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Fortnite to Netflix, Peleton and Ryobi, Supreme and Zipline … more examples of the 10 types of innovation
February 27, 2019
Using a list of more than 2,000 successful innovations, including Cirque du Soleil, early IBM mainframes, the Ford Model-T, and many more, Doblin, now part of Deloitte, applied an algorithm and determined ten meaningful groupings—the Ten Types of Innovation—that provided insight into innovation.
10 Types of Innovation explores these insights to diagnose patterns of innovation within industries, to identify innovation opportunities, and to evaluate how firms are performing against competitors. The framework has proven to be one of the most enduring and useful ways to start thinking about transformation.
On average, the world’s most innovative companies use 3.6 different types of innovation in a single new product or service, whereas average innovators only use 1.8 types of innovation altogether. Combining the types makes moves harder to replicate by competitors.
Hyatt uses “lab hotels” to find innovative solutions to recurring problems. A select number of its 488 global hotels have between 7 and 9 experiments running at the same time. Successful experiments then get implemented.
Chicago restaurant Next makes money on customers’ tabs paid in advance. To reserve a table, customers pay for their entire meal in advance. Next makes interest on those funds and dramatically decreases “no shows.” Pricing also changes based on the time of the reservation rather than the quantity of food eaten, therefore maximizing margins.
Natura, a Brazilian cosmetics company, has a modest R&D team but continually launches products on the cutting edge of “skin science” to the tune of $3.4 billion annually. This was done by relying heavily on “open innovation” partners – 25 universities around the world that come up with 50% of Natura’s products.
In the 1990s, Dell hand-picked its customers to maximize revenue and profitability. It researched corporate customers to see which had the most predictable purchasing patterns and low service costs, including which were second-time computer buyers and are therefore more likely to have fewer service calls.
Gillette completely altered its profit model after customers got hooked on its products. Gillette started with selling cheap blades to train the customer to throw them away instead of sharpening them to reuse. Later on, it switched to a higher margin on the blades.
At $147 billion in revenues, growing 5% annually means that General Electric must create a new Fortune 500 company each year. Former CEO Jeff Immelt created the “Imagination Breakthroughs” program to meet this need. Each business unit presents its best new idea every year, and winners get support and funding for their ideas.
Henry Ford’s success with the Model T was due to more than just the assembly line innovation. Investing in his employees led to a decrease in turnover costs and an increase in employee satisfaction. Ford paid twice the minimum wage so his workers could afford to buy the cars they were building and reduced the workday from nine to eight hours.
Ford also sold modification kits that made the vehicle a multi-use machine. Now known as the product system innovation, owners could use their Model Ts to make cider, pump water, saw wood, or blow snow, among other uses.
To sell diapers in China, Procter & Gamble used network and profit model innovations. Chinese parents were not convinced that diapers were healthy for babies, so P&G partnered with Beijing Children’s Hospital to prove they were safe and helped baby sleep longer. P&G also made the diapers at three different price points to increase their affordability.
Combine innovation “tactics” to produce innovations that can be replicated across industries. Zipcar and Chegg are both examples of companies that combined metered use and switchboard innovations. Zipcar provides easy-to-use and always available car rental by the hour. Chegg lends textbooks in a similar fashion.
By asking potential customers to vote on its website, fashion company Threadless figured out which designs customers would purchase before going through the trouble to produce them. Threadless has hosted over 42,000 designers pitching their designs, with over 80 million people voting for them.
Turn a successful innovation into even more money. Equipment manufacturer Caterpillar optimized its own supply chain and proceeded to capitalize on that knowledge and experience by forming CAT Logistics, a successful consultancy that helps others do the same. CAT Logistics garnered a revenue of $3.1 billion in 2010 and was spun into a separate company in 2012.
Harley-Davidson innovates in service and support systems, cultivating user communities among minority motorbike groups such as women and Latinos. Harley-Davidson was the top brand for minority riders with over $4.5 billion in sales in 2011.
