The seven (yes seven!) flavors of innovation

The seven (yes seven!) flavors of innovation

“Flavors of innovation”?! Yes, flavors. A flavor is a distinctive variation on a theme (think flavors of ice cream) and today a lot of confusion and (useless?) debate is generated because we use the same word to refer to at least seven distinctive phenomena around the theme of innovation. And since innovation is on everyone’s lips today, and since this blog is about innovation, I figured I should at least try to clarify my understanding of the term and, maybe, at the same time, recast the parameters of the debate.

As I see it, and there is no consensus on this, there are seven main flavors of innovation the business community is now discussing – more or less intensively. Interestingly enough 1) not everyone agrees on the definitions, 2) not everyone realizes that the same terms often refer to very different phenomena, and 3) not everyone seems to be aware of all the flavors. So in my humble attempt to add some value to the discussion, I would posit that the word innovation actually refers to the following seven phenomena:

Incremental innovation, adjacent innovation, disruptive innovation, paradigmatic innovation (aka radical or transformational), frugal innovation, jugaad innovation and reverse innovation. This results in the acronym IADPFJR, which is, of course, very easy to pronounce and even easier to remember.

Incremental innovation, as its name suggests, is an innovation which improves slightly on an existing product, service or process. For simplicity’s sake, let’s call it a 10% improvement (increased performance or reduced cost). The 10% is a bit arbitrary, but the idea is that it is a noticeable improvement on the existing situation. But the 10% is also interesting as a choice because it would seem that at least 90% of all innovation initiatives is incremental in nature, that is they are aiming for a slight but noticeable improvement on the current state of affairs. This is often referred to as core innovation, that is improving the performance of a company’s core product or service. An example would be the next MacBook model which improves performance and possibly introduces some new features (think a faster chip, longer battery life and a higher resolution retina display).

Adjacent innovation refers to innovations which are new or new to the company creating them, but not too far afield from what they are already doing as part of their core business activities. If we think of innovation as “new and improved”, then adjacent innovation is the “new” and incremental innovation is the “improved”. Sticking with Apple, an easy-to-understand example might be the introduction of the iPad, which was a new product line with distinctive features, but still a (distant) cousin to Apple laptops. Other examples might include the introduction of a range of sauces by Heinz to complement its ketchup products. New products, complementary products, but similar to a certain degree to what the company was already doing. Thus the term adjacent.

Disruptive innovation, in the Clayton Christensen sense of the term, refers to the ability of a new entrant in a market to topple the market leader. The scenario goes something like this: A new entrant (the “insurgent”) attacks an unattractive niche with a new value proposition and/or business model. The market leader (the “incumbent”) does not react because it 1) does not see the attack or 2) decides to ignore the attack (think AMD’s incursion into the low-end chip market and Intel’s initial analysis that selling less low-margin products would boost their own margins), or 3) is unable to react to the attack (think Compaq’s channel conflict that kept if from reacting to Dell’s online sales due to channel conflict). 3) The insurgent leverages the low-end beachhead in the market to increasingly capture market share and, eventually, topples the weakened market leader (think Amazon versus Barnes & Noble).

In December 2015, I visited the Clayton Christensen Institute as part of a study trip with the MBAs of the École des Ponts Business School. Christensen’s team did a wonderful job explaining their definition of disruptive innovation and showed an example of the concept in action today in the health industry. An interesting side note, the example used was the Children’s Hospital of Philadelphia (CHOP) which we visited in July 2015 during a study trip with our Executive MBA cohort. Here is a short video taken right after the visit last December.

Paradigmatic (or radical or transformational) innovation is actually the way I like refer to the phenomenon of innovation being called “disruptive” by basically everyone but Christensen, that is the innovation that is radically transforming the face of an industry. An innovation that results in the restructuring of an industry, or the way people/customers/stakeholders think about an industry, or a dramatic shift in the locus of value generation, is a “paradigm shift” in the sense that Thomas Kuhn used it to refer to revolutionary changes in scientific models and understanding. This, in my terminology, refers to the effect of what Uber, AirBnB and Amazon are doing to fundamentally change the dynamics, economics and business models of the hired car, hotel, and retail markets, respectively.

