Innovation is key for businesses to stay competitive and continue growing in today’s fast-paced world. While there are many different innovation strategies, the top 5 most effective and important strategies that leading innovative companies use are: open innovation, design thinking, lean startup methodology, crowdsourcing, and disruptive innovation.
Open Innovation
Open innovation is a strategy of leveraging the talent and resources outside of your own company to help advance and commercialize your ideas and technologies faster. Rather than relying solely on internal R&D, companies actively look outside for new ideas and solutions. There are 3 main ways to implement open innovation:
- Innovation networks – forming strategic alliances, partnerships, and joint ventures with other companies, startups, universities, research institutions, etc. to co-develop new products and technologies.
- Licensing – licensing in externally developed intellectual property and technologies to integrate into your products and business models.
- Crowdsourcing – using an open call through challenges and competitions to tap solutions and ideas from a large, external network of people from around the world.
The benefits of open innovation include:
- Access to wider range of ideas, technologies, and talent beyond what exists internally.
- Faster innovation cycles and speed to market.
- Reduced costs and risks of internal R&D.
- Exposure to new ways of thinking and doing things.
Companies like Procter & Gamble, Intel, and IBM have thriving open innovation programs. P&G’s Connect + Develop program sources 50% of its innovations from outside the company’s four walls. Their global network of innovation partners has helped P&G dramatically boost R&D productivity and new product success rates.
Design Thinking
Design thinking is a human-centered, collaborative, and iterative approach to problem-solving and innovation. Unlike analytical thinking that relies on traditional processes and prior knowledge, design thinking taps into creative tools like empathy, prototyping, and experimentation. The 5 main stages of design thinking are:
- Empathize – Gain an empathetic understanding of the problem you are trying to solve from the user’s perspective.
- Define – Clearly define the core problems and needs uncovered in the empathize stage.
- Ideate – Brainstorm and come up with creative solutions and ideas to address the problems.
- Prototype – Rapidly build low-fidelity prototypes to start testing and validating ideas with users.
- Test – Gather feedback, refine prototypes, and continue iterating based on user testing.
Design thinking is useful when you need fresh solutions or want to create innovative products, services, and customer experiences that truly resonate with users. Companies like Apple, Google, and IKEA are masters of design thinking and human-centered design.
Lean Startup Methodology
The lean startup methodology is a strategy for developing businesses and products in a faster, more iterative way through building-measuring-learning loops. This approach favors experimentation over elaborate planning and shortens product development cycles. The core principles are:
- Business Model Canvas – Visually map out your business model hypotheses using the building blocks of key partners, activities, resources, value propositions, channels, customer segments, costs, and revenue streams.
- Minimum Viable Product (MVP) – Launch a basic, scaled-down version of your product to start getting real customer feedback as soon as possible.
- Validated Learning – Rigorously measure and test your business assumptions to get clear data on what’s working and what’s not.
- Build-Measure-Learn Loops – Rapidly iterate MVPs through constant optimization and improvement based on customer feedback and data.
- Pivoting – Be agile and change business direction when needed based on validated learnings.
Startups like Dropbox, Slack, and Groupon successfully used the lean startup methodology to launch and systematically grow their businesses. The lean approach helps entrepreneurs mitigate risk and uncertainty when bringing new products to market.
Crowdsourcing
Crowdsourcing is engaging a large, diverse, online community to contribute ideas, feedback, solutions, and content for innovation purposes. By tapping the knowledge and creativity of the crowd, you can gain cost-effective, scalable access to talent beyond your own company walls. There are several types of crowdsourcing:
- Idea crowdsourcing – mining the crowd for new product and service ideas.
- Design and innovation crowdsourcing – having the crowd generate design concepts and solutions to address innovation challenges.
- Content crowdsourcing – leveraging the crowd to produce content like microtask data, photography, videos, testimonials, articles etc.
- Funding crowdsourcing – crowdfunding new projects and ventures through small online contributions.
Some examples of successful crowdsourcing initiatives include:
- Lego Ideas – online platform where fans can submit new Lego product ideas and designs, which are then voted on. Top ideas are produced as actual Lego sets.
- Threadless – ecommerce site where artists submit t-shirt designs to be voted on. Winning designs are printed and sold by Threadless.
- Quirky – community of inventors submit product ideas which are collaboratively developed, manufactured, and sold, with inventors getting a share of revenue.
The benefits of crowdsourcing include gaining cost-effective market insights, new ideas, content, and labor at scale while also better engaging customers and external communities.
Disruptive Innovation
Disruptive innovation is a strategy that focuses on introducing lower-cost, more accessible innovations that create new markets and value networks. Rather than just enhancing existing offerings for established customers, disruptive innovators target underserved segments through affordable solutions that are more simple, convenient, and customizable.
Characteristics of disruptive innovations:
- Target underserved or less demanding customer segments overlooked by established players.
- Offer a simpler, more affordable and convenient solution compared to existing options.
- May appear inferior at first but meets customers’ main jobs-to-be-done.
- Improve over time to take over the mainstream market and displace established competitors.
Examples of disruptive innovations include:
- Personal computers – Early PCs were not as powerful as mainframes but much more affordable and accessible to the mass consumer market, eventually disrupting the mainframe business.
- Cell phones – First mobile phones were less convenient than landlines and only used for emergencies. As technology improved, cell phones disrupted the landline telephone industry.
- Online streaming – Early streaming services had limited content libraries but offered greater convenience and affordability than video rental and cable TV. Streaming has now disrupted physical video rental and traditional pay TV.
Disruptive innovation opens up new markets, value networks, and growth opportunities for startups and new entrants, while posing an existential threat to established market leaders unwilling or unable to adapt.
Conclusion
In today’s competitive business landscape, innovation is a must for continued growth and success. The top 5 most important innovation strategies that leading companies leverage are: open innovation to expand idea sources, design thinking for creative problem-solving, lean startup for agile product testing and iteration, crowdsourcing to harness collective intelligence, and disruptive innovation to target underserved markets.
By combining elements of these innovation strategies, companies can develop better products, serve unmet customer needs, create competitive advantage, and continue disrupting existing markets. The companies that cannot embrace these innovation best practices risk falling behind the curve and losing relevance and market share.
Innovation is not a one-time initiative – it requires dedication, resources, and most importantly a culture that empowers employees at all levels to think and act creatively. Companies need to continually assess their innovation strategies and consistently invest in transforming their business for the future.
