In "Fast second", already mentioned in this blog, C. Markides and P. Geroski suggest an innovation typology. They rely on two criteria :
- the effect of innovation on consumer habits and behaviors;
- the effect of innovation on established firms’ competencies and complementary assets.
The easiest case, incremental innovation, occurs when the innovation relies on established firms’ competencies, and the effect on consumer habits and behaviours is low. The launch by Mercedes of the ABS system designed by Bosch, in October 1978 (already), is a typical example of incremental innovation.
Major innovation is characterised by a strong impact on consumer habits and behavior, but builds upon the established firms’ competencies. The introduction of internet services in the banking industry is a good example of major innovation. Although it deeply changed the way consumers use financial services, the established banks were indeed the ones who possessed the skills and assets to develop them. The difficulties of "pure internet players" (such as Egg in France) seem to confirm this analysis.
Things become more dangerous for established players when innovations challenge, or destroy, steadily built competencies and assets.
When innovation threatens these competencies and assets, and when the effect on consumer habits and behavior is limited, Markides and Geroski define such innovations as strategic innovations. The wave of flat-screen TV might be analyzed this way: these product don’t fundamentally change the television habits of consumers, but the required technologies (LCD, plasma screen…) have the power to seriously threaten established players who would reluctantly exit traditional technologies (cathode ray tubes).
In the final case, when innovation threatens established firms’ competencies and have a major effect on consumer habits, Markides and Geroski call this type of innovations radical innovations. Mobile phones, PDAs and video-tape recorders are historical examples of radical innovations.
One of the interests of this typology is obviously that companies can consider different responses according to the nature of the innovation they’re pushing, or the are threatened by.