By now most of us have heard of product innovation, but as always, it pays to think a bit more deeply about what powerful concepts like these mean, rather than just let them wash over as buzzwords. So what is it, and what makes it so important?
What is product innovation?
Product innovation means solving a problem afflicting a certain group of people. It doesn’t necessarily mean that you are the only one solving the problem, but it does mean your solution is new.
For instance, the 1920 invention of the internal combustion gasoline engine was a huge innovation that transformed the world. The hundreds of improvements to its initial design, which have made it more reliable, efficient and affordable, have also been product innovations, and they have helped keep it useful for the past hundred years.
These two poles, disruptive and incremental product innovation, are both incredibly important to keeping a company in business. As we’ll see in the long term, neither is sufficient by itself for a company that wants to remain competitive in the long term.
Examples of disruptive product innovation
It’s easy to come up with the names of companies that have been successful at disrupting the marketplace — partly because it’s so extraordinary. Take Netflix, which began as a service sending DVDs through the mail and then transformed itself into one that makes most of its money through subscriptions to its streaming content, much of which it now funds itself. By first competing with video-rental stores and then sidestepping physical media entirely, Netflix forever changed the way consumers consume content.
Examples of incremental product innovation
Then there’s incremental innovation, which tries to smooth away the rough edges of an existing product or service. The offering is still recognizable, but it’s been beefed-up, straightened-out, or otherwise improved. Consider how smartphone operating systems tend to improve constantly. With every iteration, Apple and Android add features and apps that improve user experience, even for those with smartphones that are several years old. Suddenly, Google’s Camera app can handle low-light situations better, and Apple’s Siri can understand voice commands more accurately.
Which kind of product innovation’s best?
So what’s the “right” innovation to have? Truth is, few companies can rely entirely on one or the other.
A company putting all its energy toward incremental innovation is often blinkered, not able to fully capitalize on or even incorporate trends outside of its core products. A frequent example of this tendency is Kodak, which in fact did many things right. One of its engineers invented a prototype of the digital camera back in 1975, and it went on to invest billions in the technology. It also bought one of the earliest photo-sharing sites back in 2001. Still, as the Harvard Business Review puts it, “where [Kodak] failed was in realizing that online photo sharing was the new business, not just a way to expand the printing business.”
Entirely disruptive innovation is even less sustainable. The amount of risk involved in creating new markets makes it likely that a company will run out of money before its ideas can take hold. In fact, there’s a case to be made that companies coming after the first pioneers are more likely to be able to keep their company going. Think of the first smartphone, created by IBM in 2001, which was hobbled by an awkward interface and no way to connect to the internet. It would be several years before the technology advanced to provide anything approaching our current immersive relationship to our smartphones, creating openings for Apple, LG, Samsung, and many others.
The benefits of incremental and disruptive product innovation
By continuing to work to disrupt markets without ignoring the need for constant improvements to their core products, companies can capture the best of both worlds. Here are a few of the ways such methods have helped companies expand.
Increasing revenue. By creating an environment that’s friendly to innovation, companies can encourage employees to innovate and come up with products that generate a new revenue stream for the company. Google’s famous 20% innovation programme, which allowed employees to devote an average of one day a week to potentially disruptive side projects, helped birth expansions of its advertising model through Gmail and AdSense. Google has since moved to a more focused and documented approach, but what remains is its emphasis on making it easier for employees to innovate.
Increasing a users’ engagement and the overall customer experience. By incrementally adding features, apps encourage users to use them repeatedly and to keep them installed. For instance, PropTech platforms are used by landlords, tenants, tradespeople, and others to communicate with each other. By adding additional services, such as bill payment functionality via a partnering service provider, such platforms have been able to greatly increase engagement. Everyone on such systems has bills to pay to others there, and a payment feature saved them from having to go elsewhere to get this done.
Efficiency. At many companies, it can be difficult for employees to bring attention to ideas about how to improve processes or reduce costs. Corporate innovation programmes seek to jump-start such efforts by rewarding in-house ideas that are put into practice. Projects like these also help workers see that they are working for a company that embraces and tolerates failure -- one that isn’t scared of disruptive innovation.
Diversification. Growing your business through new product lines can often pay off. For instance, one fintech’s main offering was a budgeting app that let users make bill payments. After talking with customers, it found that a major need was for payday loans, which it soon began offering in the app, as a natural complement.
It’s safe to say that no company finds innovation particularly easy, but looking at the many ways that others have succeeded can make it easy to establish priorities. To find out how Zai's payment technology can help your business with product innovation, get in touch.