What do we mean when we talk about business innovation? The first thing that comes to mind is modern gadgets that perform unlikely activities. However, that image is a cliché because what is innovative is not only in the technology but in practically any aspect of the organization.
We are in a time of great change, in which there is fierce competition and, therefore, the struggle to survive depends largely on the ability to innovate. In this article, we are going to talk about this important factor, which has been making a difference in today’s world.
What is business innovation?
Business innovation is an activity by which a change is introduced in some aspect of the company. However, not every change constitutes an innovation in the strict sense. For it to be, it must meet two conditions:
- It implies a transformation in the business model, the processes, the organization as such, the products or services, and/or in the commercialization.
- It involves the introduction of something completely new or significantly improved.
The concept of business innovation is not exclusively referred to as the introduction or improvement of technologies, as is often thought. What defines it is that it is a sufficiently significant modification and that it improves the conditions of the company.
On the other hand, it is important to take into account the objectives of business innovation. In addition to introducing an improvement, what is sought when innovating is to make the business more efficient, achieve a better position in the market, and/or increase the competitiveness of the company or business.
Characteristics of business innovation
Business innovation is an activity that introduces significant differences with respect to the previous state of the company and seeks results that are sustainable over time.
In addition to these general characteristics of business innovation, there are also others that underlie those already mentioned. They are the following:
Uncertainty
Uncertainty is inherent to business innovation. No matter how many studies and estimates are carried out, there is never any certainty that a good idea will work as expected. This applies especially to an environment like the current one, with a high dynamism.
Sometimes an innovation successfully applied in one company has completely different results in another. So whenever the decision to innovate is made, some degree of uncertainty has to be faced, which inhibits many entrepreneurs. However, when the process is carried out properly, it usually generates significant benefits.
Organizational structure
The organizational structure facilitates or blocks innovation processes. In turn, these have a greater or lesser impact on said structure. Organizations that are more flexible, horizontal, and participatory promote and assimilate important changes better.
In turn, the ideal is for the organization to facilitate teamwork and the generation of ideas so that the fear of the new is lost and, instead, innovation begins to form part of the business culture.
Investment
All innovation involves the investment of resources. Therefore, it is only convenient to advance it when the estimated return on investment, or ROI, is sufficiently attractive. Figures count decisively and therefore should never be lost sight of. As attractive as the novelty may be, it is not justified if it is not supported by a responsible financial analysis.
Side effects
Innovation itself is the fruit of knowledge and, in turn, generates knowledge. It is almost certain that this ends up being taken advantage of, in one way or another, by the competition. Therefore, and depending on the nature of the innovation, it is appropriate that it be legally protected from copies, uses, or exploitation that other organizations may make of it.
The importance of business innovation
What is sought with business innovation is to obtain an advantage over competitors, through a better adjustment to the needs of consumers. Innovation is not only doing things differently but also doing them much better.
In innovation, the incorporation of an effective value proposition is fundamental. Otherwise, there would only be the talk of a change, or a renewal, but not of an innovative process as such.
In today’s world, where there is high competition, innovation processes are not only a positive factor but a necessity. For this reason, the most successful companies do not innovate in isolation but have continuous innovation policies.
Due to the foregoing, it is usual for all processes to incorporate mechanisms for the generation of knowledge, the use of new technologies, and the creation of mechanisms that foster opportunities to innovate.
Advantages and disadvantages
In principle, business innovation generates great advantages, precisely because it is a process aimed at improvement. However, in some cases, it is also possible that less labor is required because of it and, therefore, it ends up affecting employment.
This also has its positive side, to the extent that it frees the company from bureaucracy and speeds up processes. However, it assumes that there will eventually be a negative social impact.
Innovation is easier to carry out in startups and small businesses, which is an advantage for them. Due to their size or low complexity, they are more flexible, and, to that extent, they can adopt changes more quickly and deeply. In fact, innovation processes are usually one of the advantages that allow them to position themselves in a highly competitive market.
