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Here´s how to categorize innovation

Here´s how to categorize innovation

The word “Innovation” comes with many names. In today’s technology-driven world, it is probably one of the most overused terms describing a product, service, process, or any other phenomenon that appears to be new for a given set of stakeholders. The number of classifications developed to structure a discussion about innovativeness is nearly as large as the number of adjectives used to label innovations. Architectural, radical, breakthrough, incremental, evolutionary, transformational, adjacent, disruptive. Red ocean, blue ocean, frugal, sustainable. Product, process, organizational, marketing. Open and close. These are just some of the most popular examples. For ordinary people, to find a distinctive difference between them is a challenging puzzle and to be honest, a huge waste of time. Unless you are a researcher or an expert in business development (or EU funding) who deals with these issues on a daily basis, you should not bother with all the semantics and scientific gibberish behind it. What you should rather focus on is the added value of what you have to offer. Phraseology will follow.

Sometimes, however, there is no escape from wading through definitions. In particular, when you decide to apply for EU financing to your project. There are rules and definitions that create a well-known, and sometimes not exactly admired, bureaucratic environment where the project evaluation magic happens. Without these rules, applying for grants would be a mess.

The Oslo manual, an innovation bible in the world of EU grants

In the not so distant past, virtually every Applicant for the EU money was required to indicate the type of innovation its project entails based on a classification established in the Oslo Manual[1], an innovation bible in the world of EU grants. Oslo Manual distinguishes four types of innovations:

  • (a) product innovation – an introduction of a good or service that is new or significantly improved with respect to its characteristics or intended uses. This includes significant improvements in technical specifications, components and materials, incorporated software, user friendliness or other functional characteristics. The term “product” is used to cover both goods and services.
  • (b) process innovation - the implementation of a new or significantly improved production or delivery method. This includes significant changes in techniques, equipment and/or software.
  • (c) marketing innovation - is the implementation of a new marketing method involving significant changes in product design or packaging, product placement, product promotion or pricing.
  • (d) organisational innovation - is the implementation of a new organisational method in the firm’s business practices, workplace organisation or external relations.

The meaning of disruptive innovation

Today, after several updates, this classification remains valid and is still broadly used. But with the introduction of the Horizon 2020 Programme, the eighth of the Framework Programmes for Research and Technological Development created by the European Union, a new catchphrase has entered the spotlight: “disruptive innovation”. Hence, as of late, the whole EU funding eco system has become fixated on the enigmatic “disruptiveness” of ideas, technologies, products, services, etc. All of a sudden, everything around us has become disruptive. But then, if we look closer we will notice that in most cases this is just a smokescreen and an empty word used to compensate for the deficiencies of a product/ project behind it.

So, what does “disruptive innovation” really mean? This concept was first introduced about 20 years ago by Clayton M. Christensen in his book “The Innovator’s Dilemma: The Revolutionary Book That Will Change the Way You Do Business” where he describes it as a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors.

Over the years, disruptiveness has become a somewhat default banner carried proudly by start-up companies around the world, often undeservedly. To set things straight, Clayton M. Christensen together with Michael E. Raynor and Rory McDonald published an article in Harvard Business Review titled “What Is Disruptive Innovation?”, where they explained that “disruption” happens when a smaller company with fewer resources is able to successfully challenge established incumbent businesses by targeting segments overlooked by incumbents in their pursuit after the most profitable customers on a high-end of the market. Only when a small business manages to take root in the market and crosses a figurative line between low-end and mainstream market, we can state that disruption has occurred.

Figure 1. Disruptor vs. incumbent company. Product performance in time (source: Clayton M. Christensen, Michael E. Raynor, Rory McDonald, “What Is Disruptive Innovation?”, HBR, December 2015).

art9graph

When trying to figure out whether our innovation is disruptive, we should these four features into consideration:

  1. It is a process. More often than not, a true value of an innovation is not obvious. You never know if it is disruptive until you look at it from a time perspective. Hence, disruptiveness has to be considered as the evolution of a product or service over time, rather than its state at one certain point.
  2. It introduces a new business model.

IBM did it, by launching a new business unit to make PCs, while continuing to make mainframe computers. Netflix did it, by moving from DvD rental to on-demand video streaming. Dollar Shave Club did it, by establishing a subscription-based delivery of grooming products as an alternative to the “go-and-buy-them-yourself” model.

  1. It does not have to be successful to be disruptive.

There are too many factors adding up to a successful business other than disruptiveness. Not every disruptive innovation ends with a commercial success, just as not every prosperous business rises from a disruptive idea.

  1. It cannot replace an already profitable business from the get go.

For all the reasons stated above, a mature company should not join a “Disruption” bandwagon at any cost. It has to secure its profits and long-term growth in the first place. Only then should it enter new risky endeavours with a disruptive potential. Obviously, this rule does not apply to start-ups as they have nothing to secure to begin with.

Disruptive or not, innovations fuel the growth of modern economies. With the budget of EUR 80 billion, the European Commission promotes commercialisation and uptake of innovations through the Horizon 2020 programme, aiming to bring to life more innovative ideas of European scientists and entrepreneurs. This money is here for the taking.

Jakub Żbikowski
Team Manager
Research & Innovation Funding Department
GAEU Consulting

 

[1] Oslo Manual. Guidelines For Collecting and Interpreting Innovation Data. Third edition, a joint publication of OECD and Eurostat, 2005.