LEARNING UNIT 2

TYPES OF INNOVATION LEARNINGUNIT2

Contents

2.1 INTRODUCTION 21
2.2 FORMS OF INNOVATION 22
2.2.1 PRODUCT INNOVATION 23
2.2.2 SERVICE INNOVATION 24
2.2.3 PROCESS INNOVATION 26
2.3 TYPES OF INNOVATION 29
2.4 THE VALUE OF AN INNOVATION TYPOLOGY 32
2.5 CONCLUSION 33
2.6 SELF-EVALUATION QUESTIONS 33

LESSON UNIT NUMBER 2

TITLE OF TOPIC What is innovation?
TITLE OF UNIT Types of innovation
NOTIONAL STUDY HOURS 6
NUMBER OF PLANNED SELF- N/A
REFLECTIVE ACTIVITIES
NUMBER OF ASSESSMENT LINKED N/A
ACTIVITIES
NUMBER OF E-TUTOR ACTIVITIES N/A
(Where necessary/applicable)

AIM OF LEARNING UNIT 2

Learning unit 1 provides a broad overview of the concept of innovation, once you have a
good foundation and understanding of innovation, we can explore the concept in more
detail. The aim of learning unit 2 is to assist you in categorising innovations. Two well-
known categorisations are presented. One is based primarily on novelty and complexity
while the other is based on functionality. By presenting different categorisations of
innovation, you should come to appreciate that innovation is a complex phenomenon
where both the ‘newness’ and the impact or effect of the innovation can vary widely. This
learning unit will explore the different forms of innovation, types of innovation and the
value of an innovation typology.

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LEARNING OUTCOMES FOR UNIT 2

After studying this unit, you should be able to:
● Distinguish between the various forms innovation can take, such as product, process
and service innovation.
● Differentiate and compare the different types of innovation, such as radical and
incremental innovation.
● Analyse different types of innovation in terms of their impact on human behaviour,
business activity and society.

KEY CONCEPTS IN UNIT 2

You need to understand the following key concepts to attain the learning outcomes for
this learning unit:
● product innovation
● service innovation
● process innovation
● radical innovation
● incremental innovation
● modular innovation
● architectural innovation
● innovation typology

SYSTEMATIC OVERVIEW OR LEARNING UNIT 2

Figure 2.1 provides an overview of learning unit 2

Figure 2.1: A systematic overview of learning unit 2

2.1 INTRODUCTION

Reading: To complete learning unit 2, you should study part 1, chapter 2 of

your prescribed textbook (Smith, 2015)

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Consider the following three examples of innovation: the very first commercial airplane;
introducing diet cold drinks for health-conscious consumers; and introducing online
banking. Clearly these innovations are not equal. Introducing commercial flights to the
public has changed the way people travel around the world, essentially opening the
globe to many and allowing for much faster travel. Adding a new variation to a cold drink
line cannot be compared to the impact that commercial flights had. Technically, it is also
much more difficult to innovate the concept of commercial flight as compared to
changing a few ingredients in an existing recipe for cold drinks. Similarly, changing the
way something is done, such as online banking versus banking at the branch differs from
product innovation (diet cold drink vs regular cold drink). The scope and spectrum of
innovations can be far reaching, the impact of an innovation is also different, depending
on how “new” a specific innovation is. To fully understand the scope of innovation we will
introduce two methods to categorise innovations. The first will consider the form of the
innovation, in other words what the innovation is used for. We can categorise innovations
in terms of product, service or process innovation based on this logic. The second method
will consider the type of innovation, more specifically, we can label innovations based on
their “newness” or “novelty” as radical, incremental, modular or architectural. As you will
come to understand in this learning unit, innovation is a big and broad concept and we
have to organise the concept of innovation in our mind to understand it comprehensively.

2.2 FORMS OF INNOVATION

Study the section “Forms of innovation” on page 64 in Smith (2015)

Figure 2.2 distinguishes between the various forms of innovation with examples of each.
The sub-sections to follow will explore each in more detail.

