. Probably one of the best examples is the automobile industry. Companies fight on the product level: electric motor or combustion engine. One company, Tesla, does not lead on the product level but uses one of the hardest nuts to crack, multi-facet innovation. On the surface, it is, of course, the electric car. But when looking under the hood, not literally speaking, it is the business model innovation, the organizational innovation, and the experience innovation that makes the company the market leader despite having a much smaller production volume. While the global awareness for Tesla was achieved with its super fast and wide-ranging electric car plus its early engagement in autonomous driving, the whole wide-angle view of the Tesla management, including building the charging stations and the gigantic innovation on the battery side, came from an organizational innovation thinking, the way the cars can be configured and ordered and how easy it is to understand what a user gets is part of the experience innovation, the whole pricing pressure, initial losses and ways the cars get sold is part of the business model innovation. No other car manufacture in the world was so innovative on all fronts and took the automobile no longer as a single product – but a part of holistic user experience. Another example is Microsoft. It’s no news that Microsoft never invented a single product. The operating systems, DOS, and Windows have been acquired, and so were all the office products, the SQL server, and other tools acquired. So one could say Microsft is the least innovative tech company in the world. All they did is integrated all the products and sold them under their own brand. Many are still not fully integrated – 30 years later. Instead of putting all the resources, time, and money into building the solution, they needed to fulfill the vision they acquired. Microsoft’s real innovation is to create a user experience through integration and seamless exchange of data that nobody else saw as important. Nobody else did as well as they did. The experience innovation did not need a product but an architecture. The other innovation was a business model innovation. From the very early days, they committed not to build their own computers but pushed computer manufacturers to use their software. The non-compete commitment from Microsoft was compelling enough to get an exclusive commitment from the computer vendors. And knowing that all the office apps will need their operating system was good enough to give the OS away for peanuts. Business model innovation and experience innovation were strong. Understanding how the company operates and what they offer was so confusing for most competitors that nobody cracked their dominance – till today. As we will discuss other innovation types in the following posts, you will see the difference of those innovation types relative to the ‘good old’ product innovation. You will see that product innovation is not going away – it’s still an important part of an innovative business. Product innovation is becoming a commodity – but is no longer a differentiator.
#ProductInnovation
In the next parts, 2, 3, 4, and 5, we will go into the other innovation types details. Here is just a quick snapshot to put the above in context.
Experience Innovation
The most effective way to innovate, only recognized by users and communicated through advocacy. Experiences include general customer experience all the way to entire entertainment solutions such as theme parks or highly interactive restaurant types, and lately, space travel. Experience innovation is very hard to copy and very hard to compete with. Usually, it takes highly creative minds to piggyback on a concept and develop a different model that makes the experience unique.
#ExperienceInnovation
Business Model Innovation
The most successful way to innovate with a big impact on the industry. Typically, business model innovation goes hand in hand with experience innovation. It is the hardest innovation type for any competition to copy, even to compete with. Changing a business model is hard enough for a business to develop – it takes years for the competition to emulate and follow. Business model innovation has been the most successful type of innovation in the past 20 years. The biggest number of business model innovations emerged from the US.
#BusinessModelInnovation
Organizational Innovation
Innovation within the organization, mainly for process acceleration, customer experience, resulting in increased profitability. It is tough to copy (if not done by consultants), making it very hard to understand from the outside and even the inside. Organizational innovation often requires a deep injection of new processes, different employees, and often a different management team. In large organizations, hundreds or even thousands of people may be affected by organizational innovation when they cannot unlearn and learn new ways of conducting their work. One question quickly rises to the top: “Is innovation killing jobs or the wrong team killing innovation?”
#OrganizationalInnovation
Structure Innovation
Supra-Enterprises, companies bigger than 25,000 employees, seem to have the hardest time creating truly ground-breaking innovation. In particular, in the western world, Top Executives, boards, Investor representatives, Unions, Industry associations, local government representatives, and maybe more have to agree on creating a new leadership structure to bring innovation forward. Inventing disruptive solutions often require major changes in the current teams as skills and experiences may shift significantly. Disruption in the automotive, energy, food industry requires knowledge and deep experiences in those industries not only on the enterprise side but also in external structures. A startup as a small company can go under the radar – a public company cannot.
