5.5 Novelty and innovation

What does innovation mean?

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The term ‘innovation’ in the sense we use it today – introducing something new or making changes to something established by the introduction of new elements or forms – is often attributed to the economist Joseph Schumpeter. He used the term extensively in his writings on economics during the early 20th century, particularly focusing on how innovation drives economic development and business cycles.

In fact, Joseph Schumpeter did not coin the term ‘innovation’. The word is derived from the Latin ‘innovatus’, which means ‘to renew’ or ‘to change’. The word has been in use since the 15th century, according to the Merriam-Webster dictionary. The earliest evidence for “innovation” in the Oxford English Dictionary is from 1548, in Acts of Parliament. However, Joseph Schumpeter popularized the term in his book “Capitalism, Socialism and Democracy”, describing the process by which new products and technologies replace old ones, a concept he termed ‘creative destruction.’

‘The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers’ goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates.’ (Schumpeter, 2010, p. 73)

His work significantly influenced how we understand the role of innovation in economic growth and industrial transformation.

According to management consultant and educator Peter Drucker (2002), innovative business ideas come from analyzing areas of opportunity. Four areas of opportunity can be observed within a specific company or industry and can consist of unexpected events, incongruities, process needs and changes in the industry. Three areas of opportunity exist within the social and intellectual environment outside the specific company: demographic changes, changes in perception and new knowledge. Once you notice an opportunity, you’ll need to use your creative thinking and expertise to arrive at an innovative solution.

Three types of innovation: incremental, disruptive and radical

Incremental and disruptive

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Different types of innovations unfold, which require different strategic responses from the organizations developing them and change in different ways people’s lives.

Incremental innovation makes products better in the eyes of existing customers. For instance, each new smartphone model typically offers slight enhancements over its predecessors. These improvements enable firms to sell more products to their most profitable customers.

By contrast, small companies with fewer resources can successfully challenge companies established in the market, known as incumbent businesses, through disruptive innovation. The disruptors target overlooked segments, position themselves by delivering a novel offering, with usually a more suitable functionality and at a lower price, and then gradually move upmarket, eventually displacing established competitors.

See Figure 5.5.1. below for examples of the kind of narratives companies might have regarding these innovation types.

Radical innovation

How to capture new markets

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In this section, we discuss radical innovations as products that stem from the creation of new knowledge and the commercialization of completely novel ideas.

To maintain their leading position and sustain competitive advantages, organizations need to also focus on developing radical innovations and new businesses. This strategy ensures that they can create and capture entirely new markets in the future. For this reason, organizations are increasingly prioritizing the development of cultures that encourage and support innovative behavior. This approach aims to make employees so accustomed to change and innovation that they are not just participants but active creators of it (Nordström, M., 2017).

Whereas incremental innovation – e.g. enhanced camera resolution – helps firms to stay competitive in the short-term, radical innovation focuses on long-term impact and may involve displacing current products, altering the relationship between customers and suppliers, and creating completely new product categories. According to Hopp et al.’s (2018) systematic review of 40 years of innovation research, radical innovations are related to topics such as organizational culture and capabilities, social and human capital, and project management. They completely transform the way firms engage with the marketplace, and they require completely new technical skills and organizational competencies by firms pursuing this path.

As a result, the literature on radical innovation is focused on people. Imagination and the ability to envision the future of technology are important to the generation of the novel ideas required for radical innovation.

Ccompanies that are interested in radical innovation focus on having the right people to generate breakthrough ideas, complementary to the core business. Radical innovation is perceived as a protection against entrant’s disruptive innovations. For small companies that engage in disruptive innovation, the key to growth is in foreseeing customer needs and offering a product based on new technology and innovative business models.

How does radical creativity differ from radical innovation?

Differences in thinking, process and outcome

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Radical innovation and radical creativity share a lot. Yet, they are distinct concepts, that have been developed within different disciplines, psychology and economics, with different assumptions, principles and goals, as described by Andrea Botero Cabrera, Associate Professor at the Department of Design in Aalto.

‘The two concepts come with a different knowledge and a different history. Creativity is rooted more in disciplines of psychology and human cognition. Nowadays creativity is also understood as a relational quality.’

‘Innovation comes from another discipline, that involves inventions and technology. Because of the background, the interested here is less in inner lives and sensibilities and emotions, but more in how things work.’

When we define them as a type of thinking, a process or an outcome, here’s how they differ:

• Radically creative thinking originates from the creative brain. It manifests through the observation of ideas that are fundamentally new and different from existing paradigms and that others may ignore or not notice. Also, it is the thinking that enables some creative individuals to look at a particular challenge or problem from a groundbreaking perspective.
• Innovative thinking is underlined by mechanisms of creative thinking, with its subcomponents of creative imagination, inspiration and intuition. Yet, it is more concerned with the practical application of a creative idea to result in value creation for an individual, company or business eco-system or in society. Innovative thinking can also be incremental and radical. In both cases, innovative thinking is reflected in work behaviors and knowledge.
• Radical creativity as a process. When an individual or a group get an intuition that an experiment can be done, they will engage in creative behaviors that are different from anything they had done before. They will thus sense higher levels of risk, anxiety and discomfort as their behaviors challenge not only others existing norms of social interaction but also their own comfort zone.
• Innovation as a process. While also risky, the individual and collective efforts in innovation projects are often more managed and mitigated, especially in an organization where there are established structures, leadership and culture for innovation. Innovation processes are experimentations with a product prototype or a new business model and often follow from noticing opportunities in societal or user needs or market gaps.In innovation environments, leaders usually set a direction by identifying the challenges that need innovative solutions. Mari Lundström, the Vice Dean for Research and Innovation at the School of Chemical Engineering describes this as follows: 
  

  ‘Climate crisis goes hand in hand with ‘molecular crisis’, as e.g. energy transition is increasingly raw material intensive. This highlights the increased importance of research in energy materials and storing, but furthermore the need for increased understanding on raw material dependency, their production, limitations, and recyclability’.

