4 types of innovation and the one most needed in Australia

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customer innovation

It made sense for the past couple of decades for companies to be pretty obsessed with operational efficiencies. As world commerce globalised, production shifted to the minimum viable economic location as established companies worked to reduce costs. Technology enabled better communication and access to working platforms between the developing and developed world.

1. Company innovation

The focus is reducing costs, process improvements and embracing technology when it comes to company innovation.

The trouble is, by one measure, this is not working out well for incumbents. Boston Consulting Group studied the longevity of over 30,000 public firms in the United States over a 50-year span, finding that company lifespans have almost halved.

Studying Australian companies between 1975 and 2015, that have been listed on the ASX 200, our own company longevity has decreased from an average of 37 years to just over 15 years.

But Company Innovation is not all we have tried.

2. Product innovation

Product Innovation is often our first thought when we hear the term ‘innovation‘. New products! We are drawn to this because we hear and see the success stories.

Distinct to this type of ‘build it and they will come’ innovation is Customer Innovation where the focus is external.

3. Customer innovation

Three typical buckets of activity for this type of innovation are (i) observation, (ii) questioning and (iii) empirical testing of products/services.

These three innovation types are each designed to create differential performance.

  • Company Innovation should give differential cost performance which is often leveraged as lower prices to customers  Woolworths did this to Coles for years until Coles reversed the trend.
  • Product Innovation should provide a new differentiated product that consumers can’t wait to buy. The next Tim Tam, Viagra or QLED TV.
  • Customer Innovation should create differential customer benefits. Amazon knows that one of the impediments to selling more clothing online is concern about fit and look. So they are launching Prime Wardrobe where you can try before you buy as well as utilise Echo Look for fashion advice.

In spite of these important activity areas, there is something missing.

4. Incumbents

Disruption is still happening to incumbents rather than coming from incumbents. And what’s worse, instead of companies becoming more differentiated, they are all becoming the same elephant grey. Think about our biggest banks, petrol retailers and supermarkets. Is it easy to tell which has the lowest price? the best product? the best service? Which is the most innovative?

Netflix, Airbnb, and Amazon – in their beginnings, did not invent anything new. Their genesis was not in company, product nor customer innovation. DVD rental, accommodation bookings via the internet and selling products online were not new. What they did, however, and what Netflix and Amazon continue to do, is innovate the prevailing business models of the industries they entered.

You, no doubt, have invested lots of money, and more importantly time, in your change, leadership and innovation capabilities. Are you investing in the right type of innovation for the fourth industrial revolution? If you were in the video rental business in the past you no doubt would have been focussed on operational efficiencies, new store formats and better service to customers. But it was a business model innovation that closed these companies down.

5. Market innovation

Market Innovation is a fourth type of innovation which is commonly missed but most needed in our current technology revolution. We have methodologies for our other innovation types like Six Sigma, Lean, Agile, Stage Gate, Ideation, hackathons, User Experience (UX) design, Design Thinking and Lean startup methodology.

The methodology for market innovation is business model innovation. Have a crack at changing the prevailing business model in your industry.

Because you know how it will feel if it’s on your watch, that the poachers come in and steal your ivory.

6. Like this article? You may also enjoy the following episode:

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