What is Innovation?

From http://dsinghtaru.wordpress.com/2009/10/01/levels-of-innovation/
by TARU Innovations, Davinder Singh Principal TARU Innovations


What is Innovation?

Is Innovation – ‘new to world’ or is it ‘anything new to business’ (and could be re application of an idea/concept used by some one else). Purists want to call it as ‘new to world’; something that no one else has done before; really original. Pragmatists tend to see differently- ‘reapplication is good’; do not re invent the wheel; find more uses; new to world is restrictive. The debate continues.

Many companies would want to have purists certify that they are truly innovative, but the business pragmatism require them not to lose an opportunity to reapply and gain.

Let me present a different perspective. It is probably more important to evaluate and classify ‘Ideas’ not on basis of new to world or company but on the basis of impact that they would have on the business and as a corollary the resources needed and the associated risk/reward equation.

The ‘Innovation Ideas’ can be

Incremental : they would lead to some gains albeit small ones. These are like small improvements that companies do to their products/services basis the small shifts in consumer needs or due to a better technology available to do the same work or just to bring a sense of ‘newness’ or change to address consumer fatgue. Things like new flavor, new shape of soap bar etc. would be typical examples of this. These require very little resources, no change in any process – sourcing, manufacturing, selling or marketing, has low risk and also less likely to have great rewards.

Substantial : in these the company would be making significant changes to its offering. Like moving from soap bars to shower gels; adding portfolio of still water drinks to carbonated drinks. The company needs to commit resources in devloping these. Add on technology for the new products is required. There would be changes required which could span not only production but also sourcing, selling and marketing. These changes would require organisation to make efforts but would largely be congruent with existing business. the risks would be there, due to new product category and changes mentioned. But the success would have the potential of great rewards – both top line and profits.

Transformational : This is pretty much like changing the skin. The company adds not just a new kind of product but also moves into new business. The move requires a BIG change across entire organisation. Like cosmetic company launching retail saloon via frianchising. The business model of new idea is entirely different from the existing business. The risk level is high. The resources needed are large and expensive. And success could take longer but when successful it can open a completely new revenue and profit stream. The company could also undergo transformation.

Now many companies and more importantly their senior managers would have to decide what they want, and how much can they do – i.e can they manage only those ideas which are ‘incremental’ or would they want to go for ’substantial’ and maybe even ‘transformational’.

This is where the Balancing the Innovaiton Portfolio comes into play. It makes sense to have enough incremental level ideas – to capture the low fruits and remain constantly relevant to consumers. Then it is as well required to have some ideas of the substantial level. These ensure that big opportunities in the existing business are captured and company can build/retain its competiitve advantage. It also allows company to secure its medium to long range business growth. If this is done and company still has the resources to pursue more innovation, have the risk appetite then they can look at transformational ideas. It is essential that company does not take on too many of these. The high resource requirement, high risk, high degree of change entailed and long time required for completion are the obvious reasons for this.

It is always more desirable to have a balance portfolio where in enough numbers of all levels of innovation ideas are pursued. This allows for better overall success and growth through Innovation.