- Empowering Innovation - - These transform complicated and costly products available to a few into simpler, cheaper products available to the many. Examples include the Ford Model T, Sony transistor radio, and the personal computers of I.B.M. and Compaq. Schwab would be a service example. Cloud computing is a current example. Empowering innovations create jobs, because they require more and more people who can build, distribute, sell and service their products. Empowering investments also use capital (to expand capacity and to finance receivables and inventory).
- Sustaining Innovation - - These replace old products with new models. The Toyota Prius replacing a Camry is a good example. The transaction has a zero-sum aspect to sustaining innovations - - they replace yesterday's products and create few jobs. They keep our economy vibrant - - and, in dollars, they account for the most innovation. But they have a neutral impact on economic activity and on capital requirements.
- Efficiency Innovation - - These reduce the cost of making and distributing existing products and services. Examples include Geico and steel making minimills. Taken together in an industry, such innovations almost always reduce the net number of jobs - - because without them entire companies and industries would disappear in competition against companies that have innovated more efficiently. Toyota's just-in-time production system is an efficiency innovation - - it also emancipate capital. JIT allows manufacturers to operate with less capital invested in inventory. Toyota can redeploy capital allowing it to fund new, empowering innovations.
Wednesday, November 14, 2012
The Three Types of Innovation
From innovation guru Clayton Christensen in the New York Times (November 3, 2012) - - A Capitalist's Dilemma, Whoever Wins on Tuesday - - and three types of innovation: