Innovation
March 9, 2021

A Guide to Innovation Management Models and Theories

For the next topic in our innovation series, we are diving into Innovation Management Models. If you’re new to the innovation conversation, or it’s your first time here at Pondr Blogs, check out some of our previous articles outlining what innovation actually is, how to measure it, the importance of it and the different types that exist.

Today we’ll be focusing on Innovation Management Models, which refers to the theories around how innovation gets organised, managed and implemented. This area of innovation research is such a vast and varied landscape, with countless philosophies and concepts to draw from and acquaint yourself with. To simplify the process, we’ve simmered it down to three main areas:

  • Defining the impact level of innovation and the main types within the matrix.
  • Categorising the internal processes of innovation through the 3 stages of business, technology and marketing.
  • Looking at the 5 most popular theories which can be applied to your innovation strategy.

Defining the impact level of innovation and the main types within the matrix

Our first section will be looking at the types of innovation from the perspective of their impact. The following example matrix is taken from Greg Satell’s book Mapping Innovation which he developed to help organizations identify and solve problems using the right strategy, by asking “How well can we define the problem?” And “How well can we define the skill domain(s) needed to solve it?”

Satell notes that innovation needs to be treated like any other business discipline, and seen as a set of tools which can help in defining and building your strategy. “Just as we wouldn’t rely on a single market tactic or a single source of financing for the entire life of an organization” he explains, “we need to build up a portfolio of innovation strategies designed for specific tasks.”

There are many variations of the Innovation Matrix, but broadly speaking, there are four main ‘types’ of innovation which can be used to measure impact level. These can be categorised within the Innovation Matrix as:

  • Radical or Breakthrough
  • Incremental or Basic
  • Disruptive
  • Sustaining

Incremental vs Radical

Incremental

This is the most common form of innovation, and is used to describe slow, gradual changes to a product or service that already exists. Being the most conservative option, it is the most widely used and accessible. Large scale change often requires a large budget, which is risky and not always accessible to smaller businesses. It does not create a new market, but rather builds on the core product. Take Cadbury’s or Coca Cola as an example - they do not need to reinvent the wheel of their product, but rather introduce new flavours or concepts as an addition to keep themselves fresh.

Incremental innovation straddles a fine line: adding unnecessary extras to an existing product for the sake of newness can risk over complication, while letting products that sit stale for too long can get left behind.

Radical

Radical innovation is true to its name - it is revolutionary, inventive and changes the way society functions. Examples could include the steam engine, the telephone, the automobile, electricity, with computers arriving on the scene in the 1980s, and then the internet. Our near future will see enormous leaps forward in revolutionary technology, such as artificial intelligence, the way we store energy, genome sequencing and blockchain.  While rare, this form of innovation not only changes markets but has the potential to change entire economies as well.

Sustaining vs. Disruptive

Sustaining

Similar to incremental, sustaining innovation also stays in line with the core function of the product, while slowly improving it. This time, think of smartphone technology - the core function of the product remains the same, but every year a new and improved version is released, and customers look forward to and expect the constant change to the existing product. This type of innovation is seen to be the most profitable form of low-risk change.

Disruptive

Completely opposite to the previous, disruptive innovation introduces an entirely new value network. Like the stock market, if successful the rewards have huge payoff, but can also risk huge failure if unsuccessful. This process works by creating a brand new market, or entering into an existing one and completely changing how it functions. Streaming services such as Netflix are one of the most widely used examples to show the complete transformation of an industry.

Further branches: Architectural vs Modular

Additional categories to note would be architectural vs modular. Architectural grows out of an incremental type of innovation; while incremental would be more about the renovations that happen to core components of a product, architectural refers to the process by which interactions between core components are shifting but do not change the core function of the product.  An example could be the a disc-man; the parts already existed in another form, but the product was new based on how these core components interacted differently. Modular refers to the process by which core components undergo a complete redesign, but interactions between them remain the same, such as laptops incorporating a touchscreen option.

Categorising the internal processes of innovation

Moving our focus from the impact level side of innovation, the next categories to understand are the innovation strategies that take place at the source, or rather the internal innovation journey a product goes on from idea to customers. The Doblin Innovation framework is one of the most widely used systems of categorisation for this, and it has 3 main branches:

  • Business Innovation
  • Technology or Product Innovation
  • Marketing Innovation

Within each branch are further stems that act as subcategories - referred to as the 10 types of innovation within the Doblin framework - which we will outline below. Like any task, you need to be realistic about where to focus - what needs the most attention? Are you analyzing the right area for your current competition? Knowing where innovation is needed is fundamental.

