Product innovation

People talk about product innovation every day without even realizing it. Whether they refer to their smartwatch and its latest features, the top-performing cars, or the latest app that helps them unwind, they bring up product innovation.

But what makes these products innovative – and why are 95% of new products failing? How are some companies succeeding at bringing these innovations to the market and why others fail? Today, we’ll try to answer these questions and see what the factors contributing to successful product innovation are.

What is product innovation?

One of the more widely accepted definitions for innovation is the introduction of something new. That something could be anything from new services to products, processes, and even incremental improvements to something that already exists. In practice, however, people usually refer to new or improved products when they talk about innovation.

But what, exactly, is product innovation? Product Innovation is probably the most famous type of innovation, and it can be defined in different ways. Without going through all possible definitions, let’s keep it simple and clear: Product innovation is the development or improvement of products in a way that tries to solve problems for consumers, customers, companies, or society at large.

Many such innovations can be tangible and involve either radically new technologies, or just incremental improvements of existing ones. But more on the types of product innovations later in this article.

Why more companies should consider product innovation?

We’ve seen time and again that innovation is the main economic driver, both for organizations and society at large. When it comes to product innovation, a McKinsey survey suggests that 25% of total revenue profits of a company come from the launch of new products.

A portfolio of good products drives growth and brings more profit, compared to services which can increase revenue but have a lower margin. There are several reasons for this. For instance, in many cases products are easier to scale than services. They are hands-off and easier to take care of. This is why the model of Service as a Product has been so successful. Airbnb, Uber, Fivers were able to scale and turn big profits. They don’t need close monitoring and interaction like other services would.

On the other hand, highly competitive markets made product innovation more difficult as more than 50% percent of new products fail to reach their targets. However, there are still plenty of compelling arguments in favour of product innovation.

#1. Competitive advantage

Whether we talk about new products or improved ones, successful companies have always found a way to leverage innovation and gain competitive advantage.

Leading companies use product innovation to get ahead of their peers in three ways:

1. Develop new products that answer the needs of their consumers or create new demand for them.
2. Continuously improve on their core products and make incremental innovation their second nature.
3. Redefine the competition by taking existing products to new channels or markets.

How does it look in practice?

Redefining the competition is also about redefining the value of a product. For example, in the 70s, Japanese innovation almost took out of the market traditional watchmakers in Switzerland. Having low-cost production yet high accurate way of telling time, Swiss companies had to also redefine the value of their products.

So Swatch took over a market once dominated by Japanese companies like Seiko or Casio. They repositioned themselves and created a fashionable line of swatches. Traditional watches also found a new market as the Swiss companies created the demand for luxury watches turned collectibles and long-term investments.

The sweet spot is balancing the three approaches: New products, improvements and targeting new markets. Focusing only on one of them is a mistake we see even in big companies.

For example, in 2003 LEGO ventured on new markets. Unfortunately, they lost focus and went on selling clothes, accessories and lifestyle products. After these failed experiments, they refocused on their core business and positioned themselves as leaders in toy construction kits. This focus enabled them to grow their revenue from €0.9 billion in 2004 to €4.8 billion in 2015.

Apple is also maintaining its competitive advantage through product innovation. Since the introduction of the smartphone in 2007, Apple has iterated on their innovation and initially gained market share and also took out of business slow to innovate competitors.

However, some caught up pretty fast and as we’ve seen in recent years, Apple lost market share in front of Samsung. In turn, they have grown by adding other products and services, like iCloud, Apple Music and different earbuds and headphones.

This takes us to the next argument in favour of product innovation.

#2. Encourages resilience

It is common for companies that miss the innovation train and lag behind their competition to eventually disappear altogether. Product innovation is the chance to bounce back. If you create the right circumstances and strategize around this decision, product innovation can help you pivot.

Consider Nokia, a company famous for its numerous innovations and strategic pivots. They started as a wood pulp mill, then moved on to rubber boots and of course to their most recognizable products, the Nokia cell phones.

When Apple took the world by storm with their smartphones, Nokia was not able to catch up. They were close to bankruptcy but once they sold their cell phones business to Microsoft, they pivoted their business once more and turned to high-end networking and software products. This helped them in the past 10 years to increase their enterprise value 20 times.

However, Nokia phones haven’t died. They returned to the market in 2016. The Finnish company HMD bought the brand license to produce and sell Nokia phones and have recently launched six new models.

The complicated and complex story of Nokia perfectly depicts that the action you take on product innovation can make or break a company. It can easily become your worst enemy or the most powerful tool that keeps the business afloat and supports their growth.

#3. Drives growth

Product innovation allows companies to grow, turn higher profits and conquer new markets. There are several contributing factors that enable growth and those that get product innovation right reap the benefits on a long term.

When the market is oversaturated and companies don’t find their way out, they could turn to product innovation. We’ll explain how this works when we get to the processes and frameworks, but in short, it is about creating new demand.

Three types of product innovation

Now that we have clarified what product innovation is, let’s have a brief look at the three main categories of product innovation.

#1. Development of new products (NPD)

New products can fall under any type of innovation. They can be radical or disruptive, but usually they are actually incremental and sustaining by nature. We’ll explain a bit more in detail the NPD (New Product Development) process later in this article.

Radical and disruptive innovations are not the most common and for good reason. They are harder to get right, they present more risks, and the success rate is not very high. The tricky part is not just coming up with ideas for new products, or even taking them to completion. The most difficult part is driving adoption of these products. And even if you’re successful, you still need to do all of that with manageable risks while keeping costs under control.

According to McKinsey only 1 in 7 ideas result in a successful product. This is why we can’t stress enough how important ideation and idea management are in developing new products. We have previously written about the key success factors in idea management, where we go into a bit more detail on how to go about this.

Companies that have a great track record of launching successful new products use a systematic way of taking their ideas from concept to a marketable product.

#2. Improvement of existing product or service

This type of product innovation is what we often refer to as incremental innovation. More specifically it refers to incremental changes aimed at improving existing products.

Improving on innovations developed by others is usually the most lucrative and successful type of product innovation. This happens because when new products are launched, they are usually not exploited to their full potential. A series of incremental innovations and improvements have to be made to better meet the needs of consumers.

Take for example the computer. It was a new product when it has first appeared, a truly radical innovation. Several innovations and improvements in the technology made it possible to go from giant computers the size of a room to personal computers, and later laptops and smartphones. Innovations in computer hardware and software have made it possible to mass-produce laptops at affordable prices.

#3. New features to a product

Product improvement is the process of making significant and meaningful changes to products and this can also be done through new features. But new features can be just as risky as launching a new product.

What types of features are usually involved in product innovation? Features are developed to improve products, increase frequency or increase adoption. As not all features will be appreciated, it’s important to decide what kind of feature is most relevant for your product and what goal it pursues.

If we consider feature creep or scope creep, this is the perfect example of how features are not necessarily more valuable for customers. A HBR (Harvard Business Review) survey revealed that 56% of consumers who bought high tech-products feel overwhelmed and dissatisfied by the myriad of features they initially thought useful. Even more, investing in unnecessary features that are not strategic and don’t add value could mean throwing money down the drain, harming the product and even the brand.

What’s an example of feature creep in products? To make a coffee with the Bosch Benevenuto B30, you first have to choose from 12 options, decide on energy-saving options, time programming, and water hardness. It sounds a tad too much for a simple coffee. Consumers get overburden and all the additional features distract from the original usability of the product.