Figure 2.2: Forms of innovation

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2.2.1 PRODUCT INNOVATION

Study the section “Product innovation” on page 65 in Smith (2015)

Product innovation is the easiest form of innovation to explain and understand. This is
often the form of innovation many of us think of when we hear the term “innovation”.
Interesting new ‘gadgets’ or impressive technology products, such as personal computers
and modern cellphones, all fall under this category.
There are thousands of examples of significant product innovations such as the invention
of the wheel, paper, antibiotics and the steam engine to name but a few of them. An
interesting example to explore is the invention of the modern refrigerator. For centuries
the only options to preserve foods was to use natural resources such as snow and ice, or
to pickle and dry the foods. Thomas Moore, an American businessman, created an icebox
to cool dairy products for transport. He called it a “refrigiratory” until he patented
“refrigerator” in 1803. In the early 1800s, more and more Americans moved into cities,
expanding the distance between the consumer and the source of the food. The need for
refrigeration was growing each day. In 1834, American inventor, Jacob Perkins, living in
London at the time, built the world’s first working vapor-compression refrigeration system,
using ether in a closed cycle. His prototype system worked and was the first step to
modern refrigerators, but it did not succeed commercially. Several additional prototypes
were developed but proved to be dangerous, as often lethal gasses were used as
refrigerants. These designs were flawed as there were several cases where the dangerous
gasses would leak from the fridge, causing harm to the buyers and death in some
instances. The first electric refrigerator for domestic use was invented by American Fred W
Wolf and was called the Domelre, or the DOMestic ELectric REfrigerator. His model was a
flop, but one of his innovations – the ice cube tray – caught on and was included in
competitors’ models.

Figure 2.3: The DOMELRE Fridge

Source: https://en.wikipedia.org/wiki/DOMELRE#/media/File:DOMELRE_refrigerator_advertisement_from_1914.png

Full mass production of modern refrigerators began after World War II. The 1940s brought
the bottom-cooling refrigerator we recognise today (Sandvik AB, 2017). Today, we have
refrigerators that are far beyond what the initial inventors could ever imagine.

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The Samsung Family Hub Refrigerator is an enormous, four-door smart device which
features a 21.5–inch, 1080p, Gorilla Glass-covered touchscreen that uses the Tizen OS to
let you write notes (either with a stylus, which strangely isn’t included, or your finger), and
display calendars (Thubron,2016). Environmentally friendly designs have also taken
priority in our modern fridge designs.

REFLECTION

Can you think of a product innovation that has changed your life? Try to write down the
exact problem that this product innovation has solved.

2.2.2 SERVICE INNOVATION

Study the section “Service innovation” on pages 65 to 70 in Smith (2015)

Understanding innovation from a services perspective is often a little more difficult to

grasp at first. We first must define what we mean by service innovation. According to Kuo,
Kuo, and Ho (2014:697) Service Innovation is defined as: “A new way of business thinking
to reform relatively conservative and inflexible operational procedures and processes,
which can transform organizations to better meet the needs of their markets “. The
keywords to focus on is new, procedures and processes. Essentially, we are looking for
new ways to offer a particular service, this could be an entirely new service, a new method
of delivering the service or providing a new interface for your clients. There may be
products involved, but the focus is on the outcome or benefit of the service. Think of
going for a haircut, you may encounter clippers, shampoo and hair products, but the main
value is the result, which is a fresh haircut for you.
The introduction of the internet has seen a much bigger focus on service innovation as
companies now have a platform to deliver services in a different manner. Services such as
banking, education, entertainment and fitness training have all innovated the service
provided to reach a larger customer base and improve the speed and delivery of the
services. Service innovations are often unique and can vary considerably by nature and
scope. Den Hertog (2000) was one of the first authors to map out the various dimensions
(4 in total) or types of services innovations and provided a comprehensive framework to
better understand the variations of service innovations. Figure 2.4 shows each of these
dimensions of service innovation and provides a definition of each.

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Figure 2.4: Den Hertog’s (2000) four dimensions of service innovation.

LEARNING ACTIVITY 2.1

Complete the e-tutor activity, using the Discussion Forum option 2.1 on myUnisa

Consider the following four examples of companies known for service innovations:
● Netflix
● Uber
● Takealot
● Rain (mobile and internet data service provider)
You may do additional research on these companies. Your prescribed textbook has a
short case study on Netflix on page 70 as a starting point.

