Did you know there are different types of business innovation? It’s a broad church. The saying, ‘there are different ways to skin a cat’ rings true here. At its heart innovation happens when we need to solve problems. Businesses can use one or more types of innovation to solve a challenge they’re wrestling with. And in the process, they can create a new market. Depending on the circumstances, some kinds of innovation work better for particular problems than others. So, matching the innovation approach to the challenge is essential. In this blog, we delve into the different categories of innovation, the rise of AI and its potential as a disruptor. And we explore how to use R&D financing to drive your innovation from ideation to commercialisation.
Types of business innovation
When most people (including would-be founders) think about innovation, blue-sky research and inventions that create a technological leap often spring to mind first.[1] But you might be surprised to learn it’s not the most common form of innovation.[2] Read on and be informed.
Sustaining innovation
Contrary to popular belief, sustaining or incremental innovation is the most popular kind of innovation. The reasons why are simple. Sustaining innovation happens in existing markets when innovators seek to enhance the current capabilities there. It’s the most prevalent form of innovation because there are plenty of existing markets with offerings that can be improved. And people know where the roadblocks and gaps are in those markets and the skills needed to find the solutions. For that reason, sustaining innovation can be found in large, established companies, as well as small-and-medium-sized businesses and start-ups.
Examples of sustaining innovation
Sustaining or incremental innovation harnesses run-of-the-mill business strategies and tools, including mergers and acquisitions to add new capabilities to existing organisations and R&D labs for product or service improvements. Prime examples of sustaining innovation are next-generation smartphones, batteries or software platform improvements.
Breakthrough innovation
Breakthrough innovation happens when there’s a problem that’s well-defined but is phenomenally tough to crack. It requires a breakthrough to solve it. To solve an intractable challenge with breakthrough innovation, innovators will invariably leverage diverse skill sets outside of the core scope of the problem to achieve a breakthrough. Start-ups tend to be the businesses with breakthrough innovations.
Examples of breakthrough innovation
Perth-based MedTech Avicena Systems developed an innovative end-to-end method for mass screening of pathogens called Sentinel. It’s used for large-scale rapid screening of COVID-19 and other infectious agents in Australia and overseas. Avicena Systems Chief Executive Officer & Co-founder Tony Fitzgerald credited the diverse skill sets of his fellow co-founders as the secret to the MedTech’s rapid success and said, “The inspiration for scaling our testing service came out of leftfield in the form of insights and systems adopted from the telecoms sector.” To find out more about Avicena System’s breakthrough innovation, read the Radium Capital Avicena Systems Case study.
Basic research
Basic research refers to fundamental or blue-sky research that leads to the discovery of phenomena and foundational knowledge. Other types of innovation ‘stand on the shoulders’ of basic research in some shape or form. Basic research is usually found in one of two places: in large multinational entities, for example, IBM and Proctor & Gamble, and universities and research institutes.
Examples of basic research
Fundamental scientific discoveries by physics Nobel prize winner Albert Einstein led to an array of modern-day inventions, including paper towels, stock market forecasting, solar panels and laser pointers.[3] And there’s a direct connection between Einstein’s famous theory of relativity and the global positioning system (GPS) navigation most of us rely on every day.[4]
Disruptive innovation
Disruptive innovation creates new markets and reshapes existing ones. It often involves innovating business models. Disruptive innovation is often found in an existing market where the customers’ problems have not been fully served. A start-up or an existing business could be a disruptor.
Examples of disruptive innovation
Disruptive innovation can involve a company using a low-cost business model to enter at the bottom of an existing market, for example, Aldi in the supermarket sector. Or it can occur when a company creates and claims a completely new customer segment in an existing market by providing a solution for an underserved customer base. Airbnb is an example of this type of disruptive innovation, which uses a new business model, called a multi-sided platform aggregator model. This involves Airbnb gathering information from platform stakeholders to earn commissions and fees.
Innovation and AI
Artificial Intelligence (AI) has been the hot trend for the past two years. Its innovation history is as complex and nuanced as its future is likely to be. Born from the basic research of Alan Turing, AI, or in most cases machine learning, has been a draw card for technology investors in the past two years. Since September 2022, investor dollars have been scarce. But following the hype of Chat GPT, backers who are prepared to get out their chequebook tend to favour AI or start-ups with an AI component. So a virtuous circle has emerged to create something of a funding bubble for this technology.
Downsides and current limitations
AI has created efficiencies for some businesses. But the technology is no panacea. From bias in AI-driven recruiting to Air Canada’s lying chatbot landing the airline in court, there are persistent issues with the technology that could take years to iron out.[5] Not to mention the litany of legal action facing OpenAI which could see ChatGPT go the way of Napster if the doomsayers are correct.[6] [7] While AI originated from basic research, it requires breakthrough innovation to transcend its current hallucinations, bias and unsustainable energy consumption. And it needs to settle its legal status. But if and when it does, it is likely to become the disruptor of the 21st century and create a business model that could permeate and dominate every existing market and multiple new ones that innovators, or even AI itself, have yet to create.
Funding different types of business innovation
Whatever type of innovation you choose for your business, funding your R&D and maintaining consistent business cash flow is crucial. Funding, and by association your business, is more likely to be successful if you maintain a diverse capital stack. It involves accessing and maintaining an array of different capital sources, self-financing, debt financing, equity capital and grant funding. That’s the key takeaway. To find out how to build a diverse capital stack for your business, check out our article, How to build the best R&D capital stack for your business.
The role of the R&D Tax Incentive refund and R&D financing
If your innovation business is eligible for the Federal Government’s R&D Tax Incentive refund, you can access it early with R&D financing, regardless of the type of business innovation you’re working on or the stage your business has reached. It’s an important, founder-friendly source of capital. So keep it on your radar.
[1] www.mba.com. (2022). The Four Types of Innovation – And Where to Study Them at Business School. [online] Available at: https://www.mba.com/business-school-and-careers/why-business-school/four-types-of-innovation.
[2] Satell, G. (2017). The 4 Types of Innovation and the Problems They Solve. [online] Harvard Business Review. Available at: https://hbr.org/2017/06/the-4-types-of-innovation-and-the-problems-they-solve.
[3] waldrop, mitch (2017). 4 Everyday Items Einstein Helped Create. [online] Science. Available at: https://www.nationalgeographic.com/science/article/einstein-relativity-lasers-solar-genius-science.
[4] published, L.S.S. (2012). How Does GPS Work? [online] livescience.com. Available at: https://www.livescience.com/33783-gps-work-llmmp.html
[5] Olavsrud, T. (2022). 9 famous analytics and AI disasters. [online] CIO. Available at: https://www.cio.com/article/190888/5-famous-analytics-and-ai-disasters.html.
[6] Krietzberg, I. (2024). Here are all the copyright lawsuits against ChatGPT-maker OpenAI. [online] TheStreet. Available at: https://www.thestreet.com/technology/copyright-lawsuits-against-openai-microsoft-chatgpt.
[7] Bank, J.L.M., Managing Director, Divisional Data Officer-HR, Cybersecurity, Legal | Silicon Valley (2023). Is ChatGPT the New Napster? [online] CDO Magazine. Available at: https://www.cdomagazine.tech/opinion-analysis/article_41c91658-eff7-11ed-8177-337de801aba8.html