Everything you need to know about Incremental Innovation - ALCOR FUND

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Everything you need to know about Incremental Innovation

  • September 23, 2020
  • AF Bureau
Everything you need to know about Incremental Innovation

Introduction

As Jamie Notter says, Innovation is the change that unlocks new value. The 13th century was the emerging point of innovation as it’s a derivation from the Latin word ‘Novus’. It gained momentum during the Industrial Revolution, as it began associated with science and new machine inventions. And from then there is no looking back. From Incremental Innovation to disruptive innovation, it has become an indispensable component in the corporate world. 

 

The consistent improvisation in products, services, business models, Internal processes, etc at regular intervals is termed as Incremental Innovation. Companies constantly seek for small upgrades and minor innovative changes in their current business activities. The focus on making marginal improvements gives the company an additional edge to be successful over groundbreaking innovations. 

 

Incremental innovation focuses on upgrading the value proposition and adding novelty to the existing product as per customer’s requirements. It is effectively managed through clear rules, predefined processes, and responsibilities. Thus, making it a successful improvisation strategy.

 

Importance of Incremental Innovation

A single innovation is not at all exciting. But the cumulation of these numerous innovations every year has a vast impact on the product. According to HBS Professor Clayton Christensen, consumers’ constant demand and need for new results from companies exerted to release 30,000 new products with a 95% failure in the market.

 

Incremental innovation aims at strengthening the company’s position to gain profits. It includes strategy with low risk and moderate returns. It is not limited to moderate returns but has a profound cumulative impact.

 

Here are four reasons that make Incremental Innovation a vital strategy for a company’s success:

 

  • Diversification of Product:

It took $15million and more to build a new product for the market in the year 2013. Incremental Innovation aims at enhancing the existing product for the market. It encourages us to devote a small part of the product for innovation rather than contributing efforts to a whole new product.

 

Businesses gain a competitive edge in the market. One never knows which innovative strategy will kick-off that expands your customer base. A planned effort to bring novelty in the product through research and development and customer’s feedback, not only satisfies the desires of the existing market but also catches the attention of potential customers. 

 

  • Increase in Customer Retention:

Customers are the greatest business asset of all time. Satisfying a customer’s desires is the goal every business should aim to stay in the market. In the words of Michael LeBoeuf, “A satisfied customer is the best business strategy of all.”

 

Unsatisfied customers are in quest of alternate products to satisfy their needs. A customer siding away your product to choose another one is a RED ALERT for your business. This entails your competitors have more relevant products than you. Thus, upgrading the product regularly will retain your customers and will keep them away from the competitors.

 

  • Maintaining the Relevancy:

Do you know why history remains as history and success beholds in the future? It’s because of Relevancy. The idea relevant in 2020 will not be relevant in 2022. That’s how quickly the world is evolving.

 

Even the greatest of the brand upgrade their product to stay relevant in the market. Let’s take the example of Coca Cola.

 

Maintaining the Relevancy

 

It evolved from a fountain drink in 1899 to a contour bottle in 1916. From 6.5 ounce packaging to 10-, 12-, 16- and a 26-ounce bottle packaging. The brand has gone through small changes from the beginning to be a completely different product today. 

 

  • Long Term Strategic Growth:

Incremental Innovation may seem underrated against other types of innovation. But the long term benefits make the strategy more attractive than others. Maintaining relevancy and retaining a customer is tied with another benefit of gaining long term strategic growth. 

 

It elongates the company’s survival in the market. Instead of tossing out the existing product and building a new competitive one. The wisest choice would be to invest efforts in R&D and bring a small amount of up-gradation to current products regularly. The novelty of a product with updated features causes it to retain the customer’s attention, boost up the company life with promising strategy growth. 

 

Factors determining Incremental Innovation

So, now you know what incremental innovation does and how it impacts your business. It’s time to understand crucial factors while introducing incremental Innovation in your business.

 

  • Scale of Operations

The greater the scale of operations the more relevant it is to introduce incremental innovation in your business. Applying incremental innovation when the scale of business operations is narrow isn’t a lucrative choice.

 

Let’s take an example of Walmart. Walmart’s sales grew rapidly from $44 million in 1972 to $44 billion in the next two years. The retail firm made numerous changes to gain high profits at lower prices. One of the key innovations is the Cross-Docking strategy. 

 

An effective logistic practice where products get transferred from inbound or outbound truck trailers with no in-between storage to outbound trailers by unloading it on an incoming semi-trailer truck. The products are first delivered at Walmart’s distribution centers to be cross-docked and to further deliver at Walmart Stores.

 

Scale of Operations

 

  • Level of Business Maturity

The level of business processes is an important factor in incremental innovation. It’s not a good choice when you have just entered the market. Instead, you have to make significant changes to product or service to scale it and succeed. 

 

Incremental Innovation is applicable when the final product gets approved by customers. A proven customer base with regular incremental upgrades will level up the business scale to create greater impact.

 

Understanding Incremental Innovation Strategy

Incremental Innovation strategy is a corporate business strategy. It’s a method of defining the companies activities and objectives for innovative up-gradation of the product, service, business model, etc. 

 

An effective Incremental Innovation Strategy supports the company to align their activities to accomplish measurable innovative goals and objectives. 

 

The strategy includes idea evaluation, product development, process improvement, operational innovation, organizational innovation, innovation management, etc. Thus, making an ever-lasting impact on the company. 

 

Here are five strategy considerations while developing a product:

  1. Understanding customer needs and desires through User experience feedback, surveys, interviews, pain points, etc.
  2.  Alignment of team activities towards innovative improvements.
  3. Testing of product and pivoting as per user insights.
  4. Constant communication with customers to stay updated with their preferences, insights, and changing demands. 
  5. Gaining insightful information from partners and suppliers.

