3 Spheres of Innovation
At FROM, we work with a wide range of clients looking to drive greater innovation in their companies or divisions.
While the specific objectives of each organization are varied, we’ve noticed a trend: there are three primary spheres that both encourage innovation and drive the value realized from innovation efforts. And in fact, most innovations have the potential to generate value in all three spheres. However, it’s common for us to see only some of the spheres being fully leveraged in any given organization. Below we describe the three spheres. Consider whether you are leveraging all of these when justifying investment in innovation, and also when seeking to achieve the maximum benefits from innovations that have already been developed.
Sphere One: Direct Business Benefit
The first and perhaps most obvious reason to innovate is for direct business benefits. This is usually characterized as either increasing revenue or decreasing cost (or both). Here are the top ways companies are driving direct business benefit through innovation:
Increasing Revenue
- Improving product to justify increasing price.
- Creating new products to sell to existing customers.
- Creating new monetization methods for existing assets or products.
- Finding new markets for existing assets or products.
- Inventing a new solution to an existing problem.
Reducing Cost
- Developing new methods to manufacture goods or deliver services at lower costs.
- Finding new ways of marketing that bring in customers at lower costs.
- Finding ways to sell directly to customers and eliminate the cost of distribution channels.
- Improving process efficiency.
- Replacing physical products with digital ones, eliminating manufacturing and shipping costs.
Sphere Two: “Aura” of Innovation
A second sphere of benefit is what we call the “aura” of innovation. These types of innovation benefits are not the easily measurable business benefits, like the first category, but they are the less tangible value created by the perception that your brand is innovative. This can result in significant benefits, such as:
- Customers sticking with your existing product line due to the belief that better things will be coming in the near future.
- Employees being energized about the company and brand.
- Investors increasing their confidence and valuation of the company due to optimism about the future.
- Media and the press treating your brand more favorably.
- Regulators or other governing bodies being more appreciative of the value your brand is trying to bring to customers, or desiring affiliation with your brand.
Sphere 3: Intellectual Property
The third category is the creation of intellectual property that may have realizable value in and of itself, independent of its actual implementation. Recently we have seen companies such as Novell and Palm, whose business operations have failed, still be sold for very substantial sums because of the value of their patent portfolios — intellectual property value which remains long after revenue has dried up and the “aura” of innovation has long faded.
While firms in certain industries, such as high tech and pharmaceuticals, tend to be well-tuned to the importance of their patent portfolios, clients in other industries, e.g. retail, financial services, some areas of media & entertainment and energy, tend not to focus on these areas. We recommend that any company investing in driving innovation include IP specialists on their teams to play the dual role of proactive evaluating whether new innovations may be unintentionally violating pre-existing patents as well as to determine when newly created innovations warrant filing for patent or other IP protection.