Conversations about innovation are often confused due to a lack of clarity around the type referred to. As with any intricate concept, innovation isn’t a one-size-fits-all phenomenon; it possesses diverse facets. To establish clear communication and understanding, it is crucial to distinguish between these various types of innovation.

In our discussions with clients, we emphasize three key types of innovation, borrowing extensively from the paradigm defined by Harvard professor Clayton Christensen: efficiency, sustaining, and transformative innovation. Each type of innovation necessitates distinct skills, resources, experiences, and organizational support. Ideally, they should be nurtured in different parts of the organization and granted varying degrees of autonomy to flourish. Let’s dissect each type of innovation.

Efficiency Innovation

Efficiency innovation revolves around identifying and capitalizing on opportunities to enhance the operational elements of a company’s existing business models without making substantial changes. This could involve incorporating technologies to boost operations, distribution, or support or introducing process innovations that enhance organizational effectiveness.

Advantages

• Low risk and uncertainty
• Immediate impact
• Predictability
• Varied financial impact, from small to large

Disadvantages

• Offers no shield against disruption
• Does not position the company for future evolution

Efficiency innovation can occur at any level within the organization, ideally with the backing of professional innovators.

Sustaining Innovation

Sustaining innovation explores opportunities to build upon a company’s existing business model, strengthening and prolonging its vitality. Examples of sustaining innovation include launching new products or services, introducing new distribution channels or production technologies, and geographical expansions.

Advantages

• Relatively low risk and uncertainty
• Short to medium-term time horizon
• Considerable financial impact
• Helps maintain competitiveness

Disadvantages

• Offers little to no protection from disruption

Sustaining innovation should be nurtured by dedicated innovation teams with solid backing from or within operating business units.

Transformative Innovation

Transformative innovation is the most challenging yet potentially rewarding form of innovation. It involves exploring opportunities outside of the traditional field of a company, often requiring a radical transformation or expansion of a company’s business models. This includes opportunities that facilitate company growth or disrupt existing businesses.

Advantages

• Positions the company for the long-term
• Protects from disruption

Disadvantages

• High risk and uncertainty
• Seldom offers quick returns

Transformative innovation calls for dedicated and autonomous innovation teams outside business units, with access to skills and resources from operating businesses.

Practical Examples of Innovation Types

Efficiency Innovation: Amazon’s implementation of robots in their warehouses exemplifies efficiency innovation. This innovative move significantly improved their warehouse management efficiency. While it had a substantial financial impact, it would not shield Amazon’s e-commerce business model from potential future disruption.

Sustaining Innovation: When Amazon introduced e-books and the Kindle e-book reader, it reinforced its online bookstore business model, increasing revenue streams. This is a prime example of sustaining innovation.

Transformative Innovation: Amazon leveraged their e-commerce business model strengths in information technology, infrastructure, and solutions to develop completely new value propositions for new customer segments around “web services”. This led to creation of a new business model, Amazon Web Services (AWS), a classic instance of transformative innovation.

Unfortunately, many companies do not innovate like Amazon. Their innovation portfolios are predominantly skewed towards efficiency innovation, with a small percentage of sustaining innovation projects and a handful of transformative innovation projects. However, transformative innovation yields the highest long-term value and protects against disruption.

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By Andrew Constable MBA, LSSBB

Keywords: Business Strategy, Innovation, Leadership