 

A pool of information is available as you look around that can be used to upgrade the product and to maintain relevancy in the market.

 

Decoding the Differences: Incremental, Breakthrough, Disruptive & Radical

Most often the various types of innovations are not clearly defined. Their differences are ignored. Thus wrongly describing Disruptive as Incremental if the latter creates a huge impact. So here we will be understanding the differences between these four types of innovations.

 

Decoding the Differences

 

  • Incremental Innovation v/s Breakthrough Innovation 

Breakthrough innovation is rarer than Incremental innovation. Breakthrough is a complex strategy as it involves the introduction of new technology or a new business model. It is a new offering in the market. It can be an original idea or a solution to customer pain points. Whereas an incremental innovation is improving an already existing product or service. 

 

Breakthrough innovations that bring groundbreaking changes have greater risk and uncertainty. Thus rewarding a greater ROI than Incremental innovation. 

 

  • Incremental Innovation v/s Disruptive Innovation

Disruptive innovation is a bottom-up process. It creates its market and its customer base. They target overlooked areas of pain points with an innovative approach to the product or solution. 

 

As per the Harvard Business Review, it’s not just technology that creates disruption. Instead a combination of innovation in business model and technology. 

 

One of the best examples is Apple iPhones, Apple disrupted the mobile phone market through a simple user interface, unique features, and a large assortment of third-party mobile applications.

 

Disruptive Innovation disrupts the market and makes small incumbents difficult to survive. Thus unable to compete they lag in the race.

 

  • Incremental Innovation v/s Radical Innovation

Radical Innovation is a revolutionary change in the market. There was an introduction in the new technology that was never seen or imagined before in the market. Radical Innovation is not a consistent process like Incremental Innovation.

 

To bring a radical change is difficult to achieve thus subjecting to greater risks. It is an unimagined solution to the existing market or creating a new market with minimal competitors. For eg: the Innovation of the digital camera bought a radical change in the photography industry. 

 

Examples of Incremental Innovation

Incremental Innovation is omnipresent. Everything you see around has a Midas touch of innovation. As you witness new upgrades in your mobile apps and market software, there are various examples where Incremental innovation plays magic. Here are four of them:

 

  • Product Innovation

 The process of creating a better product or improving the current product is termed as Product Innovation. A product never fully satisfies a customer. Customers come up with innovative desires thus, compelling the companies to upgrade their product.

 

One of the greatest examples is Gillette. Gillette has a history of consistent innovations in their product. Thus, making them a strong company in the shaving and personal grooming industry. 

 

Product Innovation

 

In 1901, Gillette invented the first safety razor with a then-new feature of disposable blades. It proved to be a successful market for largely seven decades. To stay relevant in the market, it introduced the Trac II razor, a safety razor with two blades. The additional blade reduces the number of strokes and irritation to face. The next innovation in 1976, Gillette Atra razors enables men to shave their necks. Another incremental update is a disposable double-blade razor named as Atra razors and Daisy razor for the women market segment. 

 

Later, Gillette began to offer the power version of razors with easy handling and smoother shaves. 

 

  • Service Innovation

Services are people-centric. Thus the continuous change in human desires and constant need to experience something new exerts service innovation in the industry. 

 

The taxi or commuting service industry was interrupted by the ride-sharing company Uber. Uber provides a similar service but in an innovative way. The on-demand, on-time, and affordable booking features make it a more obvious choice over the traditional taxi system.

 

  • Process Innovation

Process Innovation brings efficiency in the business process. Product innovations are externally visible but process innovation is seen internally.  It has mind-blowing effects on operations while reducing costs of production, boosting up the quality of service, increasing profitability, etc.

 

Zara is a notable example of process innovation. Zara works on a market-responsive approach to meet consumer demands. Only 15-25% of clothes before the beginning of the season and 50-60% during the arrival of the season. And rest all clothes are produced during the season as per the latest market trends in the fashion industry. The fashion line has an elite reputation to increase its reach through mouth publicity and aesthetic bag labeling.

 

  • Environmental Innovation

As said above(Scale of operations), larger ecological innovation becomes significant with the large operations to reduce wastage.  A small change brings a drastic overall development in business activities. 

 

Nike’s efforts toward sustainable product innovation is a good example of Environmental Innovation. Many of Nike’s products are formed using plastic bottles, scraps, used products, etc. 75% of Nike products are made from recycled material. Nike Air is the most iconic and sustainable product of the brand. 

 

Limitations of Incremental Innovation: 

Incremental innovation has countless ways to divert from the expected part and take a wrong turn. It has some limitations that are difficult to ignore. The prior knowledge of this limitation can help to pre-plan actions to handle the consequences. 

 

  • Innovation can be extremely fruitful when introduced at the right time. Thus yielding greater profits while others have just entered the market. But will fail if the idea and execution timing goes wrong.
  • Shortage of Finances, lack of customer insights, etc for forming clear goals 
  • Often Incremental innovation involves open-experimentation, making the process exhaustive and time-consuming.
  • Wastage of Finances, human efforts, and material in case of failure, etc  
  • Getting off track from the main product while focusing on small upgrades.  

 

Additionally Ineffective marketing and communication, improper planning, etc inadequate measurements, etc some of the limitations of Incremental 

 

To Sum Up:

Incremental innovation is the daily practice your business does to better itself with each passing day or in this case with every innovation. 

 

Just like daily practice feels boring and gloomy. Incremental Innovation is similar in experience but a deliberate and focused approach will make a significant impact on the business product.

 

Though not a big impact at one go like disruptive or radical innovation. But it can largely impact the core business process and goals. 

 

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