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Incremental or Breakthrough Innovation?
Innovation is often described as a spectrum. At one end of the spectrum lies incremental innovation – linear refinements that provide marginal benefits over the status quo. In business, continuous incremental innovation can be a source of competitive advantage, sustaining company growth over a period of time. At the other end of the spectrum lies breakthrough innovation – non-linear changes that provide significant improvement over the current state of affairs. Breakthrough innovation has the potential to alter entire industries. At the centre of the spectrum lies a murky middle ground, with no clear border where incremental innovation ends and breakthrough innovation begins.
There is a misconception among companies that breakthrough innovation is superior to the incremental variety. I tend to think it depends on a company’s position in the marketplace. If a company is well established, incremental innovation can serve it very well. Incumbents benefit by making small changes on a continuous basis. Each successive refinement adds value for the customer, while cementing the company’s position. Linear changes are easier to come by, steady and predictable. On the other hand, if a company is a relative upstart, breakthrough innovation might be the only way to grab a share of the market. Incremental change does not compensate for lack of visibility in the marketplace. Improvements have to be dramatic so that people take notice. Non-linear changes are unpredictable, but start-ups have less to lose and can tolerate this risk.
In the long run, incumbent organizations need to realize when incremental innovation can no longer be a sustaining force. At some point, they have to change course or risk becoming obsolete. History has shown this to be true, as illustrated by the case of the ice industry and refrigeration.
In the middle of the 19th century, there was a thriving ice harvesting industry in North America. Companies cut blocks of ice from rivers and lakes in the winter, stored them in warehouses throughout the year, and shipped them to locations across the world. The ice wagon, which delivered ice to individual households, was a common sight on the streets of cities and towns. Over fifty years, companies perfected processes for harvesting, storing and transporting ice. Plows and other tools were invented to automate harvesting. Better insulation was developed for warehouses. Special vehicles and distribution routes were developed to preserve the ice during transport. These innovations brought ice to the masses at a reduced price, but they were all incremental.
By the 1880’s, a totally new technology – refrigeration – irreversibly altered the face of the industry. It didn’t happen overnight – machine-made ice had been made as early as 1860, but it was initially more costly than traditional harvesting. As the technology improved however, the price dropped, and machine-made ice became attractive in southern markets, where harvested ice was most expensive. Refrigeration was a breakthrough innovation. It created a completely different solution to the problem of cooling food. It was not only cheaper, but more convenient and sanitary. Incumbent ice companies that clung to the old ways of doing business eventually failed.
What can companies like RBC learn from this case? Where along the innovation spectrum should RBC focus its efforts? Would you classify your ideas for the Next Great Innovator challenge as incremental or breakthrough?
Comments (2)
bill claxton :Nelson T.
I've noticed you are the main (only) contributor to this blog. Surely you have others with personal insight into innovation. Are we going to hear from them sometime?
Nothing against your content, which is good reading. But as they say. "Variety is the spice of life!" It seems very structured, not a true sense of the intense competition that must be evolving. It'd be great to read about the struggles of student teams: to build a plan, detailing its aspects to the nth degree, the presentation they are planing, their attempts at making paper mache of bankers throwing themselves at customers... (sorry I went a bit too far..)
It also seems odd that only a few comments have been posted in regards to your articles. Do the teams know you are trying to help them?
If you're out, maybe ask a question about an article. It would be fun to see Nelson T's response..
Nelson T. :
Bill, thanks for your comments.
You'll be able to read thoughts on innovation from some other RBC insiders very shortly. I am planning to interview other members of the RBC Applied Innovation team. These are people who will be judging the first round of the competition. I will publish excerpts from these interviews in future posts.
I agree, it would be great to read about student experiences related to the competition. Hopefully, more students will begin commenting on the blog. I'll do my part by asking some key questions and inviting more participation.
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The Innovator Blog is your inside source for advice and guidance on the RBC Next Great Innovator Challenge™.
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