What Is Business Innovation? (Definition, Types and Examples)

By Indeed Editorial Team

Published December 14, 2021

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Businesses often look for new ways to improve their services or products and appeal to new audiences. Innovation is one way businesses can improve, and it can help them attract new customers and further reinforce loyalty among current customers. Understanding what innovation is, how it works and why businesses use it can help you determine whether there's a need for it in your workplace. In this article, we define business innovation, explore different types and provide examples for reference.

What is business innovation?

Business innovation is how a business pioneers a process, product or service in an industry, typically improving upon or completely redesigning the service or product. This can include creating new, more useful or feature-rich products or services, discovering a new material or process or creating better systems for business organization and function. Innovation can occur out of need or because a business wants to further differentiate itself from its competitors, thereby creating a more niche market for its products and services. Innovation may help a business earn more revenue, grow its customer base and earn industry accolades for its efforts.

Related: How To Track Your Innovation Metrics in 4 Simple Steps

Why is business innovation important?

Business innovation is important for many reasons. It can help a business grow and further cement itself as a prime competitor in an industry and can also encourage the production of new and better products. Innovation also can help improve working conditions and safety measures in some industries, like construction or manufacturing. For example, if a manufacturing company creates a new, safer production method for extracting raw iron ore, the methods might become standard practice in the industry. Innovation often influences legislation and safety regulations, creating better environments for employees and greater accountability for businesses.

Types of business innovation

There are many types of business innovation to consider, including:

Business model innovation

Business model innovation is when a company pioneers a new business model or type of business. For example, an e-commerce retailer that is one of the first pioneers of the digital ecosystem may have a business model where the company conducts its business via an e-commerce website. The company builds servers, digital infrastructure and physical warehouses, pioneering the retail and e-commerce industries to become one of the largest e-commerce and retail companies in the world. Innovating business models can help change the way business markets its products, earns its revenue and structures its internal operations.

Read more: Three Types of Innovation: Definitions and Details

Products and performance innovation

Products and performance innovation is when a business pioneers new products or improves the performance of a previous product. Customers often influence this kind of innovation, demanding changes to features or functionality of a product to make it safer, more affordable or reflective of its market price or to meet a specific need. Competition can also influence this kind of innovation, with companies focusing on creating the best possible products to separate themselves from competitors and attract new customers. This kind of innovation is common in business and typically influences much of the competition within an industry.

Process innovation

Process innovation is when a company creates or improves processes for producing or delivering products and services or its customer service processes. This kind of innovation typically helps a company save money because it can focus on making certain processes more efficient or quicker. For example, a manufacturer might create a new process for molding plastic, which can save hours of molding time and make some of their products more affordable for customers while saving the company labor hours. Customer demand and company costs are typically the prime influencers of process innovation in a business.

Related: Innovation Management: Definition, Key Areas, Methods and Risks

Network innovation

Network innovation is when a business changes, improves or creates a completely new method for networking and collaboration. Companies might look for specific partners or customers, creating the need for new or improved networking methods. For example, a company might decide to create a new career website to attract the kind of applicants it requires for certain positions. Changing the way people interact can help a business create more relationships, establish new professional connections in an industry and expand its available list of job candidates and contractors.

Marketing or sales innovation

Marketing or sales innovation is when a business pioneers how it markets its products and services. Since marketing is crucial to business operations, the marketing sector of a business is typically always innovating. Finding new ways to reach customers, leads and sales can be a great way for a business to earn extra revenue. For example, a company might create a new marketing technique using artificial intelligence that analyzes a customer's purchase behaviors before showing them ads. This can help the company reach the right customers and limit ads to only relevant ads that might influence a purchase decision.

Technological innovation

Technological innovation is when a business creates a new kind of technology or improves or expands on an existing technology. Technological innovations can increase company sales, influence brand loyalty among customers and differentiate a business from its competitors. For example, consider technology companies that helped pioneer the use of home computers, eventually creating product lines that evolved through the years and depended on innovation to meet changing customer needs. Technological innovation can also help a company improve its workplace or processes, creating better, more efficient work environments.

Examples of business innovation

Here are some examples of business innovation for reference:

Example 1

A company that fabricates machine parts using a manual method to create molds: The manual method is the standard for the industry and has been for nearly 50 years. The method requires manual labor, which is costly and can be hazardous to employees. The company decides that innovating the process is the best way to improve efficiency, safety and save time and money on fabrication. By investing in new technology, the company creates an entirely new production method that reduces production time by 20% and costs by nearly 50%, while also improving workplace safety.

Related: 130 Examples of Innovation Key Performance Indicators (With Tips)

Example 2

A computer system company that designs computer systems for military equipment: The company produces a single line of processors that they use in each computer system, but the introduction of a new, more powerful processor by the company's main competitor creates the need for product innovation. Innovating the company's product line helps it remain competitive and helps prevent the competition from earning its yearly defense contracts. The company invests in research and development, creating a new, more powerful processor to beat its competition.

Example 3

A lab creates the first cancer treatment pill, innovating the entire medical industry: The pill requires further innovation when patients begin reporting major side effects, jeopardizing the safety of the company's customer base. The company invests in research and development to learn what causes the side effects and eventually creates a new, side-effect free pill for cancer treatments. This helps the company monopolize on its position as the sole provider of cancer treatment pills and helps the customer be more trusting of the brand.

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