Decoding the Innovation Puzzle: Four Layers for Strategy in Use

When you run a business, the pressing tasks can hold back an opportunity to understand abstractions. At the same time, you need to keep up with the times, as competitors will never be forgiving if you miss. At this point, you understand what "innovation" means, and here it goes – ventures, startups, R&D, blue oceans, design thinking, hypotheses, agile, user experience, etc. But in real, it is quite difficult to sort through that chaos of incoherent and often vague definitions.

Dmytro Shestakov, 2021

Diagram: Typology of Innovation

DIMENSIONS OF INNOVATION

1. Business-Model Innovation:

● Value Proposition: Focus on understanding your customers' needs and expectations. Craft a unique selling proposition that aligns with their desires and distinguishes your offering from competitors. Constantly reassess and adapt your value proposition to stay relevant in a dynamic market. Case: Peloton impacted the fitness industry with its subscription-based model, offering high-quality, at-home workout experiences with live and on-demand classes. This unique value proposition attracted customers looking for convenient, personalised fitness solutions.

● Value Chain: Analyze your entire value chain, from sourcing raw materials to delivering the final product or service. Identify bottlenecks, inefficiencies, and opportunities for collaboration. Innovate by incorporating new technologies, partnerships, or organizational structures to streamline the chain and create a competitive advantage. Case: Everlane, a fashion retailer, emphasizes transparency in its value chain by sharing information about factories, production costs, and environmental impact. This approach appeals to conscious consumers and sets Everlane apart from competitors.

● Customer Innovation: Prioritize customer-centricity by leveraging data, analytics, and feedback to personalize experiences, improve engagement, and anticipate customer needs. Experiment with new communication channels, loyalty programs, or service models to enhance customer satisfaction and loyalty.
Case: LEGO, the iconic toy company, shifted its target audience by launching LEGO Ideas, a platform that engages adult fans of the brand in the product development process. Through crowdsourcing ideas and fostering collaboration between adult LEGO enthusiasts, the company has expanded its market reach and created a sense of community among its loyal fan base.

2. Technological Innovation:

● Direct Product Changes: Embrace a culture of continuous improvement by investing in R&D, encouraging creativity, and fostering cross-functional collaboration. Keep a close eye on emerging technologies and trends to ensure your product offerings remain cutting-edge and competitive. Case: Microsoft's Office Suite introduced significant updates and new features in recent years, such as real-time collaboration, AI-powered editing, and advanced security measures.

● Production Process: Implement advanced manufacturing techniques, automation, and digitalisation to optimise productivity, reduce waste, and minimise costs. Collaborate with suppliers and partners to identify process improvements and drive efficiency. Case: Adidas leverages 3D printing technology to manufacture its Futurecraft.Strung shoes, optimising the design and production process for improved performance and sustainability.

● Supporting Technologies: Explore innovative technologies like AI, IoT, and blockchain to enhance your business ecosystem. These technologies can help optimise operations, improve decision-making, and create new revenue streams. Case: OpenAI's GPT-4 language model has opened up new possibilities for businesses by providing advanced natural language processing capabilities, enabling a wide range of applications such as content generation, conversational AI, and code completion.

Source: Davila, T., Epstein, M., Shelton R. (2006). Making Innovation Work: How to Manage It, Measure It, and Profit from It. Philadelphia, Pennsylvania: Wharton Publishing.

DEGREES OF INNOVATION

● Incremental: Encourage a culture of continuous improvement by setting regular innovation goals, rewarding creative ideas, and promoting collaboration across departments. Incremental innovation strategy can lead to cumulative gains in efficiency, quality, and customer satisfaction. Case: Starbucks continuously innovates by introducing new beverages, incorporating digital ordering options, and expanding its sustainability initiatives.

● Disruptive: Disruptive innovations often require bold thinking and calculated risks. Invest in R&D, collaborate with startups, and monitor emerging trends to identify opportunities for disruption. Be prepared to pivot and reallocate resources to capitalise on these opportunities. Case: Revolut, a digital banking app, has disrupted the financial services industry by appealing to a new audience of tech-savvy and globally oriented customers. Offering a wide range of services, such as currency exchange, budgeting tools, and cryptocurrency support, Revolut has made financial management more accessible and convenient, challenging traditional banks and financial institutions.

● Breakthrough: Foster a long-term innovation mindset by investing in blue-sky research and supporting visionary projects. Breakthrough innovations may require significant upfront investment and patience, but they can lead to industry-defining advancements and lasting competitive advantage. Case: Neuralink, a company founded by Elon Musk, is working on developing brain-computer interfaces, with the potential to revolutionise medicine, communication, and the way we interact with technology.

Source: Dmytro Shestakov & Oleksiy Poliarush (2019). The Degree of Innovation: Through Incremental to Radical. Investytsiyi: Praktyka ta Dosvid, Vol. 11, pp. 66–75. Available at: https://dmytroshestakov.com/scientific-papers/the-degree-of-innovation-through-incremental-to-radical.

LEVELS of Innovation

● Modular: To drive modular innovation, encourage cross-functional collaboration and knowledge sharing. Identify areas of improvement within individual components or subsystems and explore innovative solutions to enhance their performance. Case: Apple's introduction of the M1 chip in its devices has enhanced performance and power efficiency, providing users with improved computing experiences.

● Architectural: Architectural innovations require a holistic approach to product or process design. Encourage systems thinking and collaboration between departments to identify opportunities for reconfiguration or redesign that can drive efficiency, reduce complexity, or improve user experience. Case: The introduction of Apple's iPhone X marked a significant architectural change in the smartphone industry. With the removal of the home button, the introduction of facial recognition technology (Face ID), and the adoption of an edge-to-edge OLED display, Apple redefined the user experience and set a new standard for smartphone design.

Source: Joshua Gans (2017). The Disruption Dilemma, MIT Press.

FORMS of Innovation

● Product/Service: Foster a customer-centric culture and invest in R&D to continuously develop new or improved products that meet evolving customer needs. Monitor market trends and competitor offerings to ensure your products remain relevant and competitive. Case: The release of the Oculus Quest 2, a standalone virtual reality headset, represents a significant advancement in the VR industry. By offering high-quality, wireless experiences at an affordable price, the Oculus Quest 2 has made immersive virtual reality accessible to a wider audience, driving growth and innovation in the VR market.

● Process: Continuously assess and optimise your production and delivery processes to drive efficiency, quality, and cost savings. Encourage collaboration and knowledge sharing across departments to identify and implement process improvements. Case: Ocado, an online grocery retailer, uses advanced robotics and automation in its warehouses to optimise order picking and packing processes, improving efficiency and reducing operational costs.

● Method: Cultivate an environment that supports creative problem-solving, data-driven decision-making, and agile methodologies. Encourage employees to challenge conventional thinking, embrace new technologies. Case: Slack, a business communication platform, implemented an innovative method called "Slackbot" to improve employee onboarding and engagement. Slackbot is an interactive chatbot that helps new employees navigate the platform, learn about company culture, and connect with colleagues, streamlining the onboarding process and fostering collaboration within the organisation.

Source: Dmytro Shestakov (2018). Understanding Innovation: Process, Project and Product-Centric Views, Electronic Professional Scientific Publication "Effective Economy", (12), pp. 1–10. Available at: https://dmytroshestakov.com/scientific-papers/understanding-innovation.