Hyundai radically innovated its service just after the Great Recession. In 2009, customers gravitated towards the brand because of its guarantee that anyone who lost their job within a year of buying or leasing a Hyundai could walk away from the payments and the vehicle.
Almost 40% of the companies on 1999’s Fortune 500 list were no longer in existence ten years later. This fact underscores the importance of continuous evolution and innovation.
Take company values one step more than needed, like cleaning brand Method. Method steers clear from any ingredient that has the slightest chance to make a cleaning product unsafe.
Starbucks may be coming out with a new drink every season, but the average caffeine addict doesn’t realize that Starbucks’s core innovation was providing a “third place between work and home”. By cultivating this sense of space and belonging, they built a regular customer base who connected with the brand and formed a habit.
Indian “smart basics” hotel chain Ginger operates with a room to staff ratio of 1 to 0.36, as compared to the industry average of 1:3. They do this through a combination of tactics such as outsourcing tasks such as laundry and food service, promoting a self-service mentality, and eliminating under-appreciated luxuries that caused extra work and expense.
The Mayo Clinic achieves medical breakthroughs with a five-phase process that prevents risks in potential investments and innovations. As ideas move through these checkpoints, they are improved and gain access to more funding.
Here are some latest examples of companies succeeding in each of the types of innovation:
1) Profit Model: How you make money
Innovative profit models find a fresh way to convert a firm’s offerings and other sources of value into cash. Great ones reflect a deep understanding of what customers and users actually cherish and where new revenue or pricing opportunities might lie.
Innovative profit models often challenge an industry’s tired old assumptions about what to offer, what to charge, or how to collect revenues. This is a big part of their power: in most industries, the dominant profit model often goes unquestioned for decades.
Fortnite – Pay to customise: This Free-to-Play video game by Epic Game Studios is currently one of the most popular and profitable games in the world. Unlike other “freemium” games which incentivise people to spend money to speed up progression, Fortnite is completely free to progress and people only need pay if they want to unlock cosmetic items which don’t affect gameplay but act to personalise their characters.
Deloitte – Value sharing: Professional Services firm Deloitte is the world’s largest Management Consulting firm and still growing. They noticed a desire from their clients for assurance that the advice they were being given and transformation projects which Deloitte was running would actually succeed. As a result, Deloitte has begun trialling projects where instead of their fee being based just on Time and Materials, they will also share in value delivery, where additional bonus payments are only activated if previously-agreed performance metrics are successfully met.
Supreme – Limiting supply: While most companies want to get their products in to the hands of as many people as possible, Supreme has built a cult following through deliberately forcing scarcity of its products. The streetwear clothing retailer announces limited items which will only be available from a specific day when they “drop”, and once they are sold out, that’s it, unless you want to pay huge markups for a second-hand item on eBay. Their red box logo is now so collectible and desirable that the company is able to sell almost anything by putting the logo on it for a limited time only. Case in point: you can find official Supreme Bricks (yes, like the ones used to build houses) which are still selling on eBay for $500.
Supreme’s limited quantity releases often lead to people queuing overnight
2) Network: How you connect with others to create value
In today’s hyper-connected world, no company can or should do everything alone. Network innovations provide a way for firms to take advantage of other companies’ processes, technologies, offerings, channels, and brands—pretty much any and every component of a business.
These innovations mean a firm can capitalize on its own strengths while harnessing the capabilities and assets of others. Network innovations also help executives to share risk in developing new offers and ventures. These collaborations can be brief or enduring, and they can be formed between close allies or even staunch competitors.
Ford & Volkswagen – Developing Self-driving cars: As two of the world’s largest car-makers, Ford and Volkswagen are competitors on the road. However, in 2019 they announced a partnership to work together to develop technology for self-driving cars and electric vehicles which would be used in both company’s fleets of the future. While Ford brings more advanced automated driving technology, Volkswagen was leading in electric vehicles. Through the combined venture called ARGO, both firms can spread their R&D spending across more cars, while both developing competing products.
