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Disruptive innovation should closely follow efficiency innovation for economic stability and sustainable growth!

Three types of innovations in business

In his seminal work “The Innovator’s Dilemma,” Clayton Christensen discussed the three primary forms of innovation. Borrowing from that idea, here is the explanation of the first three kinds of innovation and their impact on jobs, capital, and economy.

There are three types of innovations.

  • Incremental innovation
  • Efficiency innovation
  • Disruptive innovation

Now, we can look at these innovations from two different perspectives. From a job perspective, and from the capital perspective, because these are the two important aspects that usually affect the economy significantly. More jobs or more capital, or fewer jobs and less capital do have a direct impact.

Incremental innovation is typically good-getting-better. And, which is why it doesn't really affect jobs or it doesn't necessarily affect capital. So, the impact is little on jobs and little on capital. And almost everyone is doing it. So, it's not really a matter of concern as to why someone is not doing it.

The second kind of innovation which most of the people, most of the transformation projects are geared at is efficiency innovation. And by definition, efficiency means output upon input. Which means you want to increase the output or stay at the same level by reducing the input. And input in business parlance is either manpower, resources, raw material, money, etc. So essentially you want to reduce those inputs and increase the output. It essentially means you have to improve certain things so that fewer people are required, less material is required. And that results in job losses. And when you need less input essentially you free up the capital. So you have a lot of cash in hand to play around. How do you use that cash is a different question altogether.

When it comes to disruptive innovation though, it is making a product democratized, so more and more people are able to use the product. And, which means you need to produce more products, you need more services to deliver. Which essentially means you need more people and hence more jobs. And when that comes you need more capital as well to deliver that. This means in disruptive innovation, it creates more jobs and it needs more capital.

Now the good thing here is when you have cash released from efficiency innovation and you have jobs eliminated from it you can turn those jobs and cash to disruptive innovation.

Which is why although you wouldn't prefer incremental changes and innovation, you should always prefer the disruptive innovation.

Even if you're doing efficiency innovation in your company, always look for an opportunity to invest and reroute that cash that saving in disruptive innovation.

Disruptive innovation should closely follow efficiency innovation for economic stability and sustainable growth!

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