Knowing an idea’s nature improves the odds you will benefit from it.

On a recent trip to Beijing, I was struck by the great interest and overuse of the term innovation. In fact, its overuse seems to be rampant in many countries recently.¹ Clearly innovation is important. Nobel Laureate Simon Kuznets estimated that 75% of U.S. economic output is a result of innovation.² Yet the term itself has many implications, due in part to the existence of many different types of innovations. Here we consider the various types. By recognizing these differences, one is able to better assess, manage and benefit.

Innovation is anything new to an organization.³ I’ll first look at the most theoretical and least applied types of innovation, for historical reasons. (If you find history boring, just skip this section.)

Fundamental innovations initiate a large number of other innovations across the entire economy over a long period of time. The existence of fundamental innovation was originally pointed out by Kondratieff in Russia, but his work was not discussed much locally or abroad.⁴ Kondratieff considered fundamental innovations to include such things as the steam engine and steel. More recent fundamental innovations include electricity, chemicals, electronics and software. New industries and large firms emerge as a direct result of a fundamental innovation. In some cases, social innovations must occur for the value of a fundamental innovation to be exploited. Social innovations involve the way people interact, which permits extraction of value from the fundamental innovation. For example, the formation of corporations and establishment of banks are social innovations that were of limited value prior to the Industrial Revolution, but critical to economic development and growth afterward.

Economic growth occurs as non-fundamental innovations are identified and exploited. As managers and engineers, we typically work with non-fundamental innovation. As long-term investors, we try to identify new fundamental innovations, so that we can be early investors in firms like General Electric or Microsoft. A great deal can and has been said about these types of innovations, but since the relevance to electronics is more theoretical than practical, we will move to the next set of innovation types.

Product vs. process innovation. The next important segmentation is the difference between innovations that create or modify a product – product innovation – versus innovations that modify how a product is made – process innovation. Here, it is important to recognize that, as we modify a process, it is quite possible the products produced are changed. The effect of process modifications on product characteristics is most common in process industries, such as engineering materials, chemicals and food products.⁵ With assembled products, product innovation is a function of changes to either the components used to make a product or a change in the type, number and relationship between the different components. The focus of product innovation is on a good or service being made for direct customer use. Process innovation involves changes to something that is then going to be used to make a product; the relationship with the customer is less direct. In PCB assembly, we tend to focus more on process innovation than product innovation. It is important to remember that process innovation is critical to both cost reduction of product and quality improvement.⁶

Revolutionary vs. evolutionary innovation. These innovations are also often referred to as disruptive and sustaining. Proponents of the terminology can undoubtedly offer subtle differences in these terms or offer arguments why one set of terms should be used instead of the other. Evolutionary innovations build on the past and sustain the existing set of production and technological skills in use in a firm. SPC is an example of an evolutionary innovation. SPC’s impact on product quality and process operation is extremely significant, but the actual technique is easily added to existing processes and products. In the case of revolutionary innovation, the innovation differs greatly from existing practice and skills. Consequently, revolutionary innovation adoption can be expensive and difficult. It can involve the abandonment of certain skills sets and processes, so that revolutionary alternatives can be integrated into the firm. The switch from analog to digital design in electronics is an example of a revolutionary innovation. The changes associated with revolutionary innovation often involve abandonment of one technological trajectory and move to a new one.⁷ Revolutionary innovations disrupt the status quo, while evolutionary innovations tend to reinforce it.⁸

Incremental vs. radical innovation. Innovation is often described as either being incremental or radical. These two terms focus on the challenge of implementation or integration into an organization – not on the level of benefit. An incremental innovation is one that is easy for an organization to implement and treat as part of the organizational routine, because the innovation requires little modification to itself or to the firm’s current routines, processes and actions. At the other end of the spectrum is radical innovation, requiring tremendous changes to the innovation or organizational routines, processes and actions.

Understanding the determinants of how radical or incremental an innovation is can be of great assistance for making better decisions about adoption and implementation of innovation within one’s firm. Every company is different. Consequently, the degree of an innovation’s “radicalness” can be unique for every firm within the same industry. For example, this distinction was one of the important reasons Microsoft won the battle for dominance in Internet browsers. Microsoft’s browser code was written in a way that made it easy to integrate changes. Consequently, changes in code were more incremental and easier to integrate. As a result, Microsoft was able to make larger improvements in functionality every time a new version of its browser was released.⁹ In a study of banks,¹⁰ it was found that certain new products (bank accounts) were much easier to manage for some banks than for others. The difference in internal processes allowed one bank to easily offer a new product because it fit well with the existing internal processes. A competing bank, with dissimilar internal processes, found it much more difficult and expensive to offer the same type of new account.