What is interesting is that incremental innovation which has a 10x impact is often considered paradigmatic in that it significantly modifies the economics of an industry. Such that “very much improved” is often seen as revolutionary (especially by VCs who, for some inexplicable reason, love to say tenex).

Harvard Business Review recently published a series of articles and debates relative to the definition of disruptive innovation. Both Christensen and his critics seemed to agree that the term “disruptive innovation” actually refers to two separate phenomena, the first, an innovation that displaces the incumbent, and a second which dislocates an entire industry.

Frugal innovation is another area that has garnered much attention in the last few years. Often the term “jugaad innovation” is used as a synonym but this actually refers to a different flavor of innovation (which we will see below). My take on frugal innovation it that it refers to the simplifying of a product initially intended for a mature market in order to reduce the cost (or increase the performance) to the point of being competitive in an emerging market. This is often a form of innovation pursued by multinationals looking to penetrate emerging markets on the basis of an existing product line or portfolio of products. Examples that come to mind include cheap cell phones, simplified prosthetics, low-performance wheelchairs, low-cost cars.

There is a caveat however. When frugal innovation is just about reducing the cost of a product, often by degrading its quality, I see this more as a more extreme version of incremental innovation. Rather than a 10% delta, here the target is typically 50-80% cheaper than the mature market versions of a similar product.

Jugaad innovation is a twist on frugal innovation and is often mistakenly considered a synonym for frugal innovation. Jugaad innovation (also the name of a book) suggests we should go from “dumbing down” to “bottom-up” in the approach of big companies to innovation. Instead of simply reducing the price of existing products in mature markets to reduce their selling price to the point of profitability in emerging markets), jugaad innovation proponents suggest two different approaches to innovation in emerging markets: 1) radically rethinking and redesigning existing products for emerging markets, or, better yet, 2) designing completely different products for emerging markets that take into account the constraints and realities of the emerging market (limited infrastructure, maturity, distribution, disposable income, etc.). When the innovative process takes place in the emerging market itself, jugaad innovation requires a bootstrapping mindset (little resources, big results), engineering and production skills as well as the thorough knowledge of the market that ethnography and design thinking skills can provide.

Another aspect of jugaad innovation, also mentioned in the literature and observed widely in India, is hacking products to use them not as their creators intended, often to save money or effort. One example is the habit of Indians to communicate information via cellphone hangups that avoid the mobile connection which would generate a fee. Some fun examples can be seen here.

Reverse innovation is jugaad innovation taken to the next level. If jugaad innovation is a twist on frugal innovation, then reverse innovation is a twist on jugaad innovation. Reverse innovation refers to the act of designing products for emerging markets and then “improving” them for mature markets. An example cited by Amos Winter and Vijay Govindarajan in an HBR article is a wheelchair created for the Indian market which was designed to be robust to survive Indian infrastructure or lack thereof at a price point the Indian market could absorb. Once the proof of concept was achieved, significant sales made and the economies of scale, scope and learning garnered, the product was then adapted to the US and European markets by making it lighter (carbon fiber replaced aluminum) and more esthetic and, of course, sold at a higher price (approximately 5 times higher). Reverse innovation often requires a savant mix of specialized engineering skills and design thinking to deeply understand the needs of the users in both target markets.

Many authors refer to “frugal innovation” and can mean anyone of the three flavors I just referred to. So don’t look for consensus among those authors on my use of these terms. See it more as a way to attempt to differentiate the approaches that often have blurry boundaries and yet require different skillsets.

So there you have it, innovation in seven flavors and a not so brief primer on innovation. I intentionally did not attempt academic definitions and references to the many experts writing and thinking on these subjects to keep things light. So be indulgent, on the one hand, and don’t consider my definitions as academic, on the other. That said, all definitions nowadays are only a couple of clicks away so don’t hesitate to look up the definitions yourself and dive more deeply into any of the subjects that may have caught your attention.

The main takeaway here may be that for all those companies looking to create a “culture of innovation”, it would be worth taking the time to consider which flavor of innovation you are referring to so as to develop the proper skills, insights, tactics, tools and culture to effectively execute the strategic vision.

Your thoughts?

 

Alon ROZEN

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