3 Types of Business Innovation and the Risks You Should Avoid
There are many ways to innovate inside of an organization or company. On our weekly podcast, Leading Innovation, we cover the art and practice of how leaders can guide others to create new value within an organization. Below are three types of business innovations and the aspects of a business that are disrupted or changed during innovation.
1. Business Model Innovation
This type of innovation happens when a company rethinks the traditional boundaries of its sector or their overarching business model. For example, they may consider their business processes, their business strategy, their mission statement, the technologies they use, and the businesses that they partner with. When organizations choose business-model innovation, they may choose to create a strategic alliance with another business, to update the software that they use, to accept venture capital financing, or to go from selling at a physical storefront to selling online.
2. Industry-Model Innovation
Industry-model innovation happens when a company takes a set of skills or resources and leverages them to expand into a parallel industry. This involves business owners looking at their industry they currently work within and what potential industries they could transition to. When organizations choose industry-model innovation, they may choose, for example, to market their product to an entirely different industry or even to create a new industry to align with their mission and products. What new industry can your organization expand into?
3. Revenue-Model Innovation
Simply put, revenue model innovation happens when you explore how an existing product or service can generate new revenue with different pricing, packaging (bundling/unbundling), or a different payer (advertising or sponsorship). When business owners review their revenue model for places to innovate the products and services that they offer, the two most common items they consider are the prices of their products and services, and the customers they target. In many ways, this model is simpler to implement because leaders look at new uses for existing assets. What existing product in your organization could benefit from a new price, package, or payer?
The Importance of Innovation
Innovation can help you get ahead and stay ahead of the curve and grow your company in the process. Here are three reasons innovation is crucial for your business:
- It allows adaptability: The recent COVID-19 pandemic disrupted businesses on a global scale. Routine operations were rendered obsolete over the course of a few months. Many businesses still sustain negative results from this world shift because they’ve stuck to the status quo. Innovation is often necessary for companies to adapt and overcome the challenges of change.
- It fosters growth: Stagnation can be extremely detrimental to your business. Achieving organizational and economic growth through innovation is key to staying afloat in today’s highly competitive world.
- It separates businesses from their competition: Most industries are populated with multiple competitors offering similar products or services. Innovation can distinguish your business from others.
3 Risks of Innovation
However, innovation isn’t a guaranteed success. There are several factors that may prevent innovation from being successful, and you have to keep them in mind before taking the leap:
- Money: Innovation can be an extremely expensive undertaking and because increased profits aren’t guaranteed, it can be risky. New technology, specialized employees, shifts in your business’s identity, all of which can cost money. During the innovation process, you have to think about the costs weighed against the potential profits and make the best decision. Ask yourself the question: Will this create value?
- Time: Innovation takes time, and the time that you spend innovating is time that you’re not using to focus on your current products, marketing, and sales. If you can’t implement your innovations quickly and efficiently, you can risk failing to meet your quotas and falling behind on your schedule, losing profits and the trust of your customers and investors.
- Instability: Innovation can be exciting, but if businesses are constantly making sweeping changes, they may never find a stable identity or market and it will be hard for customers, investors, and employees to keep up with the changes. It’s all about innovation management; a stable business identity is important for generating profits, so it’s vital that you choose your new innovations carefully and deliberately, rather than saying yes to every new thing that comes your way.