Microsoft – launching on competitors platforms: Since new Microsoft CEO Satya Nadella has taken over, he has changed the innovation ethos of the company. Whereas previously Microsoft was a product-first company who tried to eliminate competing products and customers should stay within the company’s ecosystem, Nadella has shifted the mindset to a service company where their products should be accessible to customers should be able to access the products in whichever way they prefer. As a result, products such as Office 365 are now available in any web browser, as well as on the mobile marketplaces of Google’s Android and Apple’s IOS, previously seen as competitors.
Huawei – Leveraging celebrity endorsement: Until recently, “high-quality smartphone” made people think of companies like Apple (USA), Samsung and LG (South Korea). Brands from China were often seen as competing on price but suffering from lower build quality and a lack of innovation. So in order to raise their profile in Western markets, Huawei has invested heavily in celebrities to endorse their flagship phones, such as Scarlett Johanssen, Lionel Messi, Henry Cavill and Gal Gadot. This initial investment raised brand name recognition, to the stage where it is now focusing marketing more towards features and functionality.
Huawei has paid Lionel Messi millions to endorse their brand
3) Structure: How you organize and align your talent and assets
Structure innovations are focused on organizing company assets—hard, human, or intangible—in unique ways that create value. They can include everything from superior talent management systems to ingenious configurations of heavy capital equipment.
An enterprise’s fixed costs and corporate functions can also be improved through Structure innovations, including departments such as Human Resources, R&D, and IT. Ideally, such innovations also help attract talent to the organization by creating supremely productive working environments or fostering a level of performance that competitors can’t match.
Perpetual Guardian – Four-day working week: This small financial advisory firm in New Zealand trialed moving to a four-day working week, giving their staff an additional free day each week as long as they got their outputs done. As a result, they found people adjusted their working rhythm to achieve the same outcomes in 20% less time, while also resulting in more satisfied employees.
Netflix – Unlimited Vacations: In order to drive their breakneck growth, Netflix reviewed their formal HR policies to see what processes were getting in the way of people doing their best work. They discovered that most bureaucratic processes which slowed down high performing individuals were in place to only handle situations where a low-performance individual would do something wrong. As a result, they scrapped most formal HR policies to free people to work in their own ways to benefit the company, summarised in their “Freedom and Responsibility” culture document, including allowing staff to take as many vacation days as they felt they needed to produce their best work.
WeWork – Leveraging other companies’ hard assets: WeWork’s business model revolves around providing affordable office rentals for entrepreneurs and companies, fitting a lot of tenants into the same space by offering co-working areas. In order to rapidly deploy new working spaces and attract customers, WeWork started using a system called rental arbitrage, where they would rent commercial space, create a ready-to-use coworking setup, and then rent this space to customers. By not having to spend CAPEX on purchasing the buildings themselves, they were able to rapidly expand with lower overhead.
Netflix allows staff to take unlimited vacation days
4) Process: How you use signature or superior methods to do your work
Process innovations involve the activities and operations that produce an enterprise’s primary offerings. Innovating here requires a dramatic change from “business as usual” that enables the company to use unique capabilities, function efficiently, adapt quickly, and build market–leading margins.
Process innovations often form the core competency of an enterprise, and may include patented or proprietary approaches that yield advantage for years or even decades. Ideally, they are the “special sauce” you use that competitors simply can’t replicate.
Tesla – Vertically integrated supply chain: Tesla’s electric cars require huge packs of EV batteries, made of thousands of lithium-ion cells. Until recently, the lack of demand for electric vehicles meant that companies had not invested in battery technology development, resulting in prices remaining high and making the cost of cars prohibitively more expensive than their gasoline counterparts. Tesla invested in a massive gigafactory to produce the newest battery packs themselves, and the economies of scale, as well as not paying markups to manufacturers, are estimated to save them 30% of the cost of the batteries.
