Innovation undoubtedly became the “engine” of the progress, competitive ability and economic growth. Innovation regards as a “life-and-death matter for a firm”. However, paradox is that still some difficulties remain in understanding what exactly the innovation is and how important it is in nowadays world.
Despite the fact that there are many definitions of processes of innovation, generally all innovations contain three underlying elements: newness, improvement and the overcoming of uncertainty. Newness is probably one of the most important parts of innovation, although such newness could be understood as something novel to the form or industry as a whole. Improvement is related to the fact that firms need to find the superior quality to those products which currently exist in the market. Overcoming uncertainty means that such improvement is determined by the market and that market need have to be clarified. In addition, it is essential to remember that all these elements are driven by the technological advance. So it is clear that the process of innovation is complex, involving many different variables to consider.
The same important is to consider the different types of innovation. Generally, innovations are classified as;
- Radical innovation: The core idea of the radical innovation is the development of a completely new technology, which can provide a product which has never been available before.
- Incremental innovation: The intention of incremental innovation is to use the insights from customers or others to develop better solutions that are attractive and would add to the profits from the existing products.
Radical and incremental innovations are fundamentally different. In the main, radical innovation represents the ability to develop products that are completely new to the world or particular industry, while incremental innovation refers to the ability to develop products that are new to the firm. In other words, incremental innovations are usually thought to enhance the capabilities of the firm, whereas radical ones are thought to undermine it. Moreover, radical innovations are ground-breaking development that requires significant resources to materialize. For that reason, such innovation has longer time lags to profitability compared with incremental innovations.
Radical innovations, in comparison with incremental innovations, are more noticeable and visible. What is more, radical innovations are more likely to arise in large corporate or networked ventures. Hence, there is a long list of radical innovation examples that have changed the market, its structure and understanding: penicillin, X-rays, computerized tomography, magnetic resonance imaging, personal computer, cell phones, laser, etc.
Example of Radical Innovation: Amazon.com
One of the latest examples of radical innovation is the case of amazon.com and its approach to sell books via the Internet. Amazon successfully emerged from the dot-com bubble and demonstrated significant results of growth – from $4 billion in 2002 to $20 billion in 2008. One of the main reason why Amazon successfully survived the Internet bubble was the firms’ ability to anticipate the changing market needs and customer values. Amazon started to sell wide range of books that upended the staid book industry that led to a number of the traditional book stores going out of business. A few years later, the company offered another completely new field – a commission-based brokerage service to buyers and sellers of used books. Then Amazon moved forward again developing a model to serve an entirely different customer: third-party sellers.
Jeffrey Preston Bezos, the founder and CEO of Amazon.com, Inc., says: “If you want to continuously revitalize the service that you offer to your customers, you cannot stop at what you are good at. You have to ask what your customers need and want, and then, no matter how hard it is, you better get good at those things”. It is obvious, that Amazon.com, Inc. is one of the best examples how important is to understand and anticipate market needs and connect them with a new technological capability.
Example of Incremental Innovation: MySQL
All the differences between radical and incremental innovations has shaped the common belief that only radical innovations can bring more tangible results and recognition. However, the following example of the incremental innovation can break that stereotype. Jesper Holck, Volker Mahnke, and Roberto Zicari (2008) presents the case of the MySQL AB as a proof that it is possible to win and succeed through the incremental innovation.
MySQL is a SQL database management system. Despite the fact that the genesis of this system is dated in the late 80s the most important advance has been made with the beginning of 21st century when www.MySQL.com was formed to maintain the database. MySQL gained a sound position in the Web service community. Another advantageous feature was the fact that MySQL understood and anticipated the market need in the late 1990s when business and new ventures were trying to join the Internet and exploit the WWW revolution. The key point why MySQL was successful in that was the firm’s strategy to to follow the “15 minute rule”, stating that it should be possible to get MySQL up and running in less than 15 minutes”. This was very attractive, especially for the Internet start-ups, because it was simple, quick and reliable way to use Relational DataBase Management Systems. Moreover, MySQL databases did not require any specific IT education to install those systems, the users were less considered with the missing features of MySQL and they needed the basic functionality of MySQL as a data store for customers, goods, etc. MySQL was attractive even for the great enterprises, because of the free availability and possibility for the computer departments to test it without asking for financial resources to do this. In addition, MySQL had a strong superiority in demanding comparatively very little computer resources and can run efficiently even on inexpensive PCs.
After the burst of the Internet bubble, MySQL AB consisted of 20 people who were focusing on technology and the managerial issues played secondary role in the firm. To enhance organisational efficiency a number of highly professional people for the top management were recruited. Therefore, MySQL AB showed significant results in the growth of employees, operating income and profits. Another important issue that was faced was the “battle of the storage engines”. Storage engine is the program that handles how data are read from and written to the files etc. where the data are stored. MySQL AB chose the InnoDB as a promising and copetitive storage engine. However, afterwards one of the MySQL competitors, Oracle, made a strategically important movement and bought Innobase OY, the company behind InnoDB. My SQL felt a pressure and increasing competitors’. In response, in 2007 MySQL released its first “own” open source storage engine: Falcon.
So what strategy has empowered MySQL AB to achieve significant results and become serious competitor to “giant” companies like IBM, Microsoft, Oracle? The success was determined by small incremental innovations and ability to anticipate the market. The following 7 principles of MySQL strategy were the basis of the firms’ strategy:
- Commitment to existing standarts. MySQL chose to rely on existing application programming interface and data storage technology. That enabled users of to easily switch to MySQL and so the switching costs were reduced.
- Ability to distinguish and prioritize must-to-have features from nice-to-have features. MySQL concentrated on a key features of the product, like speed, simplicity to install and size of the memory footprint.
- Ability to link the development of both commercial and non-commercial product versions. MySQL chose to let both the Community and the Enterprise version build on the same code base, i.e. the exact same source code files. The most important thing by linking the development of both commercial and non-commercial product versions was the fact that it helped to realize the economies of scale.
- “Upbringing” and coordination of user communities. MySQL undertsand the importance of paying attention to various groups of users that are involved in the development process, e.g. MySQL employees, developer community (active users, contributing with interfaces, forum answers, blog entries, etc.), user community. MySQL created a coherent community that are interested in the product. Such cohesiveness enables not only to understand users, collect the feedback but also to motivate community members to develop the product.
- Product testing with communities. Despite the fact that majority of MySQL’s open source development community do not generate revenue directly, community members are great supporters. In other words, they provide valuable testing, error-reporting, and bug-fixing information that allows to reduce the costs of testing and even marketing.
- Implementation of dual-licensing strategy. MySQL offers different licensing arrangements for different user groups. Dual licensing is an important element in benefiting from an incremental innovation based business model for software products that are embedded in other products.
- Linking the power of market and communities. One of the main reasons why MySQL was successful in incremental innovation is the fact that the firm was capable to combine community and markets. Important feature is that MySQL can offer enterprise customers extra value, like more functionality, better performance, new features and fewer errors, while community users provide very valuable testing and feedback that delivers error-reporting and bug-fixing.