Tuesday, March 25, 2014

Is “Incremental” Innovation not Innovation?

You cannot “disrupt” without incremental innovation being part of the process.

Generally speaking, innovation is how to transform the novel ideas into products and services to achieve its business value. Innovation has different flavors and also has various definitions as well. Is innovation always radical or disruptive; is ‘incremental’ innovation an innovation or oxymoron? How to manage innovation portfolio effectively?

Innovation is in the eye of the beholder – hopefully, a customer: The only test for whether it is or is not an innovation is whether it makes any difference to a dimension that is valued by whoever has a stake in your offering -it is best if that happens to be the customer. If the innovation is meeting a need, expressed or otherwise, it is an innovation. Adding value is the characteristics of an innovation. Too often, companies announce ambitious "breakthrough" initiatives only to see them rapidly folding back to "business-as-usual." This is a problem and this problem must be confronted. The nature of innovation varies depending on whether you are within a paradigm in your industry or the context in your environment, requires crossing paradigm boundaries. A "tweak" that adds mutual value to both the customer and the provider can still be an innovation, the difference being a matter of degree. Incremental innovation has become the value that the customer expects you to provide if you are to remain a sustainable supporting innovation, the unexpected disruption that can re-structure the competitive landscape. Any incremental improvement of a product that allows the company increase sales, revenue, profit margins, market share, etc. is innovation.

Incremental design requirements most often produce incremental innovation results: Such evolutionary efforts often produce quite respectable financial results. On the other hand, when an individual or organization claims they are investing in and managing an ambitious innovation project and then immediately cripples the breadth of possible innovations by prioritizing design requirements down to only the "most important,". Incremental design requirements most often produce incremental innovation results (and relatively limited financial returns, for that matter). Sometimes “logically" focused on only the most important current problems with the product or service are exactly the reason why innovation projects are often found to be risky and fail. 

Build innovation capability: Breakthroughs/ Transformational Innovations are not something everyone can accomplish. You have to systematically develop the capability to execute it successfully, and that is something you do not accomplish overnight. You can have a vision, but that does not mean you can do it right away. On the roadmap for developing the capability to successfully and perhaps continuously deliver transformational innovations, there are a number of incremental opportunities that are also innovation. The more ambitious, radical, market-changing innovations are specifically enabled by complete, systems level specifications of all the relevant valued product or service interactions currently and potentially tied to the targeted product or service. 

Improvement-Innovation Continuum - Incremental innovation is actually a critical part of breakthrough or disruptive innovation: Innovation is not a singular idea or event, as a key part of the innovation is the behavioral changes that occur as the idea is adopted by a user group. Most people are aware of the classic “S” curve adoption patterns of innovation, which is a time-based model. Things that drive adoption up the S-curve are the incremental innovations that continue to improve the value propositions, decrease costs and expand supporting market infrastructure, which in turn drive expanded adoption. Very few, if any, disruptive concepts emerge directly into the mainstream. The disruptive impact is a cumulative effect of continuous incremental innovation of the initial idea over time. You cannot “disrupt” without incremental innovation being part of the process.

The solution to this ‘innovation dilemma’ is portfolio management: The realities of corporate life don't allow companies to spend all their resources on radical--and thus intrinsically riskier--innovation. It's generally believed that companies should have a balanced portfolio of innovation projects composed of ~70% of "incremental" innovations, ~20% of "adjacent" and ~10% of "radical/breakthrough." Obviously, the precise ratio is dependent on the age/size of the company. The "three-horizon strategy" is the name for this approach. Currently accepted corporate management practice most often begins innovation projects by prioritizing the many possible areas of improvements in the customer (or another stakeholder) experience and then focusing on only those "most important" areas which the design team estimates will have the greatest ROI. This common management practice tends to automatically limit each design cycle to small evolutionary/incremental design improvements specifically because the design team is focused on innovations in only one part of the total system of valued product interactions. The team's opportunity to innovate is limited from the start of the project. In direct contrast, revolutionary design innovations most often require design teams to attend to the total system of all valued product interactions and related opportunities to systematically create new design features that efficiently enable new value across wide ranges of current and new product interactions. Such tour de force efforts and results are what most of the businesses get excited about when working on "innovation" projects.

 Innovation comes in many flavors and there are many opportunities in an enterprise to do so. Incremental innovation is quantitative progress and radical innovation is transformational leapfrog, a healthy innovation portfolio needs to have both in order to reach innovation horizon with the optimal speed at the right time.


"Incremental" innovation in my judgment is self-contradicting terminology. "Incrementalism" is an expected outcome of standard product improvement efforts and typically yields only short-term benefits before they are duplicated by competitors. By definition, innovation represents a distinctive break with the status quo beyond incrementalism that yields sustained superior results along one or more aspects of performance that the customer values -- and is willing to pay for.

All too often companies settle for good instead of great because it's the easier and more politically expedient thing to do. While incremental improvement may create some short-term advantages and may well be worthwhile to pursue, the lessons of business teach us that striving for truly distinctive innovation creates far more value and sustainable competitive advantage in the long run.

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