• Radical creativity as an outcome reinvents existing organizational cultures, systems, theories, or practices. The outcome can vary from engineering, social, technological, scientific and business innovation to change in social norms and lifestyles.
• Innovation as an outcome is about a valuable and useful impact through the creation of a tangible new product, new business model, new work process, etc. The success of an innovation in business is measured in Key Performance Indicators (KPIs) reflecting its ability to solve practical problems related to market needs (Osterwalder & Euchner, 2019; Osterwalder, 2018).In short, innovations and radical creativity are closely linked. Innovations need creativity; radical innovations need radical creativity. Yet, radical creativity is a concept coming from psychology, referring to new thinking, processes, outcomes that can happen in all areas, fields and disciplines. It may or may not involve commercial activities.

  Radical creativity is more about changing perspective in how you think for knowledge breakthroughs and fundamental changes. Innovation is rather focused on practical application and the successful implementation of new ideas, with the goal of creating new value.

Towards ecosystems

How interorganizational approach drives creativity

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To conclude, in this subchapter, we looked at what innovation is and what are the similarities and differences between radical creativity and innovation. We covered the following key ideas:

• To innovate is a word derived from Latin, “innovatus”, and means “to renew” or “to change”.
• Joseph Schumpeter, a key figure in the study of economics in the 20^th century, introduced this idea of innovation in the field of economics under the term “creative destruction”, which was described as the creation of new consumers goods, new methods of production, new markets, and new structures in the industrial organization.
• In 1997, Clayton Christensen, economist, professor and author, proposed the theory of disruptive innovation, as the type of innovation that causes shifts in an existing industry through the creation of new markets or new consumer needs. In addition, the innovation discipline recognizes two other types of innovation: incremental and radical. Incremental innovation is about improving the quality of an existing product for short-term profits. Radical innovations are about an organization’s capabilities to reinvent its organizational culture and structures so that the employees can have space for innovative behaviors and projects that would protect the company from disruptors in the long run.
• Radical creativity and innovation are concepts from different fields: psychology and economics, respectively. While they both deal with new and transformative impacts, radical creativity is mainly about creating new knowledge and shifts in societal values to create a better future. Innovation, as discussed in business studies, is more focused on getting right the implementation of new business ideas and creating value.

References

Christensen, C.M. (1997). The innovator’s dilemma: when new technologies cause great firms to fail. Boston MA: Harvard Business School.

Christensen, CM., Raynor, M.E., & McDonald, R. (2015). What is Disruptive Innovation?. Harvard Business Review. Article published online: What Is Disruptive Innovation? (hbr.org).

Dimitrov, D. (2014). Text-based indicators for architectural inventions derived from patent documents: the case of Apple’s iPad (Master’s thesis, University of Twente).

Hopp, C., Anthons, D., Kaminski, J. and Salge, T.O. (2018). What 40 Years of Research Reveal About the Differences between Disruptive and Radical Innovation. Harvard Business Review. Article published online: What 40 Years of Research Reveals About the Difference Between Disruptive and Radical Innovation (hbr.org).

Madjar, N., Greenberg, E., & Chen, Z. (2011). Factors for radical creativity, incremental creativity, and routine, noncreative performance. Journal of Applied Psychology, 96(4), 730–743. https://doi.org/10.1037/a0022416

Malik, M. A. R., Choi, J. N., & Butt, A. N. (2019). Distinct effects of intrinsic motivation and extrinsic rewards on radical and incremental creativity: The moderating role of goal orientations. Journal of Organizational Behavior, 40(9-10), 1013-1026.

Montoya, J. S., & Kita, T. (2017, June). Towards an improved theory of disruptive innovation: Evidence from the personal and mobile computing industries. In The Asian conference on the social sciences 2017: Official conference proceedings (pp. 125-144).

Nordström, M. (2017). From incremental to radical innovation and corporate entrepreneurship.

https://aaltodoc.aalto.fi/handle/123456789/29332

Osterwalder, A. (2018). The Four KPIs to Track in Innovation Accounting, online article: https://www.linkedin.com/pulse/4-kpis-track-innovation-accounting-alexander-osterwalder/.

Osterwalder, A., & Euchner, J. (2019). Business model innovation: An interview with Alex Osterwalder. Research-Technology Management, 62(4), 12-18.

Schumpeter, J.A. (2010). Capitalism, socialism and democracy. Taylor & Francis Group.

Tang, C., & Naumann, S. E. (2016). The impact of three kinds of identity on research and development employees’ incremental and radical creativity. Thinking Skills and Creativity, 21, 123-131.

Zhang, Y., Zhang, J., Gu, J., & Tse, H. H. (2022). Employee radical creativity: the roles of supervisor autonomy support and employee intrinsic work goal orientation. Innovation, 24(2), 272-289.