Lecture 3: Varieties of Innovation

What this lecture covers

Having defined innovation as invention times commercialization, this lecture broadens the picture beyond technology. It lays out several types of innovation and several categories of innovation, arguing that entrepreneurs should not limit their thinking to disruptive new technology.

After watching, you should be able to name different types of innovation, place a real company's breakthrough into one of these categories, and see why disruptive innovation is only one option among several.

Key ideas

• Technology innovation: new technology as the source of value creation, the type most people default to.
• Process innovation: changing how something is done rather than the underlying technology.
• Business model innovation: changing how value is captured; examples include Google's shift to advertising priced on keywords rather than display real estate, and iTunes pricing songs at 99 cents instead of subscriptions.
• Positioning innovation: innovating in how a company or product is positioned in the market.
• Disruptive innovation: favorable for new entrants challenging incumbents.
• Incremental innovation: making something 10-20% better, often the safer path for an entrenched player.
• Lateral (or "general") innovation: bringing an innovation that already worked in one industry into another.
• Types and categories combine: a technology can be disruptive, incremental, or lateral, so entrepreneurs should consider several angles rather than assuming disruption is always the goal.

Before you watch

• Watch "What is Innovation" first to understand the invention-times-commercialization framing this lecture builds on.

Check your understanding

1. What is the difference between a "type" of innovation and a "category" of innovation in this lecture?
2. How did Google's AdWords model illustrate business model innovation rather than technology innovation?
3. Why might an entrenched market player prefer incremental innovation over disruptive innovation?
4. What is an example of lateral innovation, where an idea from one industry is applied in another?