Two types of innovation
To innovate is to introduce a new solution in the real world. Netflix innovated when it introduced video streaming for consumers. Amazon innovated when it opened its infrastructure for third-party sellers. You innovate when you manage to reduce production effort, increase service level, or invent a new value proposition. Some innovations are bigger than others, and the difference is whether or not the business model is transformed.
Incremental innovation must not be discounted as a type of innovation of secondary importance. Radical innovations are typically followed by a sequence of incremental innovations that make products cheaper, increase their performance, and make them easier to use (Christensen, 1997) (Friedel, 2010).
There is a sliding scale between radical and incremental innovation. You may improve your product architecture to reduce cost or increase the quality of your product. This may be an incremental change but when it leads to a small change in the value network, it is a small change in the business model. The bigger the change, the less incremental and the more radical the innovation.
Clayton Christensen identified radical innovation as the mechanism of disruption. Radically new technology such as PCs at the end of the 1970s did not impress customers of mainframes, who valued capacity, speed and reliability. But PC customers valued light and compact devices that are rugged and fun to use. PCs were a radical innovation that opened a new market with a new value proposition.
However, disruption is just as much governed by incremental innovation. PC’s took the mainframe market by surprise by a series of incremental innovations. Disruptions are innovations that incumbents ignored and then stole the customers of the incumbents.
Radical innovation is a change in a business model. You change your value proposition, value network, revenue model or delivery model. The innovations introduced by Netflix, Amazon, Atlas Copco and others described in this book, are radical.
Incremental innovation is an improvement of your operating model without changing your business model. For example, cost is reduced by cheaper components, or performance may be improved by better components. There is no change in the business model.