In the beginning, no matter what industry, whether domestically or internationally, the frequency of the word "innovation" appearing was very high. From national governments to small private enterprises, all realized the importance of innovation! It could also be said that innovation has become the only pass for human history to move forward!
But few people can truly understand the essence and types of innovation. Some of what we see as new approaches, we don't know exactly what type or nature of innovation it belongs to. Whether it's model innovation or product innovation, there are many types of innovation. Generally speaking, innovation usually occurs at three different levels:
1. Paradigm-shifting Innovation: This is a historical change that cannot be altered or reversed during the process of an event. Such innovation almost overturns the original concept, or in other words, the result of the innovation is no longer the original thing.
2. Substantive Innovation: The strangeness and scope of this innovation, although not comparable to paradigm-shifting innovation, still causes considerable disruption to traditional order. Substantive innovation often follows after paradigm-shifting innovation, just like aftershocks following the main earthquake.
3. Incremental Innovation: This is the necessary energy for the vast majority of enterprises to engage in daily changes.
However, organizations rarely can distinguish which ones belong to innovation and which will bring trouble to themselves. For example, Aveda, the founder of Storage Technology, made two mistakes because he could not clearly differentiate what he had already proven himself capable of doing (incremental innovation) from what he wanted to achieve (paradigm-shifting innovation and substantive innovation). The first mistake was that he wanted to develop a new mainframe (substantive innovation) to directly compete with IBM. Thus, he planned his approach to compete with IBM based on his past experience in incremental innovation, but underestimated the significance of the challenge of developing a new mainframe.
As a result, Storage Technology fell into a severe market demand shortage. Worse still, Aveda chose the wrong timing. At the same time Aveda decided to compete with IBM in the mainframe field, the entire computer industry was undergoing a transformation from mainframes to personal computers. Aveda's second mistake was that he was eager to try developing an optical storage system when the technology was not yet mature. This again proved that Aveda's experience in incremental innovation misled the need for paradigm-shifting innovation.
Then, Boppa, the succeeding president, believed that he could definitely overcome EMC's disk array storage system with the "Iceberg" development (substantive innovation) due to his success in incremental innovation. Therefore, Boppa tried to transfer the success of incremental innovation to the process of paradigm-shifting innovation, replicating the method in "Iceberg" development. Unfortunately, past successful experiences were insufficient to meet the more stringent technical growth standards required by "Iceberg."
Because they could not clearly distinguish between the needs of innovation and management conditions, neither Aveda nor Boppa could foresee the needs and challenges ahead of them. Their past experience in incremental innovation was not enough to guide them in gaining a deep understanding of the difficulty and opportunity conditions of substantive innovation and paradigm-shifting innovation. As a result, they not only made management errors in three major plans but also led to Storage Technology's exit. This series of mistakes forced both individuals to step down one after another.
The factors that determine the level of innovation are two: how novel the innovation is and how much profit the innovation can generate. Generally speaking, incremental innovation has low novelty for both customers and manufacturers, so its market influence is quite weak; the strangeness of substantive innovation is relatively high for both customers and manufacturers, so the economic impact will correspondingly increase; as for paradigm-shifting innovation, it can stimulate the development of entirely new designs, manufacturing processes, or methods of use, making this influence the top among the three types of innovation.
Therefore, looking back, if an innovation is not only very novel but can also generate huge profits, we generally categorize this innovation as paradigm-shifting innovation; while the strangeness and generated profits of substantive innovation lie between paradigm-shifting innovation and incremental innovation. Moreover, the general public has a profound impression of paradigm-shifting innovation, but almost no impression of incremental innovation.
We believe that the scope of innovation is a logarithmic concept rather than an arithmetic one. The scope of substantive innovation is often ten times larger than incremental innovation, with returns also being ten times higher, but naturally, it also generates ten times more uncertainty. Moreover, substantive innovation is highly fertile because once a substantive innovation succeeds, it will lead to other innovations.
The scope of paradigm-shifting innovation is ten times larger than substantive innovation. The impact of paradigm-shifting innovation on social organizations (and the organization of economic markets) is more intense than the impact of incremental innovation. And according to our experience, as well as analysis of innovation investment portfolios in some large enterprises, the frequency of appearance of innovation is also a logarithmic relationship. For example, out of every 100 incremental innovations, there may be 10 substantive innovations, and out of every 10 substantive innovations, there may be 1 paradigm-shifting innovation.