Question
Using Den Hertog’s model of service innovation, classify each of these company examples
according to the specific dimension of service innovation. Justify your answer by
explaining your rationale for each classification.

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FEEDBACK

Netflix – New service delivery system. Traditionally, a customer would go to a DVD store to
rent or buy a DVD or video to watch a movie. Netflix changed the way in which this content
was delivered to the end consumer, facilitated via the internet, they were able to provide on-
demand content. When looking at the business model i. e, a subscription service, one can
potentially label this as a new service concept.
Uber – New client interface. Taxis and public transport had been in place long before Uber.
The innovation came to where Uber provided the platform or interface to connect drivers
with passengers.
Takealot – New service concept. Replacing physical shopping with online shopping, Takealot
has removed the need to physically go to the shops to buy a variety of products.
Rain – New service delivery system/ new client interface. As compared to traditional internet
service providers like MTN, Cell C or Telkom. Rain has moved the entire service online,
reducing unnecessary steps for customers and ensure quicker response times to service
requests and queries via their online customer service platform.
*Note: While these four dimensions help us to understand the nature of service innovations, it
must be pointed out that there is a significant amount of interaction and overlap between
them. Thus, service innovations involving new forms of service delivery are often made
possible by developments in technology and new forms of client interface arise in the same
way.

2.2.3 PROCESS INNOVATION

Study the section “Process innovation” on pages 71 to 77 in Smith (2015)

The final form of innovation we will consider is process innovation. Process innovation
occurs within the manufacturing processes of products or in the process of service
delivery. Basically, we are trying to innovate the “How” of manufacturing or service
delivery. In its most basic form, operations consist of inputs, transformation and outputs.
As a basic example, consider a bakery. Figure 2.5 illustrate the inputs – conversion –
outputs of our bakery.

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Figure 2.5: Illustration of input-conversion-output of a bakery example (Images from Pixabay)

The focus of process innovation will be on changing the “following the steps in the
recipe” block. Expanding on the example, imagine you have one baker who is responsible
for collecting all the ingredients, putting them together and baking the cupcakes.

LEARNING ACTIVITY 2.2

Complete this activity on the Discussion Forum option 2.2 on myUnisa

Given that we only have one person to manage the entire baking process, can you discuss
methods of innovation to improve this process?
Hint – any suggestion that will make the process quicker or use less resources for the
same output will be a good direction for innovation.

FEEDBACK

The most obvious “innovation” here is to add another individual and split up the work into
functions, almost like an assembly line operation. However, this is probably not the most
innovative way of improving the process. Premix ingredients, where ingredients are mixed
beforehand and ready to go when needed can also change the way in which the cupcakes
are made, reducing the time needed to prepare the final products. We can introduce new
equipment in the process, for example a mixing machine to speed up the mixing of the
dough and keep the quality consistent. Flourless cupcakes can also be introduced as it will
save costs on inputs and reduce the steps needed to combine everything.

Hopefully from learning activity 2.2 you will notice that process innovations, similar to
service innovations, in scope and impact to a large extent. With service innovations we
learned about the four dimensions: New service concept; New client interface; New service

