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Transformative Innovation

What is Transformative Innovation?

Transformative innovation is a core concept in creating business models that are profitable, competitive and long-lasting. In effect, transformational innovation is made up of changes that shift an entire system into a new framework, created to be viable for the future.

What precisely this means depends on context. The transformative innovation Graham Leicester wrote of in his book “Transformative Innovation” outlines a system with three types of innovation. In addition to transformative innovation, there are two other types of innovation. Sustaining innovation provides stability and lengthens the life of an existing system, while disruptive innovation creates radical innovation, instituting revolutionary change that entirely uproots the system. Leicester’s novel is more than just a ‘What Is Innovation’ article — the book outlines how transformational innovation strikes a sweet spot between the other types of innovation. In effect, transformative innovation uses the methods disruptive innovation in that it introduces breakthrough innovation, but in the context of long-term planning, the goal is to create a long-lasting system.

There are many different systems for the classification of innovation. Various frameworks have outlooks with 5 types of innovation or 8 types of innovation.  But certain systems are especially relevant to understanding transformational innovation. For instance, in order to fully understand the types of innovation in consumer behavior it’s important to understand adjacent innovation and incremental innovation.

Let’s take a closer look at the different kinds of innovation that are most relevant to understanding transformative innovation. But first let’s look at a few real world examples of innovation. 

Examples of Corporate Innovation

In the 21st century there’s no lack of major examples of innovation in industry, especially as regards the technology revolution, but let’s start out looking at a few ordinary innovation examples. Ordinary innovation examples are most likely to fit under the umbrella of sustaining innovation. In general an ordinary innovation involves taking an existing part of the business and introducing changes that increase efficiency, reduce costs, increase sales or add value significantly in another way. Examples of this include adding improvements to an existing product, introducing a new system to eliminate redundancies in the supply chain or automating part of the shipping process. 

A part of what distinguishes ordinary innovation examples from those that are more transformative (or disruptive) are what the sources of innovation are. Innovation that comes from the right combination of creativity and technology has the potential to change an industry at its core. A major example of this are companies that have created business ventures around the sharing economy. Companies such as Uber and Lyft or Airbnb and VRBO entered the market as part of the sharing economy, but ended up creating industry-changing companies in the taxicab and hotel industries respectively. These are examples of industry-wide disruptive innovation. 

For transformative innovation a great place to look is an old guard technology company that remains cutting edge not just in the product it launches but in its business modeling. When Apple introduced the iPod in 2001 they were releasing a brand new product that the public wanted. It revolutionized the way in which people could listen to music. But the actual product is only a part of the story. In introducing iTunes at the same time, Apple changed the way consumers purchased music. Apple introduced a game-changing product, but instead of sitting back and watching that product disrupt the marketplace, they introduced a business model that would sustain the company for decades to come. 

Sustaining Innovation

Sustaining innovation is an important component of any business. Sometimes called routine innovation, it’s what allows a business to incorporate changes to make it more profitable in a competitive marketplace, while insuring longevity. In order to fully understand the sustaining innovation theory, one needs to also understand incremental innovation. In terms of product improvement, the sustaining innovation theory prefers incremental innovation to radical innovation or breakthrough innovation. By offering incrementally better performance at a higher price, a company is able to create a long-term sustainable business model. 

Companies that prefer to stick entirely or almost entirely to sustainable innovation are those for which stability within the marketplace is paramount. Sustainable innovation also has much more appeal to well-established companies. Going head to head and employing only sustainable innovation, the larger, more well-established company will always have the advantage.

A classic example of an industry that employs sustainable innovation is the healthcare industry. Classic examples of sustaining innovation in healthcare can be found in the pharmaceutical industry. Because of the nature of the industry, with drug trials and FDA approvals, there is only so much rapid innovation that can be implemented at once. A company like Pfizer, which is the world’s most profitable drug company today, was originally founded in 1849 as a chemical company. After accidentally stumbling upon a breakthrough drug the following year, they have been developing drugs ever since. Every time the company releases another major drug, such as Lipitor or Viagra, they are practicing sustainable innovation, though at an extremely effective scale. 

