Innovation Types and Horizons

McKinsey's Innovation Horizons

THE 7 TYPES OF INNOVATION

​ISO TC 279 defines innovation as "a new or changed entity realizing or redistributing value."

At Illustrious, we define innovation as the act of creativity and experimentation that turns your best ideas (and even your best failures) into value. This means that whether we’re talking about corporate innovation or a small business that encourages innovation best practices on small teams, you can’t have innovation without the ability to 1) generate and elevate new ideas, 2) iterate ideas into process maps and prototypes, and 3) validate and scale those idea prototypes into the right audience fit.
 
Innovation strategy falls into numerous categories. These include: 

• Product Innovation - Making new products or services.
• Process Innovation - Developing new processes for your supply chain, manufacturing or operations. These are usually driven by automation and technology (AI, robotics).
• Organizational Innovation - Changes to business structure: making a new department, communication system, accounting procedure, etc.
• Business Model Innovation - Sweeping changes to the way products are created, placed, positioned and sold. This may include shifts in vendors, suppliers and marketing teams as well as the creation of new value propositions. (Also known as Commercial Innovation.)
• Management Innovation - Shifts in the way management teams operate the business and get things done. Think TQM (Total Quality Management), Agile Development, OKRs, EOS, etc.
• Culture Innovation - Developing new values, assumptions and beliefs in response to market demands; Policy changes; New ways an organization tells stories internally and to the world. (Holacracy, DEI, unlimited PTO)
• Service Innovation - Changes to the service model and the way value is delivered (internet-based financial services, telemedicine, etc.)

THE 3 HORIZONS OF INNOVATION

An organization’s innovation strategy also falls into what McKinsey and Company call horizons. These are the time-bound areas of focus for innovation efforts. 

The first horizon (H1) is the home for any short-term innovation strategy and includes both “incremental” and “notable” shifts along the value scale. Incremental shifts include improvements or additional unique features to products and services (think a toothbrush with rubber grips or a flipchart with handles). 

According to Magnus Penker, author of How to Assess and Measure Business Innovation, “notable” shifts include a “distinguishable advance in design, process or business model” (think the RAZR phone or disposable hearing aids).

The second horizon (H2) includes mid- to long-term innovation efforts and results in significant or “radical” shifts. This means there is an advance in the product or experience design as well as to the process or business model (think Southwest Airlines or iPod/iTunes).

The third horizon (H3) is where we see game-changing transformational shifts. The hallmark of the third horizon is that at least two important advances are made in a combination of design, process or business model. (Think market disruptors like the razor and blades model or the light bulb and electrical grid.)

Each of these corporate innovation types requires a different leadership style (entrepreneurial, democratic/participatory, coaching/charismatic, etc.). Each type requires a decision to buy, build, partner or do “open” innovation (collaboration outside the walls of the business). With each leap, what got you there will not get you where you’re going. At each horizon, you will take on new or different team members, mindsets, language, business systems and management methods. 

When you commit to the practice of innovation, you are not only committing to changing your surroundings, but also to changing yourself.

If you’re ready to have a conversation about the inner work required to lead innovation in your business, we’d love to help you shine. ​