In electronics, either organizational or manufacturing processes can support or hinder the integration of innovation. Identifying potential hindrances permits better assessment of the barriers to overcome to benefit. Failure to identify these barriers can result in a radical innovation being mistaken for incremental. An excellent example is the temporary use and rapid abandonment of certain types of cleaning technologies during the transition from CFC-based cleaning processes. The abandoned innovations are a good example of innovations that have a poor fit with manufacturing or technical routines, processes and actions. Another industry example is the introduction of equipment that closely integrates mechanical and electronics skills (mechatronics). These innovations may be incremental or radical, depending on organizational processes and routines. Some firms have found that the need to have equipment operators and maintenance personnel who have both mechanical and electronics skill sets is counter to the structure of their organization. For mechatronics integration, a firm may just require some additional training for selected people – a relatively incremental change. For other firms, integrating mechatronics may require new training programs, hiring new employees and renegotiating existing union contracts – a more radical set of requirements. A valuable exercise is to carefully deliberate the location that each innovation under consideration sits on the incremental to radical scale in terms of fit with existing processes and technical skills, as well as the fit with organizational routines and processes. In doing so, the number of innovations that are either a continuous drain on resources or abandoned will decline.

Continuous vs. discontinuous innovation. Continuous innovations require no change in behavior by the user.¹¹ As the innovation requires more user changes, the innovation can be said to be more discontinuous. Unsurprisingly, continuous innovations tend to be adopted faster and more frequently. In fact, discontinuous, radical and revolutionary are often mistakenly linked because of the greater complexity of successful adoption.

Like revolutionary and radical innovation, discontinuous innovation is rarely adopted, unless the expected benefits are substantial in magnitude. The rule of thumb often offered is, at minimum, the benefit must be an order of magnitude improvement on at least one characteristic that is of great interest, such as cost, weight, size or speed. The critical consideration with discontinuous innovation is what support is required to get users of the innovation not only to try out the innovation, but to make the innovation part of their routine.

There are many ways to consider innovation. This is one reason why there is much discussion about the nature of innovation, its challenges and benefits. The different categorizations have similarities in some respects, but important variations in others. By using the innovation categorizations to consider the nature of an innovation that is of potential interest, one is better able to determine the 1) likely extent of benefits that can be obtained, 2) sustainability of the benefits and 3) magnitude and nature of the barriers that will need to be overcome to integrate the innovations into one’s organization. Perhaps the most important message here is that different firms will have extremely diverse experiences (good or bad) with exactly the same innovation as a result of inter-firm differences.

References

1. The potential problem of heavy use of a term is the word can become meaningless. Many will argue that the terms strategy and system have met this fate. Also, I apologize for the number of times I use the word innovation in this column.
   
   
2. S. S. Kuznets, Growth, Population, and Income Distribution: Selected Essays, Norton, 1979.
   
   
3. This definition is offered by E. Rogers, Diffusion of Innovations, Free Press, 1995. There is much written about a related topic: change management. Change management differs in that the change does not need to involve anything new.
   
   
4. Kondratieff’s work was considered to be out of synch with Communist Doctrine in Russia. Consequently, he was sent to a gulag. The work spread slowly partially due to the need to translate his work from Russian.
   
   
5. J. D. Linton and S. T. Walsh, "From Bench to Business," Nature Materials, vol. 2, no. 5, pp. 287-289, 2003.
   
   
6. This point is stressed because many professors in business management education focus on process innovation as being driven by the need for cost reduction. Many Japanese manufacturers demonstrated decades ago how effective process innovation can be for improving product performance and reliability.
   
   
7. Technological trajectories and their management will be the subject of the next column.
   
   
8. For further information, see W. J. Abernathy and K. B. Clark, "Innovation: Mapping the Winds of Creative Destruction," Research Policy, 14, 1985, 3-22 and C. Christensen, The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail, Harvard Business School Press, 1997.
   
   
9. Because of space, this topic has not been given the depth of explanation it deserves. Those interested in further detail are recommended M.A. Cusumano and D. B. Yaffie, Competing on Internet Time, Touchstone, 1998.
   
   
10. W. R. Nord and S. Tucker, Implementing Routine and Radical Innovations, Lexington Books, 1987.
    
    
11. Early discussion of continuous versus discontinuous innovation can be found in T. S. Robertson, Innovation, Behavior, and Communication, Holt, Rinehart, and Wilson, 1971.

Jonathan Linton, P.hD., is the Paul Desmarais Professor of the Management of Technological Enterprises at the School of Management at the University of Ottawa and editor of Technovation: the International Journal of Technological Innovation, Entrepreneurship, and Technology Management; linton@management.uottawa.ca.

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