Amazon Web Services – opening internal technology to third parties: When Amazon Web Services initially launched in 2006, it effectively launched the cloud computing market, allowing external companies to not just host webpages but run code and calculations at a fraction of the cost of building their own server network. Since then, Amazon has continued to develop new technology it would use for its own services, such as artificial intelligence, image recognition, machine learning, and natural-language processing, and later make this technology available to their customers.
AliExpress – Making everyone a Shop Owner: AliExpress is one of the world’s largest eCommercesites, and serves as a commercial storefront for thousands of Chinese companies, allowing you to purchase everything to phone cases to forklifts. However, AliExpress also allows the platform to handle purchases as listed on external storefronts using a system called drop-shipping, where anyone can set up their own store, sell someone else’s products (but to customers it looks like they are coming from the seller) and then have those manufacturers send the product directly to the customer.
Tesla’s Gigafactory is the world’s largest building
5) Product Performance: How you develop distinguishing features and functionality
Product Performance innovations address the value, features, and quality of a company’s offering. This type of innovation involves both entirely new products as well as updates and line extensions that add substantial value. Too often, people mistake Product Performance for the sum of innovation. It’s certainly important, but it’s always worth remembering that it is only one of the Ten Types of Innovation, and it’s often the easiest for competitors to copy.
Think about any product or feature war you’ve witnessed—whether torque and toughness in trucks, toothbrushes that are easier to hold and use, even with baby strollers. Too quickly, it all devolves into an expensive mad dash to parity. Product Performance innovations that deliver long-term competitive advantage are the exception rather than the rule.
Gorilla Glass – Changing chemistry to improve smartphone durability: Gorilla Glass by Corning was listed as one of the original Ten Types by becoming scratch resistant. I have included it again for how it has changed the properties of its glass based on customer feedback each year. In 2016, version 5 of the glass was designed to resist shattering when dropped from 5+ feet, dubbed “selfie height” drops. However, after discussing what properties their customers wanted, by 2018 version 6 was no longer trying to resist shattering when dropped from a height once, instead the chemistry and manufacturing process had been changed to make it resistant to cracking after 15 drops from a lower height (1 meter, or a “fumble drop from your pocket”). I love this example of innovation as the product performance doesn’t just try to become “better” by resisting one drop from a higher height than last year, instead figuring out what really matters to customers and delivering that.
Raspberry Pi – full PC for $35: The original Rasperbby Pi was developed by a UK charity to make a simple yet expandable computer which was affordable enough for everyone. Their credit-card sized PC may look bare-bones (it comes without a case and is effectively an exposed circuit board), yet it contains everything which someone needs to run a Linux operating system, learn to program and even connect it with external sensors and peripherals to make all manner of machines. The latest version 4 is now powerful enough to serve as a dedicated PC, all for a price so low you can give it to a child to tinker with without fear of it being broken.
Lush Cosmetics – Removing what people don’t want anymore: As people become more aware of their impact on the environment, customers are demanding that customers do more to reduce the amount of plastic packaging their products use which could end up in landfill or the ocean. Lush Cosmetics was an early pioneer in bringing packaging-free cosmetics to scale, offering some of their packaging-free products like shampoo bars and soaps in dedicated packaging-free stores.
Giving children a cheap PC like the Raspberry Pi to learn and experiment on
6) Product System: How you create complementary products and services
Product System innovations are rooted in how individual products and services connect or bundle together to create a robust and scalable system. This is fostered through interoperability, modularity, integration, and other ways of creating valuable connections between otherwise distinct and disparate offerings. Product System innovations help you build ecosystems that captivate and delight customers and defend against competitors.
Ryobi – One battery to rule them all: While handheld tools have had rechargeable batteries for decades now, Ryobi’s innovation was designing the modular One+ battery which could be used with over 80 different tools. Not only was this convenient for customers who needed fewer batteries overall for multiple uses, it also encouraged someone to buy into the Ryobi tool ecosystem once they had previously purchased one tool and battery set.
Zapier – making APIs easy: Many web-based applications nowadays have an Application Programming Interface (API) which allows them to share data with other services. However, this often requires complex coding from the developers, and repeated effort to integrate with multiple different APIs. Zapier acts as a middleman for data, providing ready-made actions and API integrations between popular web services, allowing customers to automate certain activities every time a specific event happens.
