Nowadays, creating value and attracting new customers is becoming a real challenge. Companies are striving for innovation in hopes of surviving today’s hyper-competitive business landscape. They are embracing the principles of lean management and design thinking in an attempt to become more agile, more creative and more profitable. And ‘innovation’ has become the hottest buzzword in the business world.
However, while people often think of innovation as product-focused process, many types of innovation exist. Some innovations revolutionize an industry, while others go unnoticed by most users. Innovations can take place in any department and at any stage of the product life cycle, from its ideation to its end-of-life phase. As such, it is important to have a sound understanding of what innovation actually is in order to outline the right strategy.
In this article we focus on process innovation, which has been labeled ‘the least sexy form of innovation’, arguing it deserves more attention from entrepreneurs and executives. Our goal is, by the end of this text, to provide you with a clear understanding of the different types of innovation that exist and figure out the best strategy to promote process innovation in your organization.
3 types of innovation
Generally, we distinguish three types of innovation:
1. Product innovation
2. Business Model innovation
3. Process innovation
1) Product innovation is generally visible to the public and is meant to drive product demand. It can be further classified into three sub-categories:
- - new product - when a company creates a prototype, starts production and launches its new product on the market;
- - product improvement - when a company improves the performance of an existing product, e.g. an increase in the digital camera resolution of a smartphone;
- - new feature - when a new feature is added to an existing product, e.g. Android Q’s recently introduced dark mode feature.
2) Business Model innovation implies changes in the way companies generate value for their customers and themselves. BM innovation is probably the most radical and challenging type of innovation, though it is also the most powerful, disruptive and rewarding. Consider for instance AirBnb, Uber or Netflix and their impact on the hospitality, transportation and entertainment industries, respectively.
3) Finally, as its name suggests, process innovation consists in improving a company’s internal processes. It is considered the least risky form of innovation, probably because it usually aims at minimizing costs, rather than driving revenues. As a consequence, it has attracted less enthusiasm and attention from entrepreneurs, executives and scholars.
Nonetheless, process innovation is critical for continuous organizational improvements and long-term corporate success. Indeed, modern technologies like big data and artificial intelligence are changing the landscape of innovation. By providing companies with actionable insights, these technologies are strengthening process innovation strategies and making them the key to competitive success.
The next sections dig deeper into what process innovation is and why you should care.
What is process innovation: definition, relevance and examples
In order to properly define process innovation, let’s first define each term separately, ‘innovation’ and ‘process’. ‘Innovation’ can simply be described as the implementation of new, creative ideas in order to create and add value. The definition of ‘process’, nevertheless, is a bit more complex, but still intuitive.
Techopedia describes a business process as “a wide range of structured, often chained, activities or tasks conducted by people or equipment to produce a specific service or product for a particular user or consumer [in order] to accomplish a predetermined organizational goal”. In simpler terms, processes entail the combination of corporate resources, such as facilities, skills, and technologies, to reach an organizational goal.
As such, process innovation typically implies changes in a company’s procedures, teams, equipment and/or technologies in order to embrace a new or radically improved method of production, organization and delivery. Its main benefits usually involve increased production capacity and lower costs, which also explains why these changes are more visible to internal stakeholders, especially employees.
Nonetheless, process innovations do generate value for all stakeholders, either directly or indirectly. For instance, since lower costs and higher productivity often lead to improvements in product quality and service levels, process innovation is a great source of product innovation.
It can boost supply chain performance, optimize product development or improve key metrics, for example by changing the way a company moves its assets in the warehouse, selecting a new software to manage product development or identifying a new method to deliver payroll checks in order to improve employee satisfaction.
What process innovation is not
Not all changes can be considered innovations. In order to be labeled as innovations, changes must be radical and have a significant impact on the company’s KPIs. On the contrary, when processes are modified but there is no relevant impact on KPIs, it means a business is optimizing its processes, rather than innovating.
The following examples should help making this point clearer:
- - Seasonal or cyclical changes in a company’s processes are not considered process innovation, while the introduction of a completely new sequence to an existing production process that doubles speeds production is an example of process innovation;
- - Capital replacement or extension is not considered process innovation, though the adoption of a new, more powerful software to manage the supply chain is considered process innovation;
- - Henry Ford’s invention of the assembly line is probably the most famous case of process improvement in the world, while a company adding a new manufacturing system similar to those who are already in place is not innovating its processes.