Of course, many companies are not actually built on very novel ideas, but they can still operate vividly, such as Boppa's decision to grow in the tape drive product line, and the next generation of Microsoft Office software. However, these do not belong to paradigm-shifting innovation; they are examples of excellent operations, continuously striving for excellence in traditional businesses. In our view, innovations that are highly strange but cannot generate profits do not belong to paradigm-shifting innovation. Such products should be called "inventions" instead.
Each level of innovation, whether incremental, substantive, or paradigm-shifting, requires management by different levels within the enterprise through different processes. Incremental innovation can be handled by frontline personnel, but paradigm-shifting innovation must be personally managed by senior high-level managers. Moreover, each level of innovation represents different challenges. For example, incremental innovation challenges the current strategy without challenging the company's traditional management control system. However, paradigm-shifting innovation challenges both the company's strategy and management control system. Therefore, if you do not understand which level of innovation you are facing, you cannot manage innovation properly. Aveda and Boppa failed precisely because they did not understand the difference between the two, thus losing the leadership of Storage Technology, let alone creating profit returns for shareholders.
Incremental Innovation
When talking about the characteristics of incremental innovation, it is better described by what does not change rather than what does change. Although incremental innovation has low strangeness and cannot generate high profits, in order to maintain a certain competitive level, enterprises must still pursue incremental innovation.
Incremental innovation is highly attractive because enterprises do not need to make too many changes to achieve innovation. Therefore, the value provided to customers by incremental innovation is roughly equivalent to the value before innovation; the manufacturing equipment used is largely the same as before innovation; the sales channels passed through and the marketing methods used are also largely the same as the products or services before innovation. Incremental innovation involves improving and updating old products or services and then launching them, but not drastically.
To understand incremental innovation, consider the evolution of sailing ships. In the 1880s, fast sailing ships like the Glenavon could often be seen on the sea surface. At that time, these fast sailing ships frequently transported goods between major ports in England and America. Therefore, comparing them to FedEx of that era, after hundreds of years of incremental improvements, their perfect form today would not be exaggerated. In fact, Fred Smith, the president of FedEx, really collected various models of fast sailing ships and placed these models in glass boxes, displayed in FedEx's headquarters.
However, by 1870, steamships that had been around for 70 years were threatening the leading position of fast sailing ships. Initially, the performance of steamships was not good (because in 1820, the efficiency presented by steam engines was not satisfactory). Therefore, most of the cargo capacity of steamships was occupied by stored fuel. But by 1890, continuous improvements to steam engines had reached the point where they could surpass the cost advantage of fast sailing ships. Thus, fast sailing ships had to begin handing over their original market share to steamships (or in early times, "steam sailing ships" might have been a more appropriate term).
However, the captains who owned fast sailing ships and the shipbuilders who supported fast sailing ships did not plan to give up control of navigation so easily. They also carried out incremental improvements to fast sailing ships and retaliated strongly. France II was one of the improved fast sailing ships at that time. After significant improvements, compared to the Glenavon, it had one more mast, a longer waterline, was faster, and could carry more cargo.
Thus, a small-scale technical competition began between steamships and fast sailing ships. The Preussen was the result of further improvements to fast sailing ships. Due to continued incremental improvements, it had more masts, a longer waterline, and higher operational efficiency.
Would the appearance of the Preussen stop steamships from continuing to improve? Of course not. Steamships naturally continued to counterattack. These fearless shipbuilders made even more improvements to fast sailing ships, adding the design of slanting yards, and the Thomas Lawson was the result shown. This ship's masts and waterline were much better than previous sailing ships, and its speed was naturally much faster. However, at this point, the incremental improvement in technology had reached a natural limit. On December 13, 1907, near Sicily in England, Captain Turner suddenly found he could not control the Thomas Lawson. Then, under the assault of 60-knot strong winds, the entire sailing ship collided with rocks. Captain Turner miraculously survived, but none of the other crew members escaped. This was the entire glorious era of fast sailing ships. By this point, the incremental innovation of fast sailing ships had reached its end.
