Innovation Concepts & Product Development Models

Posted on Jul 5, 2025 in Business Administration and Management (BAM)

Definition of Innovation: Oslo Manual Perspective

According to the Oslo Manual (2018), innovation is defined as a new or improved product or process (or a combination thereof) that differs significantly from previous products or processes and has been introduced on the market or implemented in an organization. This definition emphasizes three essential characteristics:

Novelty: Must be significant, not merely minor changes or upgrades.
Implementation: Ideas must be realized in practice, distinguishing innovation from invention.
Value Creation: Oriented toward creating value, whether through improved efficiency, customer satisfaction, or market impact.

The Oslo Manual clarifies that innovations can be tangible (products) or intangible (services, processes), and that innovation is not limited to commercial organizations—it applies to the public sector and non-profits as well.

Types of Innovation: Oslo Manual Classification

The Oslo Manual classifies innovation into two core types:

Product Innovation: Refers to a new or significantly improved good or service in terms of functionality, technical characteristics, or intended uses. This can include tangible physical goods, such as a new model of smartphone, or intangible services, like a new online banking feature.
Business Process Innovation: Refers to new or significantly improved production or delivery methods, including changes in equipment, software, or workflow. These innovations aim to improve operational efficiency, reduce costs, or enhance quality.

While the Manual previously identified four categories, the 2018 version emphasizes these two to reflect a more integrated and simplified approach to measuring innovation activities.

Levels of Novelty in Innovation: Oslo Manual

The Oslo Manual defines three levels of novelty that describe how new an innovation is relative to different scopes:

New to the firm: The innovation is new to the organization but may already exist in the market or elsewhere.
New to the market: The innovation is the first of its kind within a given market or industry.
New to the world: The innovation is globally unprecedented.

These distinctions help policymakers, researchers, and businesses understand the impact and reach of innovations. An innovation new to the firm may reflect the adoption of existing best practices, while world-first innovations typically require greater investment and entail higher risk but can yield significant competitive advantage.

Radical vs. Incremental Innovation Categories

Radical innovation involves significant technological or business model breakthroughs that transform industries or create entirely new ones. These innovations typically involve high risk and uncertainty, but they offer potential for high reward. Examples include the internet, the iPhone, or mRNA vaccines.

Incremental innovation, on the other hand, involves continuous improvements to existing products, services, or processes. These improvements may enhance performance, reduce cost, or improve user experience, but they do not fundamentally change the core technology or market. Most innovations in practice are incremental. Both categories are essential: radical innovation fuels long-term growth, while incremental innovation sustains competitive advantage and adapts to customer feedback.

Understanding Disruptive Innovations

Disruptive innovations refer to innovations that begin in niche or underserved markets, offering simpler, cheaper, or more accessible alternatives. Over time, these innovations improve and move upmarket, eventually displacing established products or services. The concept, introduced by Clayton Christensen, helps explain why dominant firms can fail to maintain market leadership. Disruptive innovations often succeed not by outperforming incumbents, but by redefining what performance means—focusing on affordability or convenience. For example, digital photography disrupted the film industry, and streaming services disrupted television broadcasting. Understanding this dynamic helps firms monitor peripheral threats and recognize emerging technologies with disruptive potential.

Research & Development (R&D): Frascati Manual

The Frascati Manual (2015) defines Research and Experimental Development (R&D) as creative and systematic work undertaken to increase the stock of knowledge, including knowledge of humankind, culture, and society, and to devise new applications of available knowledge. R&D activities are categorized into:

Basic Research: Oriented toward the pursuit of new knowledge without a specific application in mind.
Applied Research: Focuses on a particular practical objective.
Experimental Development: Involves the use of existing knowledge to develop new or improved products, processes, or services.

R&D is characterized by five core criteria: novelty, creativity, uncertainty, systematic approach, and transferability or reproducibility.

R&D vs. Innovation: Key Distinctions

Although R&D and innovation are closely related, they are distinct concepts. R&D is concerned with generating new knowledge and potential applications, often without immediate implementation. It is an input to innovation but does not guarantee it. Innovation, as defined by the Oslo Manual, requires the actual implementation or use of a new or improved product, process, or organizational method. While R&D can lead to innovation, many innovations also arise from other sources such as user experience, market insights, or incremental improvements without formal R&D.

Linear Product Innovation Model: Benoît Godin

The linear model, as described by Benoît Godin, presents innovation as a one-directional process that begins with scientific research, continues with technological development, and ends with commercialization and diffusion. This model reflects a post-World War II view of innovation policy, emphasizing science as the source of all innovation. Godin critiques this model for oversimplifying innovation and ignoring feedback loops, demand-driven innovation, and the role of users and market interactions. Despite its limitations, it influenced public policy and funding priorities for decades.

Stage-Gate Innovation Model: Robert Cooper

The Stage-Gate model, created by Robert Cooper, divides the innovation process into distinct stages—such as idea generation, development, testing, and launch—with decision ‘gates‘ in between. Each gate evaluates the project’s progress, risk, and strategic fit before allowing it to move forward. This structure ensures better resource allocation, discipline, and risk management. The model is particularly useful for large firms developing complex products, as it introduces checkpoints to assess technical feasibility, financial viability, and market readiness.

