Three Types of Innovation – Product, Process and Business Model

There are different ways an organization can innovate. Essentially, there are three types of innovation: product innovation, process innovation and business model innovation. These types of innovation can include breakthrough innovation (very rare) or incremental innovation(much more common). To stay relevant, all organizations big or small need to consider each of thesetypes of innovation at some stage.

1- Product Innovation

This is the most well-understood and common form of innovation and is related to a) either a completely new product e.g. Bitcoin currency or b) a new feature in an existing product e.g. the introduction of camera features in a mobile phone or c) the enhancement of an existing product feature e.g.  a higher resolution version of the camera.  Product innovation is most often a result of new technology or new insights about customer need (sometimes even before the customer knows what these needs are).

2- Process Innovation

Process innovation is how a product or service is produced or delivered to the client. It can be a combination of methods, capabilities and technologies to produce, market, deliver and support a product or provide a service. There are of course innumerable ways to improve a process so that the customer sees additional value.

An example of process innovation to produce the product/service is an automated assembly line for car manufacturing. This was process innovation to find ways to reduce human error while enhancing output at the same time. An example of process innovation in how to deliver a product is the way Dell allowed clients to customize their PCs during the order stage. Banks and other organizations now deploy automated AI-based chatbots to provide intelligent 24/7 support to their clients.

3-Business Model Innovation

Business model innovation is usually not about incremental change but more holistic and organization-wide transformation.  Business model innovation can impact everything from product to marketing channels to pricing. It is most often seen in startups that do not have a established business structure and who have the ability to experiment with the way they operate their business. But there are also several well-established organizations that have leveraged their large customer base and  resources to change their existing business model.

Probably the finest example of a large company that has transformed its business model and in fact created a new industry is Amazon.  Amazon found a new way to reach and market to its customers online without going through the conventional retail distribution route.

The type of innovation that is most relevant for an organization at a particular point in time is a function of the most important questions that the organization is asking itself or is addressing.  Questions such as:

How can we reach our customers more effectively?
How do we make our service more affordable for a larger customer segment?
Is our product easy to use?
What issues are clients facing with delivery?

will help to research answers that will point to what type of innovation may be be most appropriate.