Tips to foster process innovation in your organization
By now, you should have an idea of what process innovation means. Having a clear understanding of innovation is the first step required to promote innovative ideas in your organization. But what else should you do?
Here is a list of tips to promote process innovation that apply to all sorts of organizations:
1. Build a culture of innovation
Corporate culture is the true driver of employees’ behavior and performance. Any firm willing to nurture creativity and innovation must build a culture that promotes bold, unconventional, creative thinking.
Unfortunately, this is often not the case: many companies depict themselves as innovative because they talk about innovation on the surface, when in fact their corporate culture is only discouraging innovation.
A culture of innovation usually has three essential features:
- - It embraces diversity, because the most groundbreaking innovations often come from the integration of different perspectives. Diversity fosters creativity, as people with different backgrounds, cultures and skills are more likely to come up with new, groundbreaking ideas. However, if your corporate culture does not foster inclusion, diversity will more likely lead to conflict, so make sure you understand the real meaning of diversity. If you think to be inclusive, but discard your interns’ ideas because ‘they don’t know how things work here’, you should probably think again;
- - It’s blame-free, because employees shouldn’t be afraid to make mistakes. Mistakes are not failures. On the contrary, mistakes should be seen as learning opportunities. A blame-free culture is the seed of accidental innovation;
- - It encourages dissatisfaction and proactivity, in order to empower employees and foster the participation of the whole company in the identification of weaknesses, issues and innovation opportunities.
2. Set innovation goals and involve high-level management
Process innovation requires planning and innovation goals are a great way to promote innovation. For example, process innovation goals could be ‘improving process efficiency by 10% in one year’, ‘deploying an Idea Management System’ or solving a specific customer need before a certain deadline.
However, without adequate planning and support from high-level management, employees will have a hard time reaching their process innovation goals.
3. Build the right team
Knowledge, skills and personal attitude are key for innovation, so make sure your team is knowledgeable, skilled and with the right mindset and help your employees to constantly learn and improve.
Also, equip your teams with collaborative tools that enable employees to share ideas, so it will be easier to reach your process innovation goals. Finally, we’ve already mentioned the importance of diversity and inclusion for innovation.
4. Modify equipment and tooling
Modifying your equipment is often the fastest way to promote process innovation. Equipment usually can be modified in several ways:
- - it can be made easier to inspect and repair;
- - it can be modified to increase operating speed or improve precision;
- - it can be modified to empower employees to perform their own changeovers.
5. Improve equipment inspections
A good way to foster process innovation is to add deeper, more thorough inspections on your machinery and equipment. In-depth inspections will help you detect which components are going to fail and anticipate potential equipment damage by replacing failing components before their malfunction results in greater equipment and business damage.
For instance, many airlines have gained substantial competitive advantages by embracing big data and predictive maintenance and dropping their traditional approach to aircraft inspections.
6. Solve problems at their roots
Machines are rarely the root cause of an issue. More often, defects and inefficiencies are the consequence of human errors. Sometimes, the person who designed the machine is a bit too optimistic about the potential of its creation, while other times it’s simply being mismanaged.
Make sure your organization can identify the root causes of process issues and doesn’t blame employees for mistakes. On the contrary, support employees so they will proactively come up with ideas and solutions.
7. Take risks, implement, evaluate
If you never implement your employees’ highly creative ideas, people in your organization will eventually stop sharing such ideas. Innovation means doing things differently. As such, there is always a risk that the new approach, process, product or business model will not work. But if you are too risk-averse, you will never be innovative.
Find the right balance by figuring out which ideas actually have the largest potential and be ready to invest (if you need help, check this awesome page from Harvard Business Review).
Often, you get what you pay for, so forget disrupting your industry without investing the right amount of resources. Setting a budget for innovation will also help employees reach their innovation goals.
Process innovation may be the ‘least sexy’ form of innovation, but it shouldn’t be overlooked. Good processes are critical for a company’s success and empower firms to innovate more. If innovation will be the key to survive in today’s hyper-competitive business landscape, then process innovation is what will most likely determine the corporate champions of the future.