Innovation of Business

and the
Business of Innovation™
Drill-Down on Innovation
An Extended Definition of Innovation

[NOTE: The Product Development Management Association ( invited Lundquist to write the "drill-down" (extended definition, description, and resources) on "innovation" for their Glossary.]

PDMA Glossary Definition of Innovation

A new idea, method, or device. The act of creating a new product or process. The act includes invention as well as the work required to bring an idea or concept into final form.

Extended Definition

Innovation as a Result: A valuable “product” not previously available that meets needs not previously met.

Innovation as a Process: Development of ideas into products in use, for the first time anywhere, that create compelling value for customers.
For “product”, also read at least: Service, process, tool, strategy, business model, and business.
For “product in use” also read at least: service in use, process in application, tool in use, strategy in action, and business in service.
For “customer” read stakeholders of every type, within the company and out in the marketplace. Innovator: One who innovates

Innovation System: The entire suite of processes and resources, linked and integrated into a whole, that turns investment in new ideas into return on investment from markets.

Innovation Vision - Result: A multifaceted, shared perception of what an end “product” must be to satisfy customers in real-world environments and to compete successfully for preference.

Innovation Vision - Process: A multifaceted, shared perception of business operations required to invent, complete, launch, sell, and service a “product” at a profit.

Description and Commentary

Innovation is a very broad concept. Where other terms in the PDMA Body of Knowledge can be defined specifically for corporate new product development, innovation happens in industry, government, the arts, education, the military, and even religion. In business, innovation of internal processes and tools (e.g., for product development) may do as much for the bottom line as revenues from new products.

Innovation is often misunderstood as invention. Instead, think of innovation as the sum of invention and commercialization of a new “product.” Innovation is not complete until “customers” are served. Inventors may be innovative, yet invention is just an early, and often the least expensive step in innovation. Innovation goes beyond invention (creation and testing of a new idea), and beyond prototyping (proof that the idea works), and beyond manufacturing (proof that it can be built in quantity), and beyond launch (proof of tactical marketing expertise), to purchase and regular use in the real world by customers.

If invention takes imagination, innovation takes a vision of the new product in use by customers who have bought it in preference to other ways of spending their money. Such a vision requires significant market research and always benefits from technology roadmapping and forecasting.

Innovation delivers new value. That is, newness by itself is not enough. Innovation meets new needs and delivers new benefits, thereby changing customer behavior. In the process, innovation changes markets, competitive situations, and financial returns. Innovation enables momentum. Each new innovation changes customer perceptions of possibilities, thus creating new expectations and advancing criteria for the next innovation.

Any innovation is new to both its developer and its customers. An incremental innovation is a new modification of an existing product. A radical innovation is entirely new-to-the-world and performs a function for which no product has previously existed. In any case, innovation delivers value not previously available.

As a process, innovation is a system. Investment produces return on investment, part of which becomes funding for next generation innovation. Ideally, an active culture of innovation attracts top talent which then help produce a never-ending flow of winning products. Ideally, innovation satisfies customers so well that they become loyal to the source of innovation, paving the path for new innovations from that same source.

Innovation is a strategy – a method for achieving corporate goals. One third of a typical company’s revenue today comes from products not sold five years ago. The top 20 percent of innovative firms deliver up to four times the shareholder return of the bottom 20 percent. Innovation delivers top-line revenues.

Innovation replaces previous “products.” In that sense, innovation faces resistance. Christensen’s The Innovator’s Dilemma and The Innovator’s Solution clarify the issues of purposefully replacing successful products to make room for the next generation.

In context of products developed for sale to external customers, innovation is new product development with a distinct customer and value focus. Innovation management is product development management driven to gain win-win profitability. Thus successful innovation benefits from all of the knowledge and tools in the PDMA Body of Knowledge.


(Most reviews courtesy of

Christensen, Clayton M., The Innovator's Dilemma, Harper Business; 2003
Even the best-managed companies, in spite of their attention to customers and continual investment in new technology, are susceptible to failure, no matter what the industry.

Christensen, Clayton M. and Michael E. Raynor, The Innovator's Solution, Harvard Business School Press, 2003
Analyzes the strategies that allow corporations to successfully grow new businesses and outpace the other players in the marketplace. Christensen's earlier book examined how focusing on profits can destroy even well-run corporations. This book focuses on companies expanding by being "disruptors" who are able to outpace their entrenched competition.

Drucker, Peter F., Innovation and Entrepreneurship, HarperBusiness, 1993
Drucker’s recurring theme is that good entrepreneurship is usually market-focused and market-driven. He gives us guidelines for identifying innovative opportunity. For example, unexpected successes or unexpected failures within an industry often point to opportunity. Drucker also suggests that innovative opportunity exists where there is "an internal incongruity within the rhythm or the logic of a process" or a process need.

Kelley, Tom, with Jonathon Littman, The Art of Innovation, Doubleday, 2001
Teaches indirectly by telling great stories--mainly, of how the best ideas for creating or improving products or processes come not from laboriously organized focus groups, but from keen observations of how regular people work and play on a daily basis.

Lundquist, Gary, “Innovation and Wealth Creation”, The Market Engineering Press, 2003 (877-841-1411)
A white paper developed for The Colorado Innovation Summit that looks at innovation from perspectives of value, definition, invention, vision, brand, strategy, value webs, agents of change, wealth, systems, partnerships, portfolios, and the future.

Peters, Tom, The Circle of Innovation, Vintage Books, 1997
A vision for prospering in the "permanent state of flux" ruling today's business world. Peters simply but passionately offers his prescription--perpetual innovation--in a nontraditional manner intended to foster individual interpretation.

Eric von Hippel, Democratizing Innovation, The MIT Press, 2005
Argues that manufacturers should redesign their innovation processes to systematically seek out innovations developed by users. Hippel points to businesses -- the custom semiconductor industry for example -- that have learned to assist user-innovators by providing them with toolkits for developing new products.


3. The challenge isn't to keep your eye on big competitors. It's to pay attention to the innovators. (Dave Duffield)

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