Innovation Defined

The Conference Board defines innovation as the process through which economic and social value is extracted from knowledge through the generation, development, and implementation of ideas to produce new or improved strategies, capabilities, products, services, or processes.

There are four major types of business innovation:

1. Radical Change to Products and Services

Radical or breakthrough change to products and services usually originates from R&D or other forms of formal creative activity and can be in response to unarticulated, unmet, customer needs. Often, but not exclusively, radical change is based on ideas for a new product or service stemming from research discoveries or other sources. It then evolves through a development process to eventual commercialization of new or extremely different products and services. These new products and services can drastically alter what companies sell, and generate major gains in revenue and profit.

Examples of a breakthrough product include:

  • the automobile
  • penicillin
  • Polaroid camera
  • laptop computer
  • Windows operating system
  • ATM machine
  • the iPad.

Examples of a breakthrough service include:

  • the dentist (as a certified professional)
  • the Internet
  • IBM one-stop tech service model
  • online shopping.

2. Radical Change to Processes

Radical or breakthrough change to business and management processes is based on fundamentally new ways to plan, manage, design, produce, distribute, and market products and services. These changes are rare, but when they occur they can radically alter how companies operate, and yield major gains in productivity and profit.

Examples of breakthrough improvements in processes are:

  • assembly line automobile production
  • Lean Manufacturing, a process for greatly reducing waste
  • Six Sigma, a process for radically reducing error rates.

3. Incremental Improvement to Products and Services

Incremental improvements add or sustain value by improving existing products and services. These incremental changes can be in response to evolving customer needs, or the result of ideas emerging from research labs or elsewhere. Most product and service innovation is incremental in nature.

Examples of incremental change to products include:

  • Microsoft’s Windows 7
  • Apple’s second generation iPad,
  • niche food products (e.g., 10 kinds of tomato sauce). 

Examples of incremental change to services include:

  • online registration systems for post-secondary education courses
  • the spa as a one-stop source of beauty care
  • same-day dry cleaning.

4. Incremental Improvement to Processes

Incremental improvements enhance the efficiency and effectiveness of existing processes and practices. They are based on improving current business and management processes, such as planning, design, manufacturing, production, marketing and administration, supply chains, and communications. Most process improvements are incremental in nature.

Examples of incremental improvements to processes include:

  • adding technology to replace people in a section of the production cycle
  • reducing water usage in the production of food
  • “de-layering” management levels to bring decision-makers closer to operations and customers
  • streamlining manufacturing processes to reduce the number of steps.

Most innovations are incremental in nature and, if implemented properly, lead to cost reductions; enhancements to existing products, business processes, or marketing approaches; and improvements to environmental or safety performance. Less frequently, breakthroughs occur that can create new markets and industries while also eliminating or transforming others. They can also radically change the way we produce, distribute, market, and sell products and services.

The amount of each type of innovation varies by sector. For example, innovations in the natural resource sectors tend to focus almost exclusively on processes and much less on products and services. But in the computer software industry, the focus is mostly on products.

Adoption Versus Origination

Exhibit 1: Dimension of Innovation AdoptionAt the firm level, most companies often adopt rather than originate innovations themselves. (See Exhibit 1.) Whether they are breakthrough or incremental in nature, many innovations are new to the firm, but not to the industry (Adopters). There are other innovations that are new to the industry, but not to global markets (Industry Leaders). And, there are those few innovations that are new to global markets (Global Leaders).

The CBI will explore in depth the nature and implications for firms, industries, and the country of origin and adoption, as elements of firm-level innovation strategies and activities.

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