Captain Turner and the two presidents of Storage Technology, Boppa and Aveda, have similarities in some aspects. They all unknowingly became sacrifices when incremental innovation ended. Captain Turner lost his ship and crew, and Boppa and Aveda lost their company.
Therefore, incremental innovation does not represent owning the market; it is merely a representation of continuity, indicating that the enterprise remains in this field and holds this market. Thus, saying that incremental innovation is a creative destruction is less accurate than saying it is part of excellent operation.
Paradigm-shifting Innovation
Paradigm-shifting innovation can create new markets, alter the rise and fall of trades, create many billionaires, overcome other competitors, and stimulate the arrival of a new era. Incremental innovation rarely poses a challenge or threat to the established status quo, but paradigm-shifting innovation often makes the traditional concepts and operating systems of enterprises very troubled. Paradigm-shifting innovation does not come out of nowhere from a "product quality" plan; they are the results obtained by creative personnel who are wholeheartedly destroying the established order or status quo.
Paradigm-shifting innovation is like having to destroy existing products for the sake of competition. Paradigm-shifting innovation is usually conceived by senior high-level managers and supervised by them. Generally speaking, the sole lifeline for emerging enterprises to survive lies in paradigm-shifting innovation. Therefore, not only the products themselves, but often tools, distribution methods, media publicity activities, and value propositions, all have to start anew. What is most exciting and surprising is that these conditions can be combined together to take effect, even becoming famous overnight, leaving Wall Street stock analysts speechless.
However, existing enterprises rarely create paradigm-shifting innovation, but the market can achieve it. Because the market always finds ways to combine into entirely new enterprises, including people, capital, and technology.
Substantive Innovation
Generally speaking, substantive innovation belongs to the second generation of paradigm-shifting innovation, so these products or systems usually appear after the leading innovation. For example, replacing the old DOS operating system with the Windows operating system is substantive innovation.
Other examples include Curious George and Pampers, Sam's Club and Walmart, 747 aircraft and 707 aircraft, and FedEx's same-day service versus the original standard overnight service. All of these are substantive innovations of the latter for the former. Of course, the launch of these new products can be considered bold, but compared to the original paradigm-shifting innovation, they are slightly less daring. The difference between substantive innovation and incremental innovation lies in the scope of change and the degree of impact.
For example, the Windows operating system is not simply an expanded version of the DOS operating system. It has undergone reprogramming and integrated a visual interface (windows), so not only does it look and feel completely different from DOS, but it is also easier to operate for users. The introduction of the Windows operating system aims to compete with the Macintosh operating system in the market. Although consumers may prefer different operating systems, at least Windows users no longer need to remember or type long strings of code commands on the keyboard.
Substantive innovation can provide a safe competitive advantage for a period of time, as on one hand, this innovation helps build and strengthen the capabilities needed for paradigm-shifting innovation; on the other hand, it establishes its own core technology to create significant differences between its innovation and incremental innovation.
Since substantive innovation often requires external expertise and technology to succeed, it often extends the limitations of information and technology within the organization more broadly. However, for defenders of traditional order and the status quo, substantive innovation is often a disruptive force. Generally speaking, substantive innovation is related to senior high-level managers, but at this time, the role played by senior managers is mostly advisory.
Broadly speaking, substantive innovation is not just a slight expansion of incremental innovation that can be achieved. The design philosophy of this innovation must closely follow the pace of paradigm-shifting innovation to maintain momentum in the market and gain benefits. Therefore, what is needed for substantive innovation is bold planning and careful combination. If an enterprise thinks that accumulating incremental innovation can reach the goal of substantive innovation, it may be disappointed. Because these innovations are not achieved by simply expanding minor advances. It requires a grand goal of wanting to perform better in the market, as well as an innovative approach significantly different from the past (for example, an ERP system based on networking is a new concept). Of course, the final product must integrate all existing semi-finished products, grand goals, and unconventional methods to stand out from the progress brought by incremental changes.
If managers cannot clearly distinguish between these three types of innovation (in fact, many managers treat these three types of innovation as one and manage them accordingly), it will be difficult to meet the needs of any type of innovation.
For a company, if it can clearly identify the type of innovation it should choose based on its industry and expertise, the next step is solving the problem of how to break through in innovation! Relatively speaking, the innovation we need more should focus on paradigm-shifting innovation and substantive innovation, so that our companies can continuously maintain the power to grow!