While a drug like Viagra may seem like disruptive technology, the difference between disruptive and sustaining innovations is how much the innovation radically changes the system from the ground up. It was not disruptive for the well-established drug company Pfizer to release a new drug, nor was Viagra the first erectile dysfunction drug on the market. But Pfizer released a new drug that had major improvements on what was available (and also marketed it much better than what was currently available).

Breakthrough Innovation

The difference between breakthrough innovation vs incremental innovation has a lot to do with the kind of innovation they are feeding in to. Just as incremental innovation goes with sustainable innovation, breakthrough innovation is a part of disruptive innovation. Breakthrough innovation happens within a company, and is a change that allows a company to fundamentally change how it does business. For example, it may introduce an entirely new marketplace to the company. When Apple introduced iTunes, it suddenly and competitively began selling music. 

It’s possible to buy many a breakthrough innovation book or disruptive innovation book. They are both hot topics in a technology driven marketplace. But do breakthrough innovations always succeed. The answer is no. While sustaining innovation is meant to keep a company profitable long-term, breakthrough innovation is meant to allow a company to break away from the competition. The goal is not to just do better than they have been doing, but to do significantly better than the competition. As a result, it’s common for smaller or less established companies that in order to succeed must stand apart. But large companies practice it, too. Here’s an example of breakthrough innovation practiced by a large company that is not disruptive technology. In the nineties General Electric introduced an electric car (the EV). It failed to take off and was discontinued. In other words, it failed to become a disruptive innovation, and failed to bring success to General Electric. Hyundai’s hybrid Prius, on the other hand, was a successful example of breakthrough innovation. Meanwhile only time will tell of the success of Tesla proves to be disruptive innovation or based more on breakthrough innovation.

Disruptive Innovation

Disruptive innovation is one of today’s hot terms, but what is it exactly? Let’s take a closer look by looking at some recent examples of disruptive innovation examples 2018 and disruptive innovation examples 2019. For 2018 a major trend was moving to mobile based systems. Previously many companies favored access via computer operating systems and browsers. 2018 saw a shift where companies put major resources into developing their mobile interfaces. This was a necessary change that adapted to how central mobile devices are to consumers’ lives. A major disruptive innovation trend for 2019 was the development of the Internet of Things. From smart homes to cars with AI features, companies that have found new ways to interact with the basic life tasks of consumers have flourished. Examples of this are Nest which have changed the way people use their thermostats and doorbells.

A major question is is disruptive innovation sustainable? Although previously the importance of sustainable innovation to the health industry was mentioned, let’s take a look at the role of disruptive innovation in healthcare. An example is retail clinics, which allow people to visit small storefront, for-profit clinics. These filled a necessary role in the lives of consumers (something between the emergency room and a scheduled doctor’s appointment) and have begun to radically change the face of the healthcare industry. Healthcare must evolve to a changing system with a business model that is going to be forced to adapt. By being able to introduce sustainable disruptive innovation, the industry will be able to thrive. A similar industry that thrives on stability but offers examples of disruptive innovation in education, such as the role of charter schools, or app-based homeschooling. 

Radical Innovation

What is radical innovation vs disruptive innovation? Radical innovation theory posits that after the change is introduced the entire system will be destroyed and replaced by something new. So while some see radical innovation as synonymous with disruptive innovation, it can be viewed as the most extreme examples of disruptive innovation. 

For radical innovation examples 2019 it’s worth looking at the radical innovation awards, where the top honor went to Cooper Carry Architects for a hotel design straight from the future. One of the most famous radical innovation companies is netflix. Radical innovation was the basis on which the company was founded, as prior to the company, it was necessary to drive to the video store in order to watch a movie at home. 

Corporate Innovation

As outlined above, there are many choices for types of innovation to adopt, and for a corporation, it might seem like the wisest course of action is to choose innovation for the risk averse. And yet there is something oxymoronic about innovation for the risk averse. It might seem preferable to take a look at incremental vs sustaining innovation. 

However, a great way to get started is by creating a corporate innovation portfolio. This allows a company to truly gauge the level of innovation meaning, and gather an accurate metric of results. It also allows companies to introduce a range of types of innovation, so that disruptive innovation can be practiced on a smaller scale. Just as a person diversifies their stock portfolio, so too should a corporation diversify their innovation strategy. 

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