On the other hand, a possible disadvantage of innovation is that it requires more qualified personnel, but not all companies have it or can afford it. This requires a thorough analysis.
Finally, it is usual that innovation brings with it an increase in demand. Therefore, the company must be able to respond to this new requirement. This becomes an advantage or a disadvantage, depending on the nature of each company.
Types of business innovation
There are various types of business innovation and, in turn, various ways of classifying them. In general terms, there are three categorizations that apply in this case: according to the scope, according to the model, or according to the process in which it is carried out. Let’s look at this in more detail.
Depending on your scope
From a scope standpoint, business innovation falls into two broad categories: incremental and radical. Let’s see each one of them.
Incremental innovation
We speak of incremental innovation when value is created on an existing product or service. In other words, when significant improvements are made to something that already exists. The change may be small, but the increase in functionality or effectiveness should be noticeable.
This is one of the business innovation strategies that large companies generally apply. They have a solid reputation and must maintain it; they also have a good market share which they must retain. A good example of this is the incorporation of cameras into cell phones.
Radical innovation
Radical innovation corresponds to cases in which a completely new product or service is introduced to the market, in such a way that a turning point is generated, that is, a before and after.
Radical innovation is the rarest and also the one with the highest risk. For the same reason, it is the one that can generate the greatest profits or the greatest failures. A good example of this type of innovation is Amazon, which ventured into virtual retail when the Internet itself was a nascent reality.
According to the model
Innovation in companies can be carried out in different ways. This gives rise to several types of innovation:
Individual
Although it is not the best, it is the most widespread innovation model. It takes place when innovation is the result of the skill and work of a specific person. Generally, that person is an expert in some subject or is exclusively dedicated to researching and generating ideas within a company.
Some companies, like Google, for example, place a high value on individual innovation. For this reason, in this company the staff has 20% of their working time to develop their own initiatives; that is, investigations, trials, or tests not directed by the multinational.
Keep on
It takes place when the company incorporates innovation as one of its permanent objectives, in all areas of the organization. This type of innovation is the result of teamwork. The usual thing is that they always work together and that there are specific tasks to generate knowledge and take advantage of it.
Coca-Cola is a company that works with this model. They have their eyes set on continuous improvement rather than radical new product development. The result is a dynamic offer in which something new is always being offered to the consumer without deviating from essential products.
Disruptive
This type of innovation is equivalent to the radical innovation in the classification that we saw earlier. It represents a breaking point and is not frequent, which is why it is also the one with the greatest potential for profit.
During the last decades, experience has shown that this type of innovation arises from small teams, generally young and outside large companies. Startups have become the hotbed for this type of innovation.
According to the process
Finally, the types of business innovation can also be classified according to the process in which they are applied. Theorist Jay Doblin made an interesting classification and, from his point of view, we find the following categories.
Earnings or benefits
It is known as a profit model and corresponds to an innovative model in terms of earnings. Applies to prices, cost, or quantity. From these variables, and based on an algebraic model, simulations are made to establish which changes increase profitability.
Red
Network innovation seeks to create synergies with other companies to benefit from the experience, skills, and talent that are shared. In this model, innovation is the result of a productive exchange with other organizations that may even be competitors.
Structure
It has to do with the actions carried out by the organization to manage its internal talent and enhance its innovation processes. In this way, from recruitment at all stages, structural conditions are created for staff to innovate.
Process
It is the type of business innovation that focuses on continuous evaluation and change in processes to increasingly optimize them. It is typical of sectors with a high volume of competition, insofar as, under these conditions, better processes often make the difference.
Product performance
Corresponds to updates or extensions to an existing product, or to the creation of a new product. The process is oriented to the development of competitive advantages and is commonly used in technology companies.
Product system
In this case, innovation is aimed at creating complementary products and services to add value to specific products or services. It is common for concepts such as interoperability and modularity to be applied, not to develop a product, but to create a product system that is attractive to the customer.
Service
It occurs when innovation is focused on improvements in the support system and customer service. The objective is to improve the consumer experience, offering guarantees against the usefulness and value of the offer. In general terms, it seeks to generate products or services that are easier to try, use and enjoy.