Business Innovation

This branch looks at how a business organises itself to ensure it’s creating the right environment for innovation to thrive, where all the different components that must be working together in order to create a healthy ecosystem. Whether you’re looking for a competitive advantage or trying to find new streams of revenue, the business model is the first step before anything else for creating and maintaining value. It is a good idea to analyze your current model, but also make sure your current efforts are consistent with your long term goals. Internally focused, the business - or configuration - is the umbrella for:

  • The Profit Model; how you intend to make money.
  • The Network; how you will collaborate to create.
  • The Structure; how you organize your company.
  • The Process; the method for carrying out the work. Perhaps a new technology is needed to save time and money, or serve customers better in the long run. It could also be how you improve on collaboration or communication, using a service like Pondr to bring fundamental change to how your company makes decisions.

Technology or Product Innovation

This is the area most of us associate ‘innovation’ with, because it introduces something concrete and new into the world. Because of this, we tend to link innovation with grander ideas or invention and brand new technologies, but as we’ve learned from some of the impact levels above, radical changes can also result from small enhancements that are ongoing over time. This branch is an important area to focus on, no matter the scale of transformation or change that’s taking place. Within this branch would be the stems of:

  • Product performance; its features and how it functions
  • The Product System; products and complimentary services offered. This is often the most straightforward and visible area that gets the most attention.

Marketing Innovation

This area is about the market - or how customers experience the product. It does not solely refer to advertising, it is also the research and innovative ideas that go into finding new markets or creating new value that could translate into the creation of a new market down the line. Marketing tactics are worth revisiting on a constant basis, and some stems of focus include:

  • Service; improvements that add value to what you are offering
  • Your Channel; how you are delivering your product
  • Your Brand; how you represent who you are
  • Customer Engagement; how you interact with your clientele. Maybe the focus is on upgrading to a more user friendly interface, or focusing on new technologies in marketing to promote your services.

Theories of Innovation

Now that we’ve gone through the different categories and models of innovation that exist, studying some of the areas most influential theories will make a little more sense. Within this section we will look at 5 of the main innovation theories:

  • The Innovator’s Dilemma
  • The Technology Adoption Lifecycle
  • Jobs-to-be-Done Framework
  • The 3 Horizon’s
  • The 70-20-10

Innovator's Dilemma

This theory - coined by Harvard professor and businessman Clayton Christensen in his 1997 book The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail -  explains why traditional modes of measuring innovation, such as solely looking at profit, does not give a holistic picture of a company’s potential trajectory. He uses his theory of disruptive innovation - the “process whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses” - to demonstrate this. Take Netflix for example: in their early stages, the market was not yet ready for their innovative ideas to take hold. What they offered was still proving inferior to Blockbuster customers, but eventually as the technology began to change as well, it became profitable within the mainstream. Christensen notes that this phenomenon creates an S-curve whereby a product initially has no value to mainstream customers, but in time and with new iterations, the value expands quickly and exponentially.

If Netflix had measured their innovation methods during the beginning stages against their competitors, the results would have made them want to abandon ship all together. That’s why it’s so important to know what stage and type of innovation of your product or business fits into, before trying to measure it.

In his book, Christensen notes that it is good management itself that is the root cause of getting disrupted, such as ‘listening to customers, tracking competitors actions carefully, investing resources to design and build higher performance products that will yield greater profit.’ He notes that it is the smaller companies, who can afford to ignore these components and focus solely on technological advancement, that allows them to move in with superior performance.

The Technology Adoption Lifecycle

Introduced by Goeffrey Moore in his book Crossing the Chasm, this theory provides some insight into disruptive technologies, and the reasons why it faces difficulties in the early stages of getting their product into the mainstream market. Closely linked to the Innovator’s Dilemma, this theory uses a psychological lens to dissect why a new innovation is not adopted or accepted initially.