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delivery system and Technological options. Process innovations can also be further
categorised into the following:
● Improved equipment: This example is quite simple and will have the “smallest
innovation” in terms of scope and impact on the business. The actual process stays the
same, but we introduce a tool or piece of equipment to improve the process.
Automated handling systems in warehousing and distribution can be seen as an
example here. We introduce new automatic handling systems, such as conveyor belts,
which can handle more products than normal human labour could. We are still moving
boxes as an example, but it is facilitated with equipment.
● Improved sub-process. Modular design is often noted as a process innovation
regarding sub-processes. This entails designing the manufacturing of a product in
modules, which can be done independently, easily modified and replaced if needed.
Car manufacturing is a good example here, since each sub-process such as windscreen
production, painting, and each individual part is a separate module. The final product
comes together when all components are assembled. Many improved sub-processes
have been noted in car manufacturing, such as higher safety standards (improving the
material used for the body of the car), better fuel consumption (innovations in the
engine or aerodynamics of the car) and longer lasting paint on the vehicles ,to name a
few.
● Redesigned process: This type of process innovation involves changing the process
entirely. Recently Checkers, one of South Africa’s leading retail companies, launched
their same-day home delivery option called Checkers Sixty60 to customers, promising
delivery as fast as within 60 minutes of ordering from the app. Checkers is still selling
groceries, their fundamental business have not changed, but the process in which they
make these items available to consumers have drastically changed from in-store retail
to online ordering and home delivery.
● Redesigned business: In this instance, the innovation is broader in scope and touches
on the core of how a company operates. Redesigned business is more than improving
current processes or adding new ones. Here we consider how the company operates
and often try to find new ways in which a company can make money. The gaming
industry has arguably seen the most disruptive innovations occur in terms of business
models. Traditionally, gaming developers would design and develop a game for a
specific platform, such as Sony PlayStation or Microsoft Xbox. These companies would
rely on the sales of the actual game itself to make money. More recently, companies,
such as Epic, which released the free-to-play game “Fortnite”, have turned this
traditional model upside down. Their model is known as the ‘Pay-to-customise’ model
where they provide the main game for free but allow in-game purchases to customise
play and give the player an advantage.

LEARNING ACTIVITY 2.3

This is an individual report writing activity

You may recall that in South Africa, many traditional Taxi drivers did not welcome the
introduction of the e-hailing Uber services; and there have been many reported incidents
of disputes between the two competing ‘companies’.

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You are required to find any similar innovation which was introduced to the South Africa
market. First categorise your innovation based on the types of innovations discussed
(Product, Service or Process) and then explain the impact of this innovation on the
relevant stakeholders (Business, Economy and Customers).

FEEDBACK

South Africa has seen the introduction of numerous disruptive innovations in the market.
Companies entering the market such as Netflix (disrupting DSTV), Capitec (disrupting the
other major banks), Takealot (disrupting traditional retailing and smaller online stores or
individual online stores), Easy Equities (disrupting traditional financial service institutions and
consultants) and the like. It is important to note that new innovations, product, service or
process oriented, will often infringe on the traditional way of operations but will have a
greater benefit for growth for the economy and more value for customers. However, one
cannot simply get rid of long-standing institutions as the social impact is too great in the
form of job losses. As such, there is often regulation protecting many of these older
institutions and regulating the scope of operations of the new companies.

2.3 TYPES OF INNOVATION

Study the section “Types of innovation” on page 77 in Smith (2015)

In section 2.2 and the relevant sub-sections we explored a way of looking at the forms of
innovation based on function, more specifically, we consider whether the innovation
under consideration is a product, service or process innovation. In this section, we will
explore another method of viewing innovation, which is attempting to understand the
‘newness’ or the degree of novelty of an innovation.
This second method of understanding the degree of newness of innovations was
developed by Henderson and Clark (1990). The authors proposed that innovation can be
placed on a spectrum based on how new or novel the innovation is. Their original model
is shown in figure 2.6:

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Figure 2.6: A framework for defining innovation

Adapted from: Henderson and Clark (1990)

Based on the framework of Henderson and Clark (1990) we can assess the novelty of
innovations based on two main criteria:
● Changes in the components – the core design concept of the product, the main idea
behind a product’s functions or a service. This is shown in the x-axis in figure 2.6.
● Changes in the system – how the components are integrated and how they work
together, or the link between the concept and components of the product/service.
This is shown on the y-axis in figure 2.6.

Watch the video below on the different types of innovation.

Levels Of Innovation | Leeds University Business School
https://www.youtube.com/watch?v=Pne2YdZuAtA
Credit: Leeds University Business School

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LEARNING ACTIVITY 2.4

This is a discussion activity

The video above gives several examples of the different types of innovation.
Incremental innovation: different generations or versions of the iPod from Apple.
Radical innovation: internet and electric vehicles.
Disruptive innovation: digital imagery (electronic pictures – switching from film to digital
images). Note that this is often a similar term used to describe radical innovation with the
difference being that disruptive innovation often has a slower start and uptake in the
market but then eventually turns into a radical innovation.

Discussion topic
Try to find examples of modular and architectural innovation. Post at least two examples
of each in the discussion group and explain the difference between your examples.
Comment on two other posts and state whether or not you agree with the examples and
explain the reasoning behind your position.

