Innovation has become a buzzword that is often overused, making it difficult to remember what it really means. Companies frequently declare, “we need to start innovating!” or “we are an innovative company.” But what does that actually mean? We need to be specific.
There are three types of innovation: product innovation, process innovation, and business model innovation. By narrowing your focus on a specific area of innovation, you can start with an effective strategy and have a framework for creating progressive solutions for almost every area of your business.
Product innovation is the most tangible form of innovation. It can come in the form of a new physical product, an improvement of an existing product’s performance, or a new feature to an existing product. Product innovation is essentially a new way of solving a problem many customers have. To know if your product or solution is truly innovative, you must answer “yes” to three questions:
- Is your product relevant to a high number of customers?
- Is your product significantly better than its competitors?
- Can customers clearly identify the uniqueness of your product?
Process innovation is the improvement of existing products or services. It refers to the mix of skills, technologies, and other resources used to produce and support a product or service. Process innovation is usually not visible to customers, and the main outcome is a significant decrease in production costs.
Business model innovation is the most challenging of the three. It involves disrupting the traditional business model and offering a new way of doing things. Airbnb and Uber are two examples of companies that have successfully innovated their business model.
Understanding the three types of innovation can help companies identify gaps and create something new and fresh in a crowded market. While some of the most significant wins in business innovation are seen in startups, larger businesses with more resources can also innovate in the same way.