Airbnb – Expanding into experiences: Airbnb built their business on allowing everyday people to sell accommodation in their homes to strangers. Now the company has begun offering complementary services to people visiting new places through Experiences. These experiences are also sold by local guides, and allow guests to try things they would otherwise not have known about in addition to staying somewhere new.
Ryobi One+ battery powers multiple different tools
7) Service: How you support and amplify the value of your offerings
Service innovations ensure and enhance the utility, performance, and apparent value of an offering. They make a product easier to try, use, and enjoy; they reveal features and functionality customers might otherwise overlook, and they fix problems and smooth rough patches in the customer journey. Done well, they elevate even bland and average products into compelling experiences that customers come back for again and again.
Kroger – Smartphone grocery scanning: US retail giant Kroger has been trialing a new smartphone app which allows shoppers to scan items as they shop, and then skip checking out altogether. Using the Scan, Bag, Go app, a customer will scan each item as they pick them up and place them into whatever bag they want, and once they are done, they can simply pay using the app and leave. This prevents shoppers having to wait in checkout lines and gives them an overview of their running total as they go, and also allows the supermarket to entice shoppers by sending coupons and offers directly to them.
PurpleBricks – bringing real estate online: Estate Agents have a poor reputation for treating both sellers and buyers, especially for the amount they charge relative to the service they provide. PurpleBricks was one of the first online-only estate agents, where they could charge a significantly lower fee if the seller chose to complete some of the service processes themselves, such as showing the home to potential buyers. The firm can provide additional services for additional charges.
Meituan Dianping – providing one app for all the services you want: As Fast Company’s 2019 Most Innovative company, Meituan Dianping provides a platform for Chinese consumers to purchase a variety of services. Known as a transactional super-app, you can use the app to book and pay for food delivery, travel, movie tickets and more from over 5 million Chinese small and large merchants.
Scan your own groceries with the Scan-Bag-Go app
8) Channel: How you deliver your offerings to customers and users
Channel innovations encompass all the ways that you connect your company’s offerings with your customers and users. While e-commerce has emerged as a dominant force in recent years, traditional channels such as physical stores are still important — particularly when it comes to creating immersive experiences.
Skilled innovators in this type often find multiple but complementary ways to bring their products and services to customers. Their goal is to ensure that users can buy what they want, when and how they want it, with minimal friction and cost and maximum delight.
Dollar Shave Club – Direct to your door: Razor Blades have always been high-margin products, and Gillette was one of the original innovators by giving away the razor handle to make money on the subsequent razor blade sales. Dollar Shave Club has taken a different approach, by reducing the cost of each set of blades, but having people join a subscription service where blades are delivered to them automatically. While the margin on each set of blades is lower than retail, the subscription model has provided steady, predictable revenue for the company, to the extend that subscription boxes can now be found for almost any consumable product.
Zipline – Blood Delivery for remote areas: In hospital settings, getting fresh blood can a matter of life and death. Unfortunately, many Sub-Sharan African countries don’t have road infrastructure suitable for quickly delivering blood between hospitals or storage locations. This is why Zipline has developed a simple, reliable drone network where hospitals in Rwanda and Ghana can order fresh blood from a central processing area and receive it within an average of 15 minutes, rather than the hours or days it would take using conventional transportation.
3D Printers – produce whatever you need at home: Instead of a single company, the industry of 3D printers is slowly beginning to change the way in which consumers get simple tools and parts. By downloading schematics from the internet (or designing their own), people owning a 3D printer now no longer to go to a retail location or order the parts they need. In commercial settings, this is also speeding up how quickly companies are able to prototype new ideas and designs, waiting hours rather than days or weeks.
zipline blood drone innovation
9) Brand: How you represent your offerings and business
Brand innovations help to ensure that customers and users recognize, remember, and prefer your offerings to those of competitors or substitutes. Great ones distill a “promise” that attracts buyers and conveys a distinct identity.
