What’s it: Innovation is about translating ideas to create something new from existing ones, be it related to goods, services, or processes. It requires recognized not only needs but also competent people with the relevant technology and financial support. An idea is innovative if it can be imitated at an economic cost and must meet particular needs.
Importance of innovation
Innovation is the most critical source of competitive advantage, especially in the midst of intense competition (hyper-competition). Through it, companies can:
- Produce new products to better satisfy customer needs, such as through differentiation
- Generate more revenue by improving the quality of existing products, allowing the company to charge a premium price
- Reduce the cost of making the product the customer wants
- Improve the effectiveness and efficiency of business processes
- Increase the chances of finding new opportunities
- React successfully to changes in dynamic business environments
Competitors will usually try to replicate successful and often successful innovations. For this reason, maintaining a competitive advantage requires an ongoing commitment to innovation.
Types of innovation
Four types of innovation are:
- Product innovation
- Process innovation
- Position innovation
- Paradigm innovation
Innovation may also be continuous innovation if it is based on pre-existing products. Companies make minor changes without changing customer habits.
Or, it is discontinuous innovation in which the product is as different and completely new as an electric light bulb or a computer when they first appear. It often changes customer habits and the competitive landscape.
Clayton Christensen distinguishes between sustaining innovation and disruptive innovation. The former refers to product improvements based on current customer-known needs. Meanwhile, disruptive innovations create new markets and divert the competitive map by displacing established competitors.
It creates new products from existing concepts or modifies existing products, including technical specifications, components and materials, user-friendliness, or other functional characteristics.
Making an electric or hybrid car is an example. Another example is developing laptops after the invention of the personal computer.
It develops new or modified ways, methods, and techniques to create a product. Examples are methods such as lean production, six sigma quality, and total quality management. It may also involve not only significant changes in production techniques but also equipment and software.
It is about relocating customer perceptions of a particular product. For example, cell phones were marketed as communication devices. But, now, they are considered essential gadgets for lifestyle and fashion accessories.
This is a typical change in how things are done. Now, reading a book doesn’t have to be physically carried with you, just a cell phone. Likewise, making new friends doesn’t have to be face-to-face, but enough through social media sites or other online channels.
The diffusion of innovation
Innovation does not spread and is taken for granted by the entire population. Instead, its adoption is taking place slowly. Experts then develop the diffusion theory of innovation to explain how, why, and how fast new ideas and innovations spread. They divide consumers in the market into five categories:
- Early adopters
- Early majority
- Late majority
Innovators represent those who first adopted. They are few in number. They are willing to take risks associated with using the product because it may be supported by high social status or supported by strong financial support. They also have the closest contact and interaction with other innovators and scientific sources.
Early adopters are the next category. They have the highest levels of opinion leadership and are wiser than innovators at making adoption choices. They also have high social status and adequate financial and educational support.
Early majorities took a large part of the market population. They adopt innovations after a while, and quite many people do. They have above-average social status but rarely hold opinion leadership positions.
Late majorities are the next part of the population after the early majority. They adopted the innovation after most of the population did. They are relatively skeptical about an innovation, perhaps because of below financial support and social status than the average.
Laggards are the last ones to adopt innovations. They dislike change and tend to maintain the status quo and traditions. They have the lowest social status and financial support compared to the other four categories.