EXAMPLE: Philips invested significant resources—time and money—in the development of its interactive TV. Customers did not purchase this prod- uct in sufficient quantities to allow Philips to reach its revenue target; in other words, the new product failed to be adopted by the market. Not only did Philips lose money, but time was lost in coming up with a better inno- vation. If interactive TV had succeeded at that time, Philips would have had an enormous head start over its competitors and the possibility of cre- ating a step change in its revenues.
INCREMENTAL INNOVATION
Although radical innovations often make headlines, most organizations spread the risk associated with innovation by also looking for small or incremental innovations to their products, processes, and services. In fact, some companies shy away from radical innovations altogether, preferring instead to invest in incremental innovation. Incremental innovation is less ambitious in its scope and offers less potential for returns for the organization, but consequently the associated risks are much less. Apart from using fewer resources, incremental innovations consist of smaller endeavors, making them easier to manage than their larger counterparts. Incremental innovations such as increasing television speaker power or screen size often lead to small changes in growth. However, an organization may have to undertake more and more of these types of innovation to achieve the necessary growth to survive. If an organization successfully implements enough incremental innovations, then it can sometimes lead to the similar levels of growth driven by radical innovations. The drivers of incremental innovation initiatives can include approaches to continuous improvement such as lean manufacturing, total quality management, and world-class manufacturing.
There are advantages and disadvantages to both incremental and radical innovation. Radical innovation has the advantage of creating a step change in growth. The disadvantage is the high level of risk and high cost of failure. The advantages of incremental innovation are lower risk and the possibility of achieving small degrees of growth. However, the disadvantage compared with radical innovation is the slowness to reach growth targets before competitors, leading to a loss of competitive advantage. Most organizations adopt a dual approach to the size and scope of their innovation activities. There are usually many incremental innovations going on at the same time, yielding short-term results. They may also develop some potentially radical innovations that may yield significant results in the medium to long term. Therefore, the innovative effort of an organization consists of a portfolio of innovations rather than just one specific project. As a result, decisions involving the innovation process become much more complex, as does the attitude of the organization toward risk taking in order to fund the innovations.
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Chapter 1