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New Enterprises · Lecture 3 of 12 · 4:29

Lecture 3: Varieties of Innovation

Varieties of Innovation on YouTube

Study guide

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?

Vocabulary

technology innovation (noun)
Creating value through a new piece of technology.
Technology innovation is the type of innovation most people think of first.
process innovation (noun)
Creating value by changing how something is done, not the technology itself.
Process innovation can make an old technology work more efficiently.
business model innovation (noun)
Creating value by changing how a company earns money from its product.
Pricing songs at 99 cents was a business model innovation for iTunes.
positioning (noun)
How a product or company is presented and understood in the market.
Positioning innovation changes how customers perceive a product.
disruptive innovation (noun)
An innovation that challenges and displaces existing market leaders.
Disruptive innovation favors new entrants over established firms.
incremental innovation (noun)
A small, gradual improvement to an existing product or process.
Incremental innovation makes a product ten to twenty percent better.
lateral innovation (noun)
Bringing an idea that works in one industry into a different industry.
Lateral innovation applies an old idea to a completely new field.
entrenched (adjective)
Firmly established and hard to remove from a position of power.
An entrenched market leader may prefer safer incremental innovation.
incumbent (noun)
A company already established and dominant in a market.
Disruptive innovation threatens the incumbent's position.
keyword (noun)
A word used to search for or categorize information online.
Google's ad system prices ads based on keyword searches.
value creation (noun)
The process of producing something that genuinely benefits people.
Technology is only one possible source of value creation.
value capture (noun)
The way a business earns money from the value it creates.
Business model innovation changes how a company achieves value capture.
default (typical choice) (verb)
To automatically settle on a familiar option without considering alternatives.
People often default to thinking of technology as the only kind of innovation.
safer path (phrase)
A less risky way of achieving a goal.
Incremental innovation is often the safer path for an established company.
category (noun)
A group of things sharing common features, used for classification.
Disruptive and incremental innovation are two different categories.
subscription (noun)
A payment plan giving ongoing access to a product or service.
iTunes chose per-song pricing instead of a subscription model.
display advertising (noun)
Ads shown as images or banners on a webpage.
Google moved from display advertising toward keyword-based pricing.
breakthrough (noun)
A sudden important discovery or achievement.
You should be able to place a company's breakthrough into a category.
angle (noun)
A particular way of looking at or approaching a problem.
Entrepreneurs should consider several innovation angles, not just disruption.
default (option) (noun)
The option people naturally choose without special effort or thought.
Technology innovation is the default most people think of first.

Chapters

From the YouTube description

MIT 15.390 New Enterprises, Fall 2013
View the complete course: http://ocw.mit.edu/15-390F13
Instructor: Bill Aulet

Discussion of varieties of innovation and the distinction between business innovation and technology innovation. Examples of companies demonstrating various kinds of innovation are given.

License: Creative Commons BY-NC-SA
More information at http://ocw.mit.edu/terms
More courses at http://ocw.mit.edu

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