They are typically the result of carefully crafted strategies that are implemented across many touchpoints between your company and your customers, including communications, advertising, service interactions, channel environments, and employee and business partner conduct. Brand innovations can transform commodities into prized products, and confer meaning, intent, and value to your offerings and your enterprise.
Gillette / Nike – being willing to lose customers who don’t align with purpose: I have combined both Gillette and Nike into this example of brand innovation since they have both recently aligned their brands to a purpose (social and political), which has been positively welcomed by some people but has resulted in hatred from other groups. Nike began by making former NFL Quarterback Colin Kaepernick the face and voice of one of their advertising campaigns. Kaepernick rose in prominence when he refused to stand during the national anthem before his games, his way of protesting the police brutality and inequality towards his African American community. This led to some people claiming he was disrespecting the American Flag, and therefore what the flag stands for. When his advert launched, a vocal minority took to social media to upload videos of themselves saying that Nike no longer aligned with their values, and they burned their shoes, vowing to never buy Nike again. Similarily, Gillette came out with a commercial urging all men to be “The best a man can be”, by pushing aside previously ‘masculine’ traits like bullying, chauvinism or fighting, and showing children how a modern man should behave. As soon as the ad was released online, many media outlets praised its message, but it brought the wrath of angry men who claimed that the razor manufacturer shouldn’t tell them what to think or how to behave, how they would never buy the products again, and how the world was becoming too politically correct, with women and minorities getting preferential treatment over white men. The advert quickly became one of the most disliked videos on Youtube, and even my commentary about the innovative message (seen in the video below) had the comments section covered by hate-filled messages. What both Nike and Gillette realised was that if they wanted to align with positive, progressive messages and values (which align with their target demographic of the future), then they would risk upsetting and alienating the proportion of their current customer base who didn’t share those views. In both cases, these were decisions that would have been signed off by all levels in the company, through marketing, sales, legal and the board, and the brands will be stronger in the future because of it.
Burberry – modernising a classic brand: Burberry had built its luxury fashion reputation by aligning itself with the British Aristocracy, and its famous chequer patterned fabric was iconic. However, when trying to modernise and make the brand “sexy” in the early 2000s, a misstep happened when the luxury house began to license the chequered fabric, resulting in it becoming a status symbol and desired motif for a different social group: the British “Chavs” (rough, lower class and sometimes aggressive). This poisoned the once iconic brand in the eyes of their intended luxury clientele. In order to survive, the company and brand embraced innovation, by becoming one of the first fashion houses to redesign their website to be mobile-optimised, aligning their store layout to mirror the website, highlighting young British talent and livestreaming content and fashion shows. Most importantly, they moved away from the iconic chequer pattern in their fashion designs, where it is now limited to less than 10% of products.
10) Customer Engagement: How you foster compelling interactions
Customer Engagement innovations are all about understanding the deep-seated aspirations of customers and users, and using those insights to develop meaningful connections between them and your company.
Great Customer Engagement innovations provide broad avenues for exploration and help people find ways to make parts of their lives more memorable, fulfilling, delightful — even magical.
REI – closing their stores on the busiest shopping day: Outdoor equipment retailer REI had begun closing its doors on Black Friday, traditionally one of the busiest shopping days of the year. They claim they are doing this to Eddie their customers to actually get outdoors and use their equipment, rather than queuing for discounted material goods.
Peloton – bringing the gym into the home: Many people benefit from going to joint gym classes because the sense of a group working toward is goals together with a coach is more powerful than trying to exercise by yourself. Peloton makes exercise equipment with built-in screens, powered by a subscription to live and on-demand classes. It’s like being part of a workout group with the benefits of being at home.
NBA – bringing the fans into the action: The NBA had invested heavily in innovation to make their sport more immersive. From live analytics and player statistics, new ways to watch like VR video, and official video game players for each team, they are finding new ways to bring basketball to the next generation, while making it even more exciting for existing fans.