Innovative products and processes, therefore, help organizations and consumers operate more efficiently and, in many cases, enable entirely new activities. For example, advances in microchip performance have allowed computers to handle increasingly complex tasks at higher speeds. Similarly, companies like Vestas have steadily refined wind turbine technology, enabling turbines to operate effectively under a wider range of wind conditions.
Innovation differs from invention, which involves the creation of new ideas, and from diffusion, which refers to widespread adoption and adaptation. During diffusion, firms often tailor innovations to specific market needs and introduce complementary products that enhance the value of the original innovation.
A common distinction in the literature is between incremental and radical (breakthrough) innovation. Breakthrough innovation introduces fundamentally new concepts or technologies that can render existing solutions obsolete. Incremental innovation, by contrast, focuses on continuous improvements – enhancing reliability, usability, performance, or cost efficiency. Specifically, radical innovation often requires organizations to adopt unfamiliar knowledge and new operating models, while incremental innovation builds on established routines and existing expertise.
Although breakthrough innovation is difficult to achieve, it is essential for long-term competitive advantage. Research shows that companies overly focused on incremental improvements may struggle to generate transformative ideas. Conversely, partnerships, alliances, and joint ventures tend to produce more breakthrough outcomes, while participation from foreign subsidiaries does not significantly hinder radical innovation.
Incremental vs. Breakthrough Innovation
Innovation can be categorized in many ways – by object (product, service, process), by driver (technology, market, design), or by the magnitude of change. This discussion focuses on two primary categories:
- Incremental innovation: Enhancing existing solutions by improving performance, reducing cost, or expanding functionality.
- Breakthrough innovation: Introducing fundamentally new solutions that redefine markets or create entirely new ones.
The key difference lies in whether the innovation is perceived as a natural extension of existing practices or as a disruptive shift.
At the same time, completely original breakthroughs are rare because most innovations build on prior knowledge. Thomas Edison’s work on the light bulb illustrates this: he did not invent the bulb itself but improved its durability and created the infrastructure needed for widespread use, transforming both business and daily life.
Incremental innovation plays a critical role in refining breakthrough ideas. Early versions of radical products often enter the market with high prices and limited functionality. Incremental improvements help make them accessible, reliable, and appealing to mainstream customers.
Figure 1. Two dimensions and four types of innovation (source – verganti.com/wp-content)
Both types of innovation are essential:
- Breakthrough innovation opens new opportunities.
- Incremental innovation captures and expands the value of those opportunities.
Without breakthrough innovation, incremental progress eventually plateaus. Without incremental innovation, breakthrough ideas fail to reach their full potential.
Four Innovation Types
A framework combining technological change and shifts in product meaning identifies four innovation types:
- Technology-push innovation
Driven by scientific or technical advances, these innovations introduce new technologies without altering the product’s meaning. Color television is a classic example. - Meaning-driven innovation
These innovations redefine the symbolic or cultural meaning of a product without major technological change. The mini-skirt of the 1960s is a well-known example. - Technology epiphanies
These innovations apply new or existing technologies in unexpected ways, creating new meanings or uses – such as the Nintendo Wii or Swatch watches. - Market-pull innovation
These innovations originate from identified customer needs and rely on human-centered design and market research.
- Technology-push innovation
Dynamic Innovation and Technological Change
Technological progress often follows a pattern of long periods of incremental improvement interrupted by short bursts of radical change. These breakthrough moments create technological discontinuities by delivering major performance or cost advantages.
Organizations must balance exploration (breakthrough innovation) with exploitation (incremental improvement). While experience with incremental innovation can support radical innovation, overly rigid processes may hinder breakthrough thinking. At the same time, incremental innovation often lays the groundwork for future breakthroughs by building knowledge and capabilities.
Challenges in Achieving Breakthrough Innovation
Large, mature companies often struggle to generate breakthrough innovation, especially when dealing with complex, long-lifecycle products. Traditional R&D programs tend to prioritize efficiency and predictability, which can limit experimentation.
Companies that excel at breakthrough innovation typically:
- Operate with a clear strategic purpose
- Maintain a well-defined innovation strategy
- Use structured innovation processes
- Invest meaningfully in radical innovation
- Explore new business models
- Experiment with multiple innovation operating models
- Collaborate extensively with external partners
- Generate significant revenue from new offerings
To improve their innovation performance, organizations must align their capabilities with long-term strategic goals.
Core Components of an Innovation Strategy
- Business and Innovation Objectives
Companies must define what they aim to achieve through innovation and ensure alignment with broader corporate strategy. Clear direction and strong execution capabilities are essential.
Figure 2. A four-stage plan to align corporate strategy and innovation execution (source – pwc.es/es/publicaciones)
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- Innovation Strategy
A well-articulated strategy guides decisions about how much innovation is needed, the appropriate balance between incremental and breakthrough efforts, and which innovation areas – products, services, processes, customer experience, or business models – should receive priority.
Organizations must decide whether to pursue a bold “Play to Win” strategy focused on leadership and breakthrough innovation or a more conservative “Play Not to Lose” approach aimed at maintaining competitiveness.
- Leadership
Leaders set the tone for innovation. Without a clear vision, innovation efforts become fragmented. Effective leaders define ambition, risk tolerance, and desired outcomes while fostering a culture that embraces experimentation and learning.
- Culture
A strong innovation culture requires supportive systems, incentives, and behaviors. Organizations must encourage creativity, collaboration, and experimentation until these behaviors become embedded.
- Talent
Finding and retaining innovation talent is a major challenge. Companies must identify creative individuals and provide environments that support learning, collaboration, and entrepreneurial thinking.
- Ecosystem
Innovation thrives when organizations connect with external sources of knowledge – suppliers, universities, startups, research institutions, and strategic partners. These relationships accelerate learning and expand innovation capacity.