#StructureInnovation
Learn more about the General Innovation Type Differences.
The oldest and still not a bad starting point for innovation is Brainstorming. However, a typical brainstorming session takes about an hour and brings the most obvious ideas forward. Our energy-conscious brain does not go very deep into analogous situations, let alone into distant experiences. It also won’t weave more complex experience networks to produce rather exceptional results. At the end of most brainstorming sessions, the team is already exhausted but finds very cool ideas, and most of the team is excited. The team’s excitement stems from the fact that most of them could comprehend the best idea right away. Those obvious ideas get usually selected as the best and processed further. This means that almost everybody else will understand them, and some could easily replicate those ideas. They may become nice improvements, but never true innovations. But we reached camp 1 on our quest to go to the top of the “idea mountain.”
Almost everybody had already experienced that in the following days after brainstorming, participants of such meetings come with new ideas – often better ideas – in the following days. However, most teammates consider those “latecomers” as distracting and fear that the ideation process will never get done and turns them down if more come. This is rather unfortunate because the brain continues searching for more great ideas. But since we did not know how our mind works, we turned it down. Assuming that we are looking for truly groundbreaking innovation, we will let the brain continue to work for 48 hours and allow brainstorming participants to add those ideas into the innovation system whenever those ideas seem to be very relevant. And this is just the beginning. At this point, we reached camp 2 on our trip to the mountain top.
When we have enough time to think about problems, our brain has another powerful tool: analogous experience search. It does that by taking the results from past thinking and tries to find similar but unrelated experiences. That means that our brainstorming was a good first step to stimulate the brain to find various alternative situations that would normally not come to mind. For most of the past 2 million years, we needed our brain to survive, circumvent danger, and save ourselves from far more powerful animals and other risks. Decisions needed to be made fast. And an obvious idea was just right. But there was also time to muse. In that time, the brain was able to search deeper and wider, had more time, and could come up with completely “useless” questions like what this space up in the air could be. Time to think was and still is one of the most valuable times for our minds. Today we use it to purposely reach further in our neural networks for solutions that are definitely not “obvious ideas.” The compositions of our obvious ideas with analogous ideas are producing already far better results. We can say we reached camp 3.
And like with the first brainstorming result, the ideas, augmented by analogous ideas, are growing over the next 48 hours. Interestingly enough, we learned that our mind is not looking for more analogous ideas but different connections in our “past experience” repertoire from our own experience. Our mind searches for verification during that process if the analogous ideas are really in synch with our original problem. Simultaneously, it looks for variations of the idea in the context of the analogous situation. In BlueCallom, we were using extreme sports development and how it evolved to find a parallel to our current development, understanding how our mind can become significantly more powerful when we understand how it works. At this point, we are reaching camp 4 on our ideation journey.
We are calling the next phase “CallomBurst.” We are taking our ideas to a level where the solution is most likely impossible to realize. We are asking ourselves what would the perfect solution look like in 100 years. What would this solution look like if resources, financing, and time would be irrelevant? The word “Impossible” is banned from the discussion. We are getting to ideas that would be literally unconditionally ideal. We want to reach the limit of possible perfection. Only if we are at the limit, we know nothing can compete with our vision. And the purpose of the CallomBurst is to create the level of impossibility. It can become our vision, with the understanding that we may achieve it over the next 5, 10, or even 50 years. That vision will differentiate us and our idea and doable concept from the rest of the industry. Even if our biggest competitor uses the same technique, they cannot come to the same vision but will have a different vision. And that means a different company with a different goal. After the CallomBurst, we reached our 5th camp, and the last before the summit.
A few days after the CallomBurst, the team climbs the last piece of the journey and recaps all their experiences. The final and impossible idea continues to entertain our minds, and it creates a picture of where everything we have worked on could end up. BlueCallum Summit Day is where the visions are shared with everybody. On that day, it may fuse to an overall vision for the team and the company. That vision will be clearly unique and become the disruptive and innovative concept the company may want to realize. Obviously, the product would not exist on day one. But it gives the whole solution a long-term direction that will be a reality one day. This direction may encompass the development of an innovative concept that is the product of Neuro Ideation. But everything that will be available in the first version of the new product will be an innovative and disruptive solution from day one.