Fortune at the Bottom Layer of the Innovation Pyramid

Radical versus incremental innovations

Radical innovations = Innovations that are new to the firm, market and industry; which incorporate a substantially different and new technology; and which provide substantially higher customer benefits relative to current products in the industry.

Incremental innovations = Improvements in a firm’s existing product offerings that better satisfy the needs of its current and potential customers. Incremental innovations manifest as adaptations, refinements, enhancements, or line extensions, incorporating new features that offer additional benefits.

This article focuses on incremental innovation in businesses’ competitive strategy by exploring how they can be leveraged to compete more effectively in the marketplace.

Incremental innovations and competitive strategy

Refer to Table 1 for an overview of the role of incremental innovations in various competitive strategy contexts. See the article for examples for each context.

• Extending the time horizon of the revenue stream from radical innovations
• Entering new markets in product categories in which the firm currently has a presence
  • New types of markets
  • New market segments
  • New geographic markets
• Entering new product-markets in product categories in which the firm currently does not have a presence
  • New product-markets that currently are fragmented industries
  • New product-markets that emerge or become attractive as a consequence of changes in the legal and regulatory environment
  • Related new product-markets with entrenched competitors
• Achieving and defending product category leadership
  • Preempting shelf space by preempting potential entry points of competitors
  • Responding to price sensitivity and variety-seeking behavior driven brand switching
  • Protecting flagship brands with flanker brands
• Commanding a higher price relative to the product being supplanted by the incremental innovation, or a price premium relative to competitors’ offerings, to achieve higher margins
• Adapting to the structural constraints of the industry ecosystem

Research on incremental innovation shows that incremental innovations that manifest as line extensions can have three primary effects: 1. It increases overall demand; 2. It affects supply by increasing costs; 3. It has strategic consequences such as deterring entry of competitors and thereby allow an incumbent firm to increase prices

Research on incremental innovations that manifest as added new features suggest that added features provde positive differentiation by giving a product perceived advantages over the products of competitors.

Implications

In today’s competitive environment, pursuit and effective exploitation of both radical and incremental innovation opportunities are imperatives. Managed effectively, each radical innovation can serve as a springboard for a steady stream of incremental innovations that generate new revenue streams

Firms set innovation-related performance objectives. It is important to ensure that the scope of such objectives encompass performance objectives and metrics specific to incremental innovations

Firms should strive to nurture organizational conditions, which are climate, processes, policies, structures and systems conductive to superior performance in the realm of incremental innovations

The importance of incremental innovations to a firm’s long-term growth, profitability, and survival should be guard against internal organizational conditions such as managerial biases and excessive focus on incremental innovation to the detriment of pursuit of radical innovations