I’ve written elsewhere how Peter Drucker, one of the most sought-after management teachers and consultants of the 20th century, defined entrepreneurship as a discipline rather than a “flash of genius”. He argued that entrepreneurs constantly search for changes that present a new market opportunity. They then innovate to exploit that opportunity.

It’s useful then, in strategy development, to remember that there are many forms of innovation; beyond the obvious one of product development.

In a marketing innovation, a firm might communicate to its target market in a novel way. In its early days, Dell targeted technically minded buyers; unlike IBM, who targeted business buyers. So, Dell advertised in electronics magazines not newspapers and business magazines. In a structural innovation, a firm might re-organize itself to better serve its customers. An efficiency innovation might cut costs or delays, for example Dell’s constant innovation in selling and rapidly shipping made-to-order personal computers. Often, technology is used to implement these innovations. But it is used to improve the activity, structure, or process; not necessarily the actual product.

Perhaps a more visible form is pricing innovation. Software licensing is a clear example of this. Since the turn of the century, we’ve increasingly witnessed software be consumed as a service rather than a product. And, in parallel, we’ve watched the pricing evolve from long-term/payment up-front to more flexible, pay-as-you-go models. In the last century, B2B software buyers had two main choices: Perpetual licenses plus (almost mandatory) annual maintenance or three-to-five-year term leases with no exit clause.

Even when we do think of product development, there are different forms of innovation here. New product innovation (e.g. a brand-new device), enhancement/sustaining^* innovation (e.g. a faster processor in the next version of that device), and line extension innovation (e.g. a ruggedized version of that device for hostile environments).

* Harvard Professor Clayton Christensen was one of the greatest ever thinkers, consultants, and teachers of innovation. He frequently referred to sustaining innovation as a way of distinguishing from disruptive innovation. He devoted his academic career to developing and teaching the concept of disruptive innovation. And, it warrants a separate article as it is commonly misunderstood as a form of innovation. And this leads to market opportunities (and potentially fatal threats) being missed.

So, remember to consider the many forms of innovation when developing your firm’s strategy and choosing how to exploit market opportunities.