FEEDBACK

Modular innovation uses the architecture and configuration associated with the existing
system of an established product but employs new components with different design
concepts. The easiest way to understand modular innovation is to think of an innovation
with multiple functions. For example, a belt with a bottle opener attachment to it. The belt
still has the same function, but a modular component (bottle opener) was added which
increased the function of the product. Some additional examples could include digital
cameras with new lens designs; varying PC components to upgrade the performance of a PC
and wireless chargers for cell phones. The way the components work do not change, but a
slight innovation in some of the components is apparent.
With architectural innovation, the components and associated design concepts remain
unchanged, but the configuration of the system changes as new linkages are instituted. The
most popular example here is typically the Sony Walkman. The product does not have any
new components, the same technology is present than regular tape players of the time.
However, the components were repackaged in a new way to make it portable, opening the
product to many new uses for the buyers. Another good example which has shown consistent
architectural innovation is that of data storage. The first storage hard disk drive was made by
IBM in 1956. This device could only store 5MB of data and weighed almost a ton. As the years
progressed, the fundamental technology of disk have evolved and there were some changes
to the components, but the basics of data storage remained the same. Later the floppy disk,
also introduced by IBM, was sold to the market. A floppy disk could fit in the palm of your
hand and could store up to 2.8MB of data. Today we have external hard drives and USB sticks
with capacity of 2TB and more.

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2.4 THE VALUE OF AN INNOVATION TYPOLOGY

Study the section “The value of an innovation typology” on pages 85

to 86 of the prescribed book.

By now we are able to differentiate between different forms and types of innovations. As
you may have come to notice, there is often an overlap in our categorisation of
innovation and not one single method is comprehensive enough to capture all of the
details of any one specific innovation. Rather than trying to fit every innovation into a
specific category, we can broadly categorise innovations in order to understand them
better.

LEARNING ACTIVITY 2.5

This is an e-tutor activity

Read the section “The value of an innovation typology” on page. 85 of your prescribed
textbook.
Develop a mind map to summarise the benefits/value of having an innovation typology
or frameworks to categorise various innovations.

FEEDBACK

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2.5 CONCLUSION
After studying this learning unit, you should understand the various types and forms of
innovation and have an appreciation for the fact that not all innovations are equal in
nature, scope, and impact. We have considered product, service and process innovations.
Along with incremental innovation, radical innovation, modular innovation and
architectural innovation examples. Our next learning unit will consider various theories of
innovation in order to understand how we can explain innovation from different
perspectives and viewpoints from varying stakeholders.

2.6 SELF-EVALUATION QUESTIONS

1. What is the value of being able to categorise innovations?

2. Why might large established firms be wary of radical (disruptive) innovations?
3. Why do process innovations sometimes have wide-ranging consequences for society?
4. Identify two process innovations which have had a big impact on society.
5. Choose an example of an everyday household object (e. g. an electric kettle) and
identify some of the incremental innovations that have taken place.

FEEDBACK AND GUIDELINES ON THE SELF-EVALUATION QUESTIONS

1. These benefits are summarized in section 2.4 or you can refer to the prescribed textbook
on page. 85 for a comprehensive explanation.
2. Radical or disruptive innovations have the power to make any large, institutionalised
company obsolete very quickly. If the radical innovation provides better value at a lower
cost, then the consumers are likely to switch to the new innovative offering. Because of
the size and scope of larger organisations, they are also often slow to respond to
innovations and could fail to capitalise on the innovation.
3. Process innovations can change the way in which something is done in a fundamental
way. It has to ability to change consumer behaviour and direct how people undertake
certain tasks. From a manufacturing perspective, process innovations can create more
scope and volumes at lower costs, thereby impacting the economy in terms of more jobs
and higher output of final products.
4. Online banking/shopping and virtual conferencing technologies.
5. Note that you are free to use any example here. The main idea is to explain small changes
in the product which have improved the functioning of the product over time but has not
changed the products or the components in a significant way. A good example will be
mobile phones. Each year a better camera or bigger screen is introduced into newer
models of cell phones, incrementally improving on previous versions.

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