Innovation, according to Schumpeter (1934), covers:

1) The introduction of a new good or a new quality of the good

2) The introduction of a new method of production

3) The opening of a new market

4) The conquest of a new source of supply

5) The carrying out of the new organization of an industry

Product vs Process Innovation

The most popular types of innovations are product and process innovations. Product innovation refers to a change in the product. It can be in two different forms. First, an improvement in the performance of a product. For example, an increase in digital camera resolution. Second, new features in a product. For example, the new iPhone 7 has dual cameras which did not exist in the previous iPhones. It is also a product innovation.

The second type of innovations that dominates innovation effort of firms is process innovation. It involves improvement in the process of producing a product. It includes changes across all the value chain activities. It includes improved inbound logistics, better media planning, or improved manufacturing process. For example, using instant demand data to plan production run is a process improvement. It can lead to lower inventory and lower stock outs.

While the product innovations are often visible to the customers, process changes are not

There are some significant differences between the two. While the product innovations are often visible to the customers, process changes are not. Product innovations target product improvement while process innovation targets cost improvements.

PROCESS INNOVATION

Seventy-nine percent of executives surveyed by  the  Boston  Consulting   Group ranked innovation as a top-three priority at their company. Yet despite its perceived value, how to successfully bring a new product or service to market is still a mystery to some entrepreneurs and executives.  In fact, research shows that 40 percent of new products and services fail.

Turning an idea into reality requires establishing an innovation process. That process forces you to think through different steps to ensure you’re solving the right problem, regularly gathering customer feedback, iterating when necessary, and securing the right resources and methods to fully realize the innovation.

“The innovation process is broken into phases,” says Tucker Marion, an associate professor in Northeastern University’s D’Amore-McKim School of Business and director of the Master of Science in Innovation program. “Large companies will tend to have more phases. The more complex a product gets in a regulated industry, the more complex the innovation process gets.”

In the automotive industry, for example, some manufacturers’ product development process will feature 10 or more distinct phases. Despite company size, however, there are three key phases in the innovation process that every organization typically cycles through, according to Marion:

• Discovery
• Development
• Commercialization

Here is a closer look at what should occur during each phase of the innovation process.

Step One: Conception or Discovery

• The discovery phase is the one companies should spend more time and resources on. It’s during this phase that ideas are generated and vetted by potential users, and where teams work to discover whether they’re tackling the right problem.

• This is where ideation techniques, such as brainstorming and prototyping, can be used to a company’s advantage. Ideation—the creative process of generating new ideas—is an important part of the design thinking process, in which organizations focus on uncovering the non-obvious pain points their customers are experiencing and developing new products, services, and business models aligned to their needs.
• One effective and efficient way to kick off the discovery phase is with an exercise on divergent and convergent thinking. During divergent thinking, there’s a free- flow of ideas; employees are encouraged to propose and explore as many possible solutions as they can. From there, the team works to “converge” on the concept they think will most resonate with customers and best achieve the company’s business goals. During convergent thinking, teams will often democratize the process by asking each member to vote on the three or four ideas they think have the most potential.
• Once concepts are solidified, the goal is to develop a prototype—even if it’s just with paper and pen—that the team can put in early adopters’ hands to test. Based on their initial feedback, companies might  then  build  a  minimum  viable  product (MVP), or the most stripped down version of a product or website featuring only the core functionality. By creating an MVP, users can better visualize how the product might work and provide feedback earlier on that the team can use to iterate from. The process enables companies to develop and test concepts in a rapid way for a lowcost.
• While the terminology might be new, the concept of an MVP is not. Take Henry Ford and the Wright Brothers; they all used iterative prototyping to accelerate the development of their respective innovations. Yet with the propagation of more bureaucratic product development processes, Marion says, and the need to move innovation from idea to development, the discovery phase has become one of planning and analysis, thereby pushing prototyping to the development phase.

• With the idea solidified and an MVP established, companies can move onto phase two: development
• The development phase has changed dramatically over the last 10 to 15 years with the introduction of collaborative and digital design tools and rapid prototyping. Distributed teams, innovation ecosystems, and open innovation efforts enable agile design iteration, faster development cycles, and increased levels of product complexity and performance.
• For example, an engineer developing a new bracket for a jet engine can rely on real-time design analysis to make the part stronger and less prone to failure. They can then leverage design tools to optimize the bracket for additive manufacturing, including the 3D printing of final production parts. This can lead to radical designs that couldn’t have been achieved with conventional design and manufacturing methods.

During the development phase, depending on your product or service, you also might be:

• Identifying and selecting new suppliers
• Creating the manufacturing and supply chain plans
• Establishing a software development kit for third-party vendors
• Developing relationships with channel partners

Throughout the process, you should still be gathering consistent customer feedback.

Step Three: Marketing or Commercialization

• At the end of the development phase comes commercialization, where you’re bringing your product or service to market. The commercialization process is broken into phases of its own—from the initial introduction of a product or service to its mass production and adoption. As you move through each phase, you’ll receive additional customer feedback and will need to regularly refine your offering.
• To successfully commercialize your product or service, you’ll also need to set a price for the offering and establish a marketing plan. How will you increase awareness and create customer loyalty? That marketing plan should be adopted across the organization to avoid any communication breakdowns between the marketing and sales departments and the research and development (R&D) or information technology (IT) teams.
• Only 39 percent of respondents in a McKinsey survey said their companies were good at commercializing new products or services. When asked what their biggest challenges were, they pointed to the relationship between R&D and marketing, highlighting a misalignment of human and financial resources, as well as a lack of processes for manufacturing and introducing innovation.