The term "innovation" in its simplest form can be defined as the introduction of something new or different. However, in more technical terms, the introduction of something new or different could be more appropriately termed as an "invention". Innovation takes invention a step further by commercializing the invention (in the case of profit-oriented ventures), or at least bringing the invention into common usage (in not-for-profit environments). Innovation is therefore the successful exploitation of an idea for profit or common usage. An innovative business owner, therefore, does not necessarily have to create something new (invention) but should be able to exploit an invention or idea. The popular management scholar, Peter Drucker viewed innovation as a tool by which entrepreneurs exploit change to create new businesses or services.
The outbreak of the COVID-19 pandemic has undoubtedly placed a demand on businesses to seek new ways of operating to stay afloat. Restrictions to physical gatherings for example have meant that both profit and not-for-profit organizations such as religious bodies have had to ramp up their online capabilities to continue reaching their target audiences.
While innovation has always been important to businesses, the events of the past year have made it a more critical element for business survival. Simply put, businesses cannot continue to run the same way and expect different results. While the fundamentals of most business ventures will remain the same, operating models will need to be tweaked to stay competitive. For example, many "brick & mortar" retail stores with a previously non-existent online presence have had to create new channels for their customer interfaces, while still retaining their product offerings.
Innovation comes at a cost and may therefore be scaled to manage the financial outlay. Consequently, innovation could be "radical" or "incremental".
- Radical Innovation: as the name suggests, this is an aggressive form of innovation where an existing product or service is either replaced out rightly by a new solution or made to compete with an entirely new variant offering the same benefit. An example is the introduction of e-books as alternatives to hard copies. While both options continue to be available in the market, e-books have continued to gain wide acceptance, with Amazon creating the 'Kindle' for e-book readers. The introduction of automatic transmission vehicles alongside manual transmission vehicles or the recent introduction of electric vehicles are other examples. While these are examples of radical innovation where the new co-exist and competes for market share with the old, computer hardware manufacturers are perhaps more aggressive when they completely phase out old versions of some equipment and replace them with new ones. The term "end-of-life" is therefore common with computer hardware.
- Incremental Innovation: unlike radical innovations, incremental innovations evolve over time. Incremental innovations are marked by minor improvements in product performance or functionality and gradually result in improved versions of an existing product or service. Vehicle manufacturers often make changes in certain features of some vehicles (e.g. keyless ignition or redesigned headlamps) as they launch new versions of the same vehicle. Such are examples of incremental innovations. Though they come in seemingly minor installments over time, incremental innovation when sustained can result in a significant makeover of an original product or service.
With the understanding that innovation could be radical or incremental, an entrepreneur would also need to identify an appropriate strategy for whatever innovative approach he or she seeks to adopt in the market. Scholars like Michael Porter and Chris Freeman have identified "time to market" as the major distinguishing factor in the innovative strategies adopted by organizations. Three strategies have therefore been identified based on this factor:
- "First-to-Market" or "Leadership" Strategy: organizations adopting this strategy seek to establish early market dominance and are willing to take on the risks involved. First-to-market strategies also often require significant investments in research and development, which the business will seek to recover through cost-reflective pricing.
- "Second-to-market" of "Fast Follower" Strategy: this is a strategy adopted by organizations who do not wish to take the risk of spearheading the opening of new markets or market segments, but at the same time do not want to lag behind the competition. A fast follower can quickly learn from the mistakes of the market leader and may also be able to 'free-ride on the market investments already made by the leader. However, catching up with the market leader would also require a significant injection of capital as well as product and service differentiation to meet customer needs not currently being met by the market leader e.g. the introduction of "per second" billing by a certain telecoms operator upon entry into the Nigerian market at a time when the market leader was charging per minute.
- "Late-to-market" or "Imitation" Strategy: priority for some organizations is not to establish market leadership or keep up with the market leaders. Rather, they would seek to enter a mature market and compete on pricing. To be able to do this, such organizations must be able to deploy cost-effective production and distribution processes. Efficiency would be a priority for a "late-to-market" business.
To summarize this discussion, entrepreneurs must be bold to innovate, knowing that innovations can be gradual or drastic. Furthermore, innovative strategies may either take the form of market leadership or followership, depending on the risk appetite of the business, resources available, and the overriding objectives of the business within the market it plays in.