When setting up an innovation strategy, there are many decisions to take. And, probably, one of the first challenges is to choose between two different approaches. Should I choose an incremental innovation path? Or should I rather look for a radical, or disruptive, approach? Both choices have advantages and disadvantages and serve to different goals. Let us examine them in more detail.
This is a common approach in many established companies, which focus on creating new products and services, with several goals:
To grow sales and profits for existing products and services.
To protect current business models.
To create new business models without cannibalizing current ones.
This approach is very popular because it reduces the risk that radical innovation usually takes. Moreover, companies with great human capital, resources, and capital find that is much easy for them to follow this innovation path, which brings clear advantages, such as:
Helps companies remain competitive. While profiting from a product they are already developing the next generation.
Ideas are easier to sell. When customers are used to a type of product or service they find easier to understand and buy new improvements.
Affordability. The development process is not unsurmountable, as long as the company already have all the capital and infrastructure needed to keep innovating on the same kind of products and services.
Smartphone industry is a great example of this kind of innovation. When Apple designed the first iPhone helped to create a new huge market. Following this track, many companies developed their own first smartphones, willing to get some slices of the cake. From this first move, all tech companies in this sector started a race to deliver the next generation of their models, profiting in the meanwhile from previous ones. Once they have the resources to do that, is just about keep the wheel turning on, just improving step by step. This makes companies relevant to the customers, reducing uncertainty and keeping costs under control. At least, until someone else disrupt the market again!
Of course, this comes with some disadvantages. In mature markets, with many competitors, is much harder getting notice. Huge marketing expenses became mandatory, as well as the R&D resources to remain competitive. Is not an easy race, and Nokia gives us an example of a big player that clearly lost its market position as result of a failing innovation strategy.
Radical innovation is a much more complicated endeavor. Is a complex process, rather than a discrete event, and implies a difficult, lengthy and risky process. We can define it in several ways, but probably will be accurate to describe it as a “blue ocean strategy”, as Kim and Mauborgne understand this term.
A blue ocean strategy means that a company does not fight for a slice of the market cake. Rather that, it creates a new market, stepping aside from the crowd. This strategy has many clear advantages:
It gives the chance to get a huge win, as long as the innovator will be the pioneer in the field, with no competitors. A significant advantage for any company.
This advantage could give the chance to own an entire market, at least during the first stages, setting up the rules for the own profit.
New markets are wide open to further development and innovations. Once you have created a new one, the options for further innovations are usually very high. This means that capturing value will be much easier than in mature markets.
Nevertheless, creating a new blue ocean is not easy, in fact, it is quite risky. Timing should be perfect, in order to deliver your brand new product to the right people at the right time. Slow market adoption is a clear possibility, hindering market growth, and the investment needed is usually quite big, without clear return perspectives.
A clear example for this kind of innovation is the digital camera. The history of this device resumes how this kind of approach works. First digital sensors were invented in 1975, and mounted into cameras in 1976 in Japan, by the company Nikon. At first, its adoption was slow and didn´t threaten the traditional industry. In fact, Kodak itself did not consider digital cameras as a real competitor. The last chapter is already known: as long as digital cameras improved their design and became cheaper, their adoption was growing exponentially, displacing former technologies and all those companies that failed to adapt, including Kodak. A new huge market followed in a few years, full of devices, products, and services attached to this technology.
What is the most suitable approach for your firm?
Today incremental innovation is the most prominent approach for many companies since it suits better with their resources and strategies. Is far easier to introduce new improvements in your products to keep being competitive, rather than try to create a whole new market with some brand new thing.
For new companies or market entrants is far more interesting to choose radical innovation, rather than incremental, since it opens wide opportunities that mature markets simply do not have. Nevertheless, they are not opposed approaches. In fact, smart phones and digital cameras show how they depend on each other. The first iPhone and the first Nikon camera created a blue ocean of opportunities, but after that the market grew and matured because companies chosen incremental innovation, improving their products step by step, following users needs.
Therefore, we can choose which path should we follow depending on our goals. If we want to become better competitors and increase our market share and profits, incremental innovation with its steady rhythm should be our choice. But bears the risk that a (new) competitor arises with a radical innovation that we did not foresee. Opposite to that, if we want to dive ourselves in new, unrivaled and undiscovered new markets, probably we should choose radical innovation, developing a new technology and bringing it to the market (if we want to take the risk). Anyway, we must be aware of the consequences and prepare ourselves to face the challenges attached to both kind of innovation strategies.