New Product Development: Kotler & Armstrong

Kotler & Armstrong describe an eight-step new product development process:

Idea Generation: Initial brainstorming and concept creation.
Idea Screening: Filtering viable options.
Concept Development and Testing: Presenting ideas to target consumers.
Marketing Strategy Development: Planning the product’s market approach.
Business Analysis: Projecting profitability and financial viability.
Product Development: Technical design and creation.
Test Marketing: Real-world environment testing.
Commercialization: Product launch.

This model integrates marketing and financial evaluation throughout the process.

Complex Product Development: Ulrich & Eppinger

Ulrich & Eppinger propose a detailed model for designing complex engineering products. It involves six phases:

Planning
Concept Development
System-Level Design
Detail Design
Testing and Refinement
Production Ramp-up

The model emphasizes cross-functional teams, integration of design and manufacturing, and the use of prototypes and feedback loops. It is particularly suitable for hardware products and includes structured tools such as morphological charts, Pugh matrices, and Design for Manufacturing principles.

KANO Model: Customer Satisfaction Attributes

The KANO Model helps understand customer satisfaction by categorizing product features into five types:

Basic (must-be) attributes: Expected features that cause dissatisfaction when missing.
Performance attributes: Satisfaction increases or decreases proportionally with performance.
Excitement attributes: Unexpected features that delight customers.
Indifferent attributes: Features that have no impact.
Reverse attributes: Features some like and others dislike.

This model is used in product development to prioritize features and balance investments in expected versus surprising value.

Quality Function Deployment (QFD) Explained

Quality Function Deployment (QFD) is a structured approach to translating customer needs (Voice of the Customer) into specific technical requirements and product features. It originated in Japan in the 1960s and has since become a key tool in product and process design. The primary tool used in QFD is the ‘House of Quality‘ matrix, which relates customer requirements to design attributes. The objective is to ensure that product development aligns with customer expectations across every stage, from design to manufacturing. QFD promotes cross-functional collaboration among marketing, design, and engineering teams and reduces the risk of developing features that do not deliver customer value.

The Trimming Technique: Simplifying Products

The Trimming Technique aims to simplify products or systems by eliminating unnecessary components or functions. It enhances efficiency and reduces costs while maintaining or improving user satisfaction. There are six trimming rules:

The function does not need to exist.
Another component can perform the function.
The recipient can perform the function itself.
The recipient of the function can be eliminated.
The function can be improved by a new or enhanced element.
A trimmed version can serve a niche market.

This method is often applied in early-stage design to avoid overengineering and reduce feature creep.

Innovation Financing & Development Phases

Innovation typically passes through four development phases:

Seed: Idea and validation.
Start-up: Prototype development.
Development: Testing and scaling.
Exploitation: Commercialization.

Each phase presents different financial needs and risk levels. Financing sources include:

Personal savings and loans.
Family, Friends, and ‘Fools’ (3Fs).
Business Angels.
Venture Capital Funds.
Banks.
Public funding (e.g., EU grants).
IPOs.

Early stages require flexible, risk-tolerant capital, while later stages seek structured investments. Aligning funding strategy with development stage is crucial for innovation success.

Divergent & Convergent Thinking in Innovation

Divergent thinking is the ability to generate multiple solutions to a problem. It encourages creativity, open-mindedness, and idea exploration. This process is commonly used during brainstorming sessions. Convergent thinking, in contrast, involves narrowing down options to select the best or most practical solution. It relies on logic, analysis, and decision-making. Innovation processes typically combine both: first generating many ideas (divergent), then filtering and selecting the best ones (convergent). Both modes are essential to develop feasible, creative outcomes.

Creativity & Environment Matrix for Innovation

This matrix shows how individual creativity and environmental support interact to affect innovation. Four zones emerge:

Low creativity + poor environment = Stagnation
High creativity + poor environment = Frustration
Low creativity + supportive environment = Potential growth
High creativity + supportive environment = Ideal innovation

Enhancing both personal creativity (skills, mindset) and the surrounding environment (autonomy, encouragement, resources) is crucial to sustain continuous innovation within teams and organizations.

Organizational Ambidexterity: Balancing Act

Organizational ambidexterity is the ability to pursue both exploitation (efficiency and optimization of existing processes) and exploration (innovation and adaptation to change). James G. March introduced the term to describe the need for firms to balance short-term performance with long-term innovation. Exploitation ensures operational stability, while exploration allows for experimentation and future competitiveness. Successful ambidextrous organizations design separate structures, cultures, or teams to handle both dimensions.

Innovation Strategies: Ansoff Matrix

The Ansoff Matrix outlines four innovation strategies based on products and markets:

Market Penetration: Increase sales with current products in current markets.
Product Development: Introduce new products in current markets.
Market Development: Enter new markets with existing products.
Diversification: New products in new markets.