Moore uses ‘Diffusion of Innovation’ as a reference point, which is a 1962 theory by Everett Rogers that seeks to explain the spread of new technologies or ideas. He categorises his ideas into four main elements that influence this spread: the innovation, channels of communication, time, and social system. He notes that the innovation is not self sustaining until it is widely adopted or reaches ‘critical mass.’ He categorises ‘adopters’ into a bell curve by level of innovativeness, or the ‘degree to which an individual adopts an idea’:

Innovators ----->  Early Adopters  ----->  Early Majority  ----->  Late Majority -----> Laggards

It is within this scale that Moore introduced his theory of Crossing the Chasm, which argues that between the Early Adopters and the Early Majority, there is a chasm - or gap - which slows down or impedes the innovation journey. The Early Adopters are seen as visionaries and tech enthusiasts, and the Early Majority would be defined as being more pragmatic. His advice is to focus on one group at a time, and create momentum within the Early Adopters which gains enough traction for the hurdle to the next phase. This might mean creating your brand especially for a niche market at first. Once a product reaches the Early Majority, it moves quickly through to Laggards.

Jobs-to-be-Done framework

This theory really is as straightforward as it sounds. Developed by strategy & innovation firm Strategyn, the theory acts as a reminder not to forget what it is your customers actually need: to get their job done. Whether the job is small, or big - such as finding a fulfilling career - a customer essentially buys a product to help them finish a job. If the product is insufficient at helping them get their job done, they will not ‘rehire' it so to speak.

In a 2016 issue of the Harvard Business Review titled ‘Know Your Customer’, they explore a case study of the Jobs-to be-Done methodology which explores the social and emotional dimensions of this theory. They looked at a retirement condo development plan, which had weak sales before they changed their approach. Once the company began to realise that creating more nifty features for selling points was not proving helpful, they changed the services they offered, which helped ‘buyers with the move and with their decisions about what to keep and to discard.’ It was after this new approach was implemented that sales took off.

Strategyn has also developed a framework called ‘The Jobs Map’ to help locate opportunities where your customer’s may benefit from help.  The map is laid out in 8 steps:

  1. Define; determine what the goals are
  2. Locate; gather the information and resources needed to do the job
  3. Prepare; make sure you have the right environment set up to do the job
  4. Confirm; verify that they’re ready to do the job
  5. Execute; carry out the job
  6. Monitor; assess whether the job is being carried out successfully or not
  7. Modify; make alterations to improve execution
  8. Conclude; finish the job or prepare to repeat it

The three horizons of growth

This theory, devised by McKinsey & Company, is a growth management strategy that advises finding a balance between the short and long term as it relates to projects in a portfolio. To maximise growth potential, the method advises working on projects simultaneously within three defined horizons:

Horizon 1; this phase relates to short term projects, with a view of seeing growth take place within the 1-3 year range. It often focuses on the core of the business and is where tangible results can be measured in a yearly review.

Horizon 2; this is where your company would explore and discover new expansions with an expectation to see results within the range of 2-5 years. This type of innovation could mean an idea taken from another market and applied to a new one, or the adoption of new technology or processes.

Horizon 3; This phase is for innovations that explore entirely new possibilities and competencies, and as such should be viewed within the 5-12 year lens. This is where the planning and preparing for long term ventures is implemented and is where the more radical, disruptive or architectural impact levels would happen.

The reason for implementing a simultaneous strategy is not only for maximising growth potential, but it also decreases risk at the same time. If you are only focused on disruptive innovation, you may jeopardize your core business and what keeps it afloat in the first place. If you were to focus only on incremental change, you experience profit in the short term but risk obstructing the view for the future of your business and the directions it can go in.

The 70-20-10 rule

The last theory is adapted from the theory of learning which argues that you learn 70% by doing the work, 20% from those around you and 10% from the academic side of courses or reading.  Former CEO of Google Eric Schmidt then used this theory for models of innovation, and created a framework for employees at Google to use:

  • 70% focus on the core of the business
  • 20% to focus on related projects
  • 10% could be allocated for anything deemed unrelated or new

This essentially works within the Three Horizons framework, but gives a more detailed approach to how much time should be given to each phase. With slightly different terminology, he refers to the 70% area as the ‘core’ which would be the main operation of the business, the 20% area as ‘adjacent’ which are extensions and improvements, and the 10% is described as ‘transformational’ as it entails ideas that would bring about brand new directions for the company.

Conclusion

No matter what impact level of innovation you are exploring, or which stage or horizon you are journeying into, understanding the importance of innovation at every stage should be at the core of any business venture. Ideation, invention, innovation - whatever term you want to use to package the science of ‘ideas’ - should be a constant point of focus. As the organisation of ideas can be a messy and disorganized process, make sure you have a good ideation software program which allows you to constantly define, assess and evaluate the health of your innovation. Innovation can only thrive and expand to its fullest potential if it is housed within the right ecosystem.



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