Most of us imagine innovation occurring by a lone genius, in his garage, creating the next great technological must-have invention. Yes, Hewlett and Packard, Jobs and Wozniak, and Zuckerberg and his classmates did indeed create billion-dollar businesses from primitive starts in garages and dorm rooms. However, most successful innovation follows business steps and processes rather than rags-to-riches stories. Most successful innovations require understanding markets, technologies, and customers.
While the fantasy of garage-created innovation inspires us, the real work of new product development (NPD) must identify acceptable opportunities that will result in customer satisfaction and grow the business. Innovation, then falls into four typical categories:
- New offerings,
- New markets,
- New customers, or
- New business models.
New product offerings are often a boon to product sales. These types of innovations create brand new products or product categories that involve new technologies or new customer experiences. Companies can build on these platforms for a long period of time to create derivative products and enhancements. A first-mover advantage further benefits the life cycle economics of a new offering.
Volvo recently introduced its 2019 entry into the compact SUV market (XC40). This vehicle is built on a new platform that Volvo will extend to a hybrid SUV, sedan, and even a convertible car. The new offering involves new technologies but is appealing to a growing customer base that may be currently dissatisfied with competitive products.
Designing and developing a product for a new market can be hugely successful for companies. These innovations address currently underserved customers or introduce new technologies to solve previously intractable customer problems. Again, first-mover and fast-follower strategies build sales advantages for new market innovations. We can look to the health care industry for an example.
As the population ages, the demographic is creating (by default) new markets ripe for innovation. The elderly often have better health outcomes when cared for in their own homes. Yet, recovery from injuries or surgery may take longer with an elderly patient. Moreover, these people frequently experience loss of confidence in their ability to complete simple personal care and housekeeping takes, for fear of a repeat injury.
Home health care nurses and lay people are addressing this new market with a variety of services. In some instances, the new market is simple housekeeping while in others, the degree of care including administering medicines and assisting with bathing or dressing.
Companies can take advantage of new markets for innovations that are simple or complex, involve new technologies, or take advantage of existing capabilities.
Another way in which businesses grow and develop successful innovations is by identifying new customers. Often a product or service is well-known in one market arena but unknown by customers who may have similar problems in another arena. Adding customers through innovation can both increase sales and decrease overall operating costs. Consumer packaged goods and the food and beverage industries use many different marketing tactics to build expanding customer bases.
For example, I used to drink only frozen orange juice. Honestly, this was a step up in my adult life from the powdered juice drink my mom served with breakfast while I was growing up. Years ago, the supermarket gave me a manufacturer’s coupon for non-concentrate orange juice. Since it was free, I tried it. And I much preferred fresh orange juice over frozen concentrate. A new customer (me) was created and I am a customer with significant repeat purchase behavior.
While it might feel like adding new customers is only a marketing ploy, new customers really do require innovation from a product development standpoint. Products need to be developed with enough variety and price points to appeal to larger, more diverse groups of customers. Likewise, packing may need to be altered to fit the needs of different customers – as an illustrative example, take a look at how many different brands, flavors, and mixtures of orange juice there are at the supermarket!
New Business Models
Finally, innovation also involves new business models (read more about business models here). Business models describe how a product or service reaches a customer as well as key processes, capabilities, and financial formulas for a company. Of course, new technologies often play an important role today in delivering products and services to customers to solve their problems.
An important example of a new business model is the subscription approach. Service providers offer a new smartphone every year if the customer subscribes to the cell service for an extended contract. Newspapers and magazines offer digital content via tiered subscription levels. Even arts and crafts manufacturers offer monthly kit club subscriptions to makers and creators.
Business models also can offer innovations in the profit formula for a firm by innovating around the supply chain, as Amazon was done, or by sharing manufacturing operations across platforms or competitors. Joint ventures offer an incentive for innovations to cross traditional boundaries yet yield advantages to both participants and end-users.
4 Types of Innovations
It is restrictive to view innovation as the proverbial light bulb moment that occurs to a lone genius. Occasionally, great ideas are born this way, but more often successful innovations are produced through collaboration and focused understanding of customers, markets, and technical capabilities.
Instead of hoping for lightning to strike, companies can cultivate NPD teams to recognize and groom innovations involving new product offerings, new markets, new customers, and new business models. These approaches need more user research and integration with manufacturing, sales, marketing, and supply chain. HR, IT, and training functions also must support new approaches to innovation, focusing on customer needs assessments, and growth of core competencies.
Innovation is fun and exciting, and tremendously rewarding when delivering a new product, service, or business model to customer and market needs.
To learn more about innovation and strategy, please check out self-study and other NPDP Workshops. Feel free to contact me at email@example.com or 281-280-8717. At Simple-PDH.com where we want to help you gain and maintain your professional certifications. You can study, learn, and earn – it’s simple!
One of my favorite new books on innovation is The Power of Little Ideas by David C. Robertson and Kent Lineback. Another good book focusing on customer perspectives is Strategy from the Outside In by George Day and Christine Moorman. We also discuss application of strategy via disruptive innovation in NPDP Certification Prep: A 24-Hour Study Guide, and you can find additional references at https://globalnpsolutions.com/services/npd-resources/.
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