As a business leader, it can be challenging to foster innovative thinking within your firm, understand what innovation opportunities exist, and how to execute them with your current capabilities.
Here’s a primer on the three types of innovation, five tips for leading innovation, and how you can deepen your innovation skills to help propel your business forward.
WHAT IS PRODUCT INNOVATION?
Product innovation is the process of creating a new product—or improving an existing one—to meet customers’ needs in a novel way.
There are three key types of innovation:
- Sustaining innovation, in which a business consistently provides the highest quality products to its best customers
- Low-end disruption, in which an emerging company enters at the bottom of the market, providing a “good-enough” product with a low-profit model
- New-market disruption, in which an emerging company creates a new segment in an existing market and moves upmarket, gradually rendering the incumbent products obsolete
The difference between the three types of innovation lies in their relationships to the existing market. Low-end and new-market disruption are both types of disruptive innovation, meaning they’re used by companies with fewer resources to challenge well-established businesses.
A sustaining innovation is one that targets the top of the market—that is, the people willing to pay the most—and directly competes with the incumbent products that own that segment. While a new entrant may have some success breaking into the top of an existing market, the incumbent business is likely to put up a fight.
Disruptive innovators, however, are likely to avoid a fight because the segments they’re after offer the lowest profit margins and, therefore, aren’t a justifiable use of incumbent companies’ time, money, or effort.
When seeking innovation opportunities for your product, consider both types. Sustaining innovations will allow your business to stay relevant in its current market and continue delighting its top customers, while disruptive innovations will allow you to break into other markets or create a new market segment.
5 INNOVATION TIPS FOR BUSINESS LEADERS
1. Identify Your Customers’ Jobs to Be Done
In the online course Disruptive Strategy, Harvard Business School Professor Clayton Christensen explains the jobs to be done theory. According to Christensen’s theory, customers don’t just buy a product to meet their needs; they hire it to do a job.
The job to be done isn’t always the product’s main function. For example, someone may choose to hire ice cream cones to do the job of making summer memories with their children. Other times, the jobs are more straightforward. For instance, someone could hire a specific running shoe to do the job of reducing knee pain during exercise.
Consider what job customers hire your product to do. Are there other jobs they need done that you could solve by improving the product? Conducting market research with existing customers can offer insights into the variety of jobs people are hiring your product to do and highlight opportunities to innovate.
The jobs to be done framework also presents a unique way to view competitors. Not only are you competing with other brands that make comparable products, but also anything else that can perform the customer’s job to be done. Returning to the ice cream cone example, the customer could choose to hire water balloons, popsicles, or a day at the beach to do the same job of making summer memories as a family.
Remember to periodically reassess your customers’ jobs to be done so you can iterate on your product to meet their needs as they arise.
2. Create an Environment That Fosters Innovation
Even a company with a clear sense of its customers’ jobs to be done and a stellar innovation strategy can’t be successful without an internal culture that fosters innovation.
Options to empower your employees to develop an innovative mindset may include:
- Creating opportunities for cross-team collaboration
- Leading with a growth mindset and embracing failures as opportunities to learn
- Hosting brainstorming sessions and encouraging out-of-the-box thinking
- Dedicating a team or committee to coming up with innovative ideas without the typical restraints or success metrics as the core business
As a business leader, remember the power you have to influence your organization’s culture and use it to empower your employees to think big and take calculated risks in the name of innovation.
3. Determine Your Organization’s Capabilities
Before diving into an innovation strategy, ensure your organization has the proper resources, processes, and profit formula to execute it.
Resources can include everything from the materials used to make products to technology, cash, and employees.
Processes are the ways in which tasks are executed; for example, product development or employee onboarding plans.
The profit formula is the criteria used to guide prioritization decisions and can include metrics such as gross margin targets or return on investment thresholds.
In Disruptive Strategy, Christensen describes these three factors as essential to determining your organization’s capabilities, so you can plan realistic innovation and growth goals.
“We really need to think deeply to understand what an organization can and cannot do,” Christensen says. “When we recognize what an organization can and cannot do, it doesn’t put us in a straightjacket and constrain us, but it does tell us, if we need new capabilities, we realize where we have to build those abilities. If the market is changing in front of us and our abilities change over time, it tells us what we need to create new and where we can use the old.”
Listing your organization’s resources, processes, and profit formula can enable you to gain a clearer picture of what areas need to change to make innovation possible.
4. Keep Disruptive Innovations Separate
One key point Christensen stresses in Disruptive Strategy is that businesses can’t disrupt themselves—that is, disruptive innovations need to be kept separate from sustaining ones.
“It’s important to realize you can’t disrupt yourself,” Christensen says. “If you have an idea for a new market disruption, for example, and you tried to implement that new technology in your core market, the probability that you’ll succeed is zero. The reason why is that the core company can’t make money with this new product and they’ll either ignore it or they’ll change it so they can implement it as a sustaining technology to help the core business go.”
While it may seem counterintuitive, if you have an idea for a disruptive innovation, you should form a separate business unit to execute it so the innovation doesn’t get lost in the company’s existing strategy.
5. Consistently Think One Step Ahead
Innovation isn’t a one-and-done project; it’s a commitment to thinking one step ahead for the business’s lifespan. As you hone your resources, processes, and profit formulas, innovation will become easier and a more ingrained part of your company’s culture.
Be aware of new entrants emerging into your market, as well as opportunities for your business to disrupt other markets. By understanding the bigger picture, you can prepare for disruption and seize new opportunities as they arise, knowing you have the internal necessities in place to execute.
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