The 3 Types of Innovation: Product, Process, & Business Model


by Salem Baer

Innovation has become such a buzzword it can be hard to remember what it actually means. Depending on who you talk to, the bar for “innovation” might seem incredibly high (“Let’s be the next Netflix!”), or far too low (“Let’s hang up some hammocks in our office!”). There are several different ways a company can innovate; in this article, they are broken down into three general categories: product, process, and business model. By narrowing your focus on a specific type of innovation, you can be a more effective and strategic innovator.

Product Innovation

When people think of innovation, often, they’re thinking of product innovation. Product innovation can come in three different forms. 1) The development of a new product, such as the Fitbit or Amazon’s Kindle. 2) An improvement of the performance of the existing product, such as an increase in the digital camera resolution of the iPhone7. 3) A new feature to an existing product, such as power windows to a car.

Drivers of product innovation might be technological advancements, changes in customer requirements, or outdated product design. Product innovation is generally visible to the customer and should result in a greater demand for a product.

Process Innovation

Process innovation is probably the least sexy form of innovation. Process is the combination of facilities, skills, and technologies used to produce, deliver, and support a product or provide a service. Within these broad categories, there are countless ways process can improve.

Process innovation can include changes in the equipment and technology used in manufacturing (including the software used in product design and development), improvement in the tools, techniques, and software solutions used to help in supply chain and delivery system, changes in the tools used to sell and maintain your good, as well as methods used for accounting and customer service.

While product innovation is often visible to your customers, a change in process is typically only seen and valued internally. Speaking generally, changes in process reduce costs of production more often than they drive an increase in revenue. Of the three types of innovation, process is typically the lowest-risk.

Examples:

  1. One of the most famous and groundbreaking examples of process innovation is Henry Ford’s invention of the world’s first moving assembly line. This process change not only simplified vehicle assembly but shortened the time necessary to produce a single vehicle from 12 hours to 90 minutes.

  2. Recently, Differential built a mobile sales dashboard for Grupo Bimbo. The baking company has 65 manufacturing plants and 2.5 million sales centers located in 22 countries, across 3 continents. As a result, the executive team members travel a lot, meeting with their direct reports around the world. Having a mobile sales dashboard gives the team quick access to the sales information and other KPI’s for each country, channel, and brand, cutting out guesswork in sales decisions, and reducing meeting time.

Business Model Innovation

Business model innovation does not necessarily imply changes in the product or even in the production process, but in the way as it is brought to the market. Decision Innovation writes:

“Business model innovation is probably the most challenging of the innovation types as it will likely present an organization with major requirements for change. Often, the very capabilities or processes that have been optimized to make a company successful and profitable will become the targets for transformation. In some cases, these changes can threaten elements of the company identity and come into conflict with brand expectations or promises.

Whereas both product and process innovation can be incremental and moderate, business model innovation is almost always radical, risky, and transformative.

When talking about business model innovation, without a doubt, names like AirBnB, Uber, or Spotify will come up. These are perfect examples of fast-moving companies that were able to disrupt age-old markets (hotel taxi, music) by tweaking or inverting their industry’s traditional business model.

Because of these powerhouses, many might assume only startups are capable of massive business model innovation. Startups have a big advantage due to their ability to iterate and adapt their model as they are in the process of creating an initial business model design; however, there are several large, well-established organizations that have leaned into their advantages of a larger customer base and greater resources to challenge their existing business model and “disrupt” themselves.

Examples:

  1. IBM has managed changes in customer offers from mainframes to personal computers to technology services.

  2. Amazon found a new channel to the customer through technology by eliminating the traditional retail distribution channel and developing direct relationships.


Instead of generic innovation goals, try to hone in your focus on a specific type of innovation. Once you’ve done this, you can begin asking more helpful questions, such as “How might this product’s ease of use improve?,” or ”Where in our hiring process are we spending the most time?” Answering these questions through interviews and research will you point you in a clearer (though still sometimes risky) direction for your business’ innovation efforts.

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