When it comes to innovation, the term is often thrown around without a clear understanding. This lack of clarity can lead to misunderstandings and missed opportunities. To ensure everyone is on the same page, defining the specific kind of innovation under discussion is crucial.

Drawing inspiration from Clayton Christensen, a renowned Harvard professor, we categorize innovation into three primary types: Efficiency, Sustaining, and Transformative. Each type demands unique skill sets, resources, and organizational support. Let’s delve into the nuances of each.

Efficiency Innovation: Streamlining Operations

Efficiency Innovation focuses on enhancing the operational elements within a company’s existing business models. It doesn’t fundamentally alter the business but aims to make it more efficient. Examples include technological advancements that streamline operations, distribution, or customer support and process improvements that boost organizational effectiveness.

Pros

• Low levels of risk and uncertainty
• Immediate, tangible benefits
• Scalable financial impact, from minor to major

Cons

• Vulnerable to market disruptions
• Doesn’t strategically position the company for future challenges

Where it Happens:
Efficiency innovation can be initiated at any organizational level and benefits from the expertise of specialized innovation professionals.

Sustaining Innovation: Building on Existing Strengths

Sustaining Innovation aims to fortify a company’s current business model. It involves the introduction of new products or services, the opening of new distribution channels, or the adoption of new technologies and production methods.

Pros

• Moderate risk and uncertainty
• Short to medium-term financial gains
• Enhances competitive edge

Cons

• Limited defence against disruptive forces

Where it Happens:
Sustaining innovation is best carried out by dedicated teams that operate within or are strongly supported by existing business units.

Transformative Innovation: Venturing into the Unknown

Transformative Innovation is the most challenging but potentially the most rewarding. It involves venturing beyond a company’s traditional scope to change or expand its business models radically. This could mean entering new markets, disrupting existing ones, or creating new business landscapes.

Pros

• Long-term strategic positioning
• Provides a safeguard against market disruptions

Cons

• High levels of risk and uncertainty
• The long gestation period for returns on investment

Where it Happens:
Transformative innovation is best managed by autonomous teams separate from the core business units but have access to essential skills and resources.

Understanding these three types of innovation can bring clarity and focus to your innovation strategy. By identifying which type best aligns with your goals, you can allocate resources more effectively and set your organization on the path to sustainable growth.

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By Andrew Constable MBA, LSSBB

Keywords: Innovation, Leadership, Business Strategy