Distinguishing Three Types of Innovation

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Distinguishing Three Types of Innovation
Anneke Zwart, Student (University), Netherlands

Christensen (2014) argues that investing in different types of innovation will influence markets and firms in different ways. Therefore it is important to make a distinction between the different types of innovations, and when assessing them to use appropriate metrics.
Basically, 3 different types of innovations exist:
1. PERFORMANCE-IMPROVING INNOVATIONS: Those innovations will replace old products or models with new and more effective ones. The products or models that are improved are substitutes, as a result that consumers will only buy the new one. Therefore, these innovations do not lead to the creation much more jobs.
2. EFFICIENCY INNOVATIONS: These innovations support firms and organizations to build and sell already established goods or services at lower prices to the same consumers. These innovations can be low-end disruptions (creating a new business model) or process advancements. Efficiency innovations have two important effects. They increase productivity and as such, they make the capital - that would otherwise be used in the less productive products or models – available for more-productive uses.
3. MARKET-CREATING INNOVATIONS: These type of innovations make radical changes in complex or costly products so that they create a new class of customers, or even a whole new market. The two main ingredients for market-creating innovations are:
A. A new technology that lead to lower costs as volume increases, and
B. A new model that enables the company or organization to also reach people that couldn’t access the original good/service.
Market-creating innovations generally lead to more jobs internally as more people are reached.
Source: Christensen, C.M. “The Capitalist’s Dilemma” HBR June 2014

Christensen at Oxford
Chuck Petras, Entrepreneur, United States
Christensen gave a very insightful lecture at Oxford back in 2013 on these very topics. Give it a watch here .

Christensen at Oxford
Jaap de Jonge, Editor, Netherlands
Dear Chuck, could you please be more specific where in which of the 3 videos on that page Christensen discusses the 3 types of innovation? Many thanks.



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