An Innovation Taxonomy

Photo by Fancy Crave on Unsplash

There is a tendency among those who speak of innovation to treat it as monolithic. But innovation comes in many forms, and sometimes I find it useful to distinguish between them. I’ll share my current categorization scheme with you in this post.

The categories are:

1. Design innovations
2. Distributional innovations
3. Technological innovations
4. Business model innovations

I’ve chosen to classify innovation types according to the substantive area which they affect. There are other approaches, such as Clayton Christensen’s classification scheme which categorizes according to how radical the innovation is. Nothing keeps you from mixing and matching.

A warning: I’m not a stickler for technicalities, so my taxonomy is fairly loose. As for the definition of ‘innovation’, I’m basically thinking of ‘new and useful.’

Design Innovations

Design innovations change the way a user experiences a product or service without employing brand new technology.

Many, many products fall into this category. I place the Nest Thermostat squarely here.

The technology is not new, but the user experience is much different from other smoke alarms.

Design innovations are concerned with exposing the functionality in a better way, or in a way that appeals to a new group. Design innovations can be extremely simple. Sometimes, it just means increasing aesthetics. It surprises me how often new food products succeed on the basis of a mere size change. Consider, for example, the 5 pound gummy bear:

A rather successful product, and the only new aspect is a large size

Kickstarter is full of design innovation successes. (If you calculate odds-of-success-weighted revenue for Kickstarter, Design turns out to be the highest.) In fact, it’s a nice place to get a flavor for how to add value with design.

Designers have done a great deal of thinking about innovation. That is one nice thing about having a taxonomy: you know from whom to borrow techniques. One well-known, systematic approach to design improvements is the ‘ethnography’ (originally borrowed, in turn, from Anthropology). Stories about ethnographies leading to better design never fail to delight. (For a few of them from Paul Skaggs, an Industrial Design professor at BYU, see here.)

I personally love design innovations, but there are other types, not to be forgotten.

Distribution Innovations

This one may seem a bit sleepy, but it can be rather revolutionary. These are innovations in the way people acquire a product or service. It could mean a new retail format, or a new system by which inventory responds to demand.

My go-to example is Tesla. For as long as anyone can remember, cars have been produced before they are sold and placed on lots at dealerships. This is excellent for large scale auto manufacturers, for many reasons. However, it has some drawbacks: with excess inventory and weak demand, prices must fall and margins drop.

Tesla uses a pull distribution strategy, something that Toyota pioneered, but in the distribution channel for parts, not entire vehicles as Tesla uses. Tesla perfectly matches supply of autos with demand. In addition, though Tesla has dealerships, you can order one online. This saves major pain on the consumer’s end.

Another Tesla distribution innovation is the process of administering updates. This tag-teams with a design innovation (the fact that so many major features live in the software of a Tesla), to slow down the vehicle aging process. For other manufacturers, you have to buy a new car to get the new cruise control or lane keeping system. With Tesla, it happens while you sleep.

Technological Innovations

The monolithic version of innovation is most commonly equated with this: an advance in the underlying technology of a product. We all know of numerous examples: the internal combustion engine, the transistor, the laser.

Rather than relate older examples, I’ll take a risk and provide a few examples that I hope will take off sometime in the future. First up: graphene. Okay, graphene is just a material, and nobody invented it. Instead, it was discovered. But that discovery was worth a Nobel Prize, and hopefully graphene will allow for many new innovations, such as this motorcycle helmet_:_

Next is a new method for 3D printing called ‘bound metal deposition.’ A firm called Desktop Metal, founded with the help of a group of MIT professors, built a new 3D printing system based upon this idea. Recently an article in The Economist wrote about how it works:

First, the machine extrudes a mixture of metal powder and polymers to build up a shape, much as some plastic printers do. When complete, the result goes into an oven. This burns off the polymers and compacts the metal particles by sintering them together at just below their melting point. The outcome is a dense metallic object, rather like one that has been cast the old-fashioned way as a solid chunk of metal. The sintering causes the object to shrink. But this can be compensated for by printing it a little larger than required, because the shrinkage occurs in a predictable way.

Aside from quality, it’s also supposed to be pretty quick:

By incorporating a conventional metal printer’s multiple production stages into a single “sweep” of the print head, Desktop Metal’s machines are fast. According to Mr Fulop, they can build and bake objects at the rate of 500 cubic inches (8,194cm3) an hour. That compares with about 1–2 cubic inches with a conventional laser-based metal printer, or 5 cubic inches with an electron-beam machine.

Finally, a software innovation: the blockchain. I’ll rely on Wikipedia for a summary:

A blockchain— originally block chain — is a distributed database that is used to maintain a continuously growing list of records, called blocks. Each block contains a timestamp and a link to a previous block. A blockchain is typically managed by a peer-to-peer network collectively adhering to a protocol for validating new blocks. By design, blockchains are inherently resistant to modification of the data. Once recorded, the data in any given block cannot be altered retroactively without the alteration of all subsequent blocks and a collusion of the network majority. Functionally, a blockchain can serve as “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way. The ledger itself can also be programmed to trigger transactions automatically.”

For a truly excellent description of how blockchains work, check out Mohit Mamoria’s article.

I have a potentially naive hope that blockchains can help solve property rights problems in developing countries, and allow honest citizens to sidestep corruption.

Business Model Innovations

A business model is “a design for the successful operation of a business, identifying revenue sources, customer base, products, and details of financing.” Business model innovations are new approaches to any of the components, or new interactions between them.

Business model innovations are extremely common nowadays, and they are perhaps an overlooked source of new ideas for inexperienced entrepreneurs. I place Kickstarter and Indiegogo in this group, since they both change the model of financing business ventures.

Robinhood changes the way stock transactions are monetized, as well as who pays and who doesn’t.

Only yesterday, I found this interesting startup:

Brandless sells unbranded generic versions of many food, home, and beauty products. The original, and I think better, version of this idea perhaps came from MUJI:

Because business models have clearly delineated constituents, it is relatively easy to come up with new ideas by isolating one and modifying it. In fact, Business Model Generation, an excellent and commonly used book, does exactly this to systematically produce product-market fit, grow products from niche to mass markets, and monetize startups.

Conclusion

Over time, perhaps my taxonomy will evolve. But thus far, this breakdown has served me well, because it gives me a schema with which to synthesize different methods, outcomes, and perceptions of innovation. I hope it helps you do the same.

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