Canal
It corresponds to the cases in which it is innovated so that customers can buy what they want or need, when and how they want, with a wide range of options. Creating a physical store or an online store is part of this type of innovation.
Brand
In this case, innovation strategies are used so that users feel more attracted to the signature, recognize it better, or remember it more easily. It seeks to introduce one or more motivational factors so that the consumer prefers the brand, over the competition.
Engagement with the client
It operates on the way the company communicates and interacts with the customer. In this case, it innovates to facilitate and increase interaction with customers, get to know them better, and be more aware of their expectations and needs.
Examples of business innovation
There are many business innovations that have had a strong impact on the business world. Some of them are true models, from which much can be learned.
Two examples of business innovation are Whirlpool and Tim Hortons. Let’s see how they managed to introduce and consolidate important innovations.
Whirlpool, an example to examine
In the late 1990s, Whirlpool was in crisis. Their sales had a great stagnation and due to the reduction in income, they had to lay off 10% of their staff.
In 1999 David Whitwam became CEO of the company and came on strong. What he did, in a nutshell, was to radically change the focus of the company: he would no longer be oriented to the manufacture of the products, but to the consumer. In addition, an innovation process would begin in all areas of the business.
Whitwam aggressively pushed for a consumer-centric philosophy of innovation. This extended from the highest levels of the company to the most modest positions. Ideas began to emerge and with them came various transformations. In 2000, Whirlpool’s Duet line of washing machines was launched. These had a much more attractive and elegant design than the previous ones.
Each unit could be sold at a price three times higher than its predecessors. The value of the company’s shares grew by 31% and Whirlpool regained its momentum. Many other innovations followed, all based on the same philosophy. In 2016 the company won nine innovation awards; and in 2017, six awards.
Tim Hortons and innovation in marketing
Tim Hortons is a chain of coffee shops based in Canada. It specializes in coffee, donuts, and industrial pastries. Although it was the favorite brand of Canadians, with the entry of major competitors in 2007, it began to decline. Consumer tastes began to change and this left the company in a bind. It was time to innovate.
They offered an exquisite and much-appreciated coffee, but for 50 years they had used the same formula. Although they were a standard bearer of tradition, there came a time when this was not enough. They then began a process to find out in detail the new tastes and new expectations of customers.
Five years later, in 2012, they launched a new coffee brand: Dark Roast. It was quite a challenge because it meant introducing a great innovation in a brand that breathed tradition through all its pores. To overcome the barriers they went to a very creative action: they allowed people to try the new coffee in places that were completely dark.
The method aroused the curiosity of consumers, who flocked to stores again. The result was a complete success. During the first year, they managed to sell 85 million cups of the new coffee. They managed to overtake their main competitor, Starbucks, and once again reigned supreme in the Canadian market.
Final words
Business innovation is a decisive factor in today’s market, as it is directly related to increased competitiveness. This is vital for survival, considering that we are in a dynamic environment that demands continuous changes and does not forgive those who do not adapt.
To innovate it is not necessary to make great inventions, far from it. You can innovate in processes, technologies, appearance, how to reach the user, etc. Not all of those changes have to be disruptive. What most consumers do expect is that companies offer them news on a relatively continuous basis.
Business innovation involves an effort to think differently. More important than the same results is the innovative attitude. New ideas are everywhere and what must be done is to create the conditions for them to emerge and express themselves. Promoting a business culture that encourages creativity and the generation of knowledge is a bet that cannot be lost.
Support sources
- Villegas, R.V., & Varela, R. (2001). Entrepreneurial innovation: art and science in the creation of companies. Pearson education.
- Castrillón, MAG, & Mares, AI (2013). Business innovation, diffusion, definitions, and typology: A literature review. Business dimension, 11(1), 45-60.
- Molano, C.G., & Campo, JLM (2014). Strategic management and business innovation: conceptual references. Business Dimension, 12(2), 107-116.
