3 types of business innovation

There are different ways a company can change and improve its business. A different perspective on the market and the needs of consumers outside the established framework leads to the creation of new product categories. Innovation is one of the specific tools of entrepreneurship that aims to offer a new, different meaning to products.

At the core of business, there are three types of innovation: product innovation, process innovation, and business model innovation. All three types of innovation can include innovative or incremental ideas. Innovative ideas are very rare and represent great strategic opportunities to generate large income if they are successful.

The result of incremental ideas is an increase in performance standards, so this type of idea occurs much more often. To remain competitive in a dynamic market, all large or small organizations must constantly innovate elements of their business and proactively respond to changes in their work environment.

Product innovation

This is the most common form of innovation that is divided into 3 subtypes:

  • Promotion of a new product on the market
  • Introduction of new features
  • Improving the existing product quality

This type results in a completely new product on the market, such as bitcoin. Another type of innovation involves some new functionality or design of an existing product, such as the introduction of a camera as an indispensable feature of mobile phones. The last subtype involves the improvement of an existing product function. A great example of this is improving camera resolution. Product innovations are most often the result of new technologies or insights into customer needs sometimes even before the customer identified these needs.

Process innovation

Process innovation is the transformation of the way a product or service is produced or delivered to a customer. It can be a combination of different methods and technologies for the production, advertising, or delivery of products. There are countless ways to improve the process so that the customer sees added value.

An example of a manufacturing process innovation is an automated car production line. This was a process innovation to find ways to reduce human error, which would simultaneously increase and speed up the production process. Another great example of a process innovation in product delivery is the way Dell has allowed customers to customize their computer during the order phase.

Also, banks and other organizations are now deploying automated chatbots based on artificial intelligence to provide their customers with 24/7 support for a better user experience.

Business model innovation

Business model innovation usually does not refer to gradual changes, but to a holistic organizational transformation. Business model innovations affect every aspect of the business, from the product itself through marketing channels to prices. This is most often seen with startups that have the ability to experiment with the way they run their business. Startups are looking for a business model, so they are constantly pivoting and innovations are most common there. There are also several well-established organizations that have used their large customer base and resources to change their existing business model.

Amazon is probably the best example of a large company that transformed its business model and created a completely new industry. Initially, they functioned as an online bookstore, so it was possible to buy only books on the site. The transformation into a growing e-commerce business has occurred after laying a great foundation for online sales.

Today, they are one of the leading companies in innovation. Their AmazonFresh service, became the first service for purchasing groceries online. Amazon founder Jeff Bezos received approval in August 2020 to introduce drones that would bring packages of up to 2 kilograms to their home address.

Amazon has found a new way to reach its customers and market its products to customers without going through the usual retail path.

How to choose the right innovation?

The type of innovation that is most relevant to a specific company is determined by the goals that the company wants to achieve. Test your business strategy by testing it in the marketplace. Additional questions will help you explore what type of innovation may be most appropriate for your business at a given time. Some of the potential issues that can trigger the innovation process:

Product innovation

  • How to reach customers more efficiently?
  • What can I learn from the competition?
  • Do I have the right tools to support innovation?

Process innovation

  • How to make the service more affordable for more customers?
  • Is the product easy to use?
  • What problems do customers face when it comes to delivery?

Business model innovation

  • What is the current capital for pivoting?
  • Does our existing business create value?
  • How to improve management to generate higher revenue?


Recognizing the right idea is not easy, so it is necessary to ask the right questions. This approach can apply to starting a new business or making a structural turnaround. The right questions can make a big difference in creating a flexible business strategy that encourages innovation. Innovation is a way to stay competitive in the marketplace and keep your organization relevant. Always keep in mind that in order for a product to stand out in a sea of brands, it is primarily necessary to give value to the customer.

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