Saturated market? Reduced margins? Competing on price? Time for radical innovation!

There are profound but poorly understood differences between incremental and radical innovation. Incremental and radical innovations are closely linked. In fact, incremental innovation stems from radical innovation. Radical innovation energises entire industry sectors by creating new paradigms, after which incremental innovation can then produce value for years.

The below graphic shows the hill-climbing pattern innovations typically follow (Norman & Verganti, 2014). The majority of innovations are incremental in that they improve what already exists. Incremental innovations build on previous innovations and enhance either the performance of existing features, add new features, or improve the customer experience. Depending on the pace of the industry and the ambition level of organisations incremental innovation can provide a steady revenue flow for years and sometimes even decades. The risks of incremental innovation lie in increased competition, decreasing profit margins, and a ‘race to the bottom’ when organisations compete mainly on price.

Radical innovations don’t engage in hill-climbing, they create new hills. Radical innovations facilitate the shift of entire industry sectors by opening up new markets and opportunities. As a result, markets that have been profitable for years can become obsolete. Organisations that actively create these transitions, benefit from a first-mover advantage, and strong brand awareness. Radical innovation allows organisations to generate profit levels that are virtually impossible to create with incremental innovations.

The launch of the first iPhone in 2007 was a radical innovation. At the time mobile phones were advanced in their technology but they were fixed-feature devices. The iPhone was an open-feature device that could be personalised by downloading software packaged in apps. The iPhone started the era of smartphones, created new markets, and gave rise to new professions (app stores, app developers, etc.). At the same time the market of traditional mobile phones collapsed.

How does the smartphone market look like today?

The latest iPhone, the iPhone 11 pro, features three instead of two cameras (iPhone 11), its screen resolution has improved and its battery life has increased. The iPhone has also lost most of its competitive advantage. Samsung, Google, and Huawei produce smartphones that are as good as Apples’ if not better.

It is fair to say that the smartphone market now follows a path of incremental innovations.

Overall there is little differentiation between smartphone models. In order to maintain their market position, manufacturers rely on lock-in effects that make switching difficult. The smartphone market is beginning to show signs of saturation, as most people in industrialised markets who want to have a smartphone already have one. When this happens and incremental innovation's return is running thin — the time now is to find new value through radical innovation.

What are the benefits of radical innovations?

A key benefit of radical innovations is that its outcomes are more robust to competition and can, therefore, be highly profitable over a longer time period. Compared to incremental innovations which are often immediately replicated by competitors. Even today, 13 years after the iPhone launched, and after significant diversification of Apple’s product range, the iPhone contributes to 50% of Apple's revenue and still has a tremendous impact on Apples' brand awareness.

When should organisations consider radical innovation?

Radical innovation is required when:

  • Markets show signs of saturation (increased price-sensitivity, shorter product-launch cycles, the emergence of aggregator and comparison websites, feature-creep, copycat products and services, increased competition on price)

  • Organisations ‘outsource’ innovation through over-reliance of customer-centered methodologies, instead of following their own product or service strategy

  • There is low customer engagement — consumer resistance to purchasing products with incremental improvements

  • Organisations start acting in unethical or questionable ways to make users upgrade to the latest models (e.g. Apple slowing down older iPhones).

Using our experience (and frustration!) as innovation consultants, we developed an approach for radical innovation: "Hacking Cultural Beliefs". Hacking Cultural Beliefs begins with identifying and reframing internal and external beliefs held by your organisation and the industry you are in. Questioning what everyone else accepts ‘as given’ allows you to create radical innovation opportunities others don’t see.

Get in touch:


Recent Posts

See All