Each strategy involves varying levels of risk. Diversification is the riskiest but can yield high returns, while market penetration is the least risky and often the first step for innovation growth.

Hoshin Planning Process: Seven Key Steps

Hoshin Planning is a strategic planning method designed to align an organization’s goals from top to bottom. The seven main steps are:

Self-diagnosis of the current situation.
Define vision and 3-5 year breakthrough objectives.
Set annual objectives.
Identify key action plans and projects.
Allocate resources and responsibilities.
Execute and monitor progress.
Review and adjust through the PDCA (Plan-Do-Check-Act) cycle.

This structured approach ensures focus on critical goals and promotes continuous alignment and engagement at all organizational levels.

Hoshin X Matrix: Strategic Alignment Tool

The Hoshin X Matrix is a visual planning tool that integrates long-term goals, short-term targets, improvement initiatives, and responsible persons in one diagram. It is used in Hoshin Kanri to align strategy with daily activities. The matrix’s four quadrants connect:

Breakthrough objectives (top).
Annual objectives (left).
Key projects (bottom).
KPIs and responsibilities (right).

This fosters strategic coherence, accountability, and transparency. Each element is cross-linked, helping teams see how their work contributes to strategic outcomes.

The Progress Principle: Teresa Amabile

Teresa Amabile’s ‘Progress Principle’ highlights that making small, meaningful progress each day is the most powerful motivator for knowledge workers. Employees who perceive progress feel more engaged, productive, and creative. Two key support mechanisms:

Catalyst factors: Clear goals, autonomy, sufficient resources, help and learning.
Nourishment factors: Respect, encouragement, emotional support, camaraderie.

Leaders can increase innovation by creating conditions for daily progress and removing inhibitors.

Thinking Types: Ned Herrmann’s Whole Brain Model

Ned Herrmann’s Whole Brain Model identifies four thinking preferences:

Analytical: Logic, critical thinking, numbers.
Organizational: Planning, detail, implementation.
Interpersonal: Empathy, communication, team-building.
Conceptual: Creativity, strategy, big-picture ideas.

Balanced innovation teams should include diverse thinking types. Awareness of these preferences improves collaboration and enhances creative problem-solving.

Tuckman’s Model: Stages of Group Development

Bruce Tuckman proposed five stages of team development:

Forming: Orientation, politeness, unclear roles.
Storming: Conflict, resistance, competition.
Norming: Cohesion, consensus on norms.
Performing: Productivity, collaboration, role clarity.
Adjourning: Dissolution after task completion.

Understanding these stages helps managers support teams as they evolve toward high performance.

Nielsen’s 12 Success Factors for Products

Jakob Nielsen outlined 12 key factors that contribute to product success:

Usefulness
Ease of use
Desirability
Affordability
Availability
Compatibility
Quality
Performance
Trust
Aesthetics
Sustainability
Innovation

Successful products address functional, emotional, and contextual needs to meet market expectations and generate adoption.

Diffusion of Innovations: E. M. Rogers

Rogers’ theory explains how innovations spread through social systems over time. Key components include:

Five adopter categories: Innovators, Early Adopters, Early Majority, Late Majority, Laggards.
Attributes influencing adoption: Relative advantage, compatibility, complexity, trialability, observability.
Communication channels and social influence drive adoption.

Understanding diffusion helps innovators tailor strategies to target specific adopter segments and accelerate market penetration.

Open Innovation: Henry Chesbrough’s Concept

Henry Chesbrough defines open innovation as the use of purposive inflows and outflows of knowledge to accelerate internal innovation and expand markets for external use. It contrasts with the traditional closed model where innovation happens solely in-house. Open innovation embraces partnerships, licensing, joint ventures, and crowdsourcing. Firms leverage external ideas while also allowing others to use internal inventions. This model acknowledges that not all smart people work within one organization.

Six Thinking Hats: Edward de Bono’s Method

Edward de Bono’s ‘Six Thinking Hats’ is a parallel thinking technique that structures group discussion using six colored ‘hats’:

White: Facts and information.
Red: Feelings and intuition.
Black: Caution and risk.
Yellow: Optimism and benefits.
Green: Creativity and new ideas.
Blue: Control and summary.

This method encourages balanced participation and creative thinking without conflict.

Brainstorming: Alex Osborn’s Technique

Alex Osborn’s brainstorming method is a group creativity technique for generating ideas. Key principles include:

Defer judgment.
Encourage wild ideas.
Aim for quantity.
Build on others’ ideas.

Teams of 5–10 participants, led by a facilitator and recorded by a scribe, work together to produce innovative solutions. It promotes divergent thinking and collective ideation.

Realm of Senses: Creativity Technique

This technique stimulates creativity by exploring a product or idea through the five human senses: sight, hearing, smell, taste, and touch. Participants assess sensory impressions (positive or negative) and then brainstorm how to enhance or eliminate them. This method helps designers develop multi-sensory products that deliver richer user experiences.