The Industry Innovation Index: Spotlight on Incremental and Disruptive Forces Reshaping Industries

June 29, 2023

Learn more and download the Industry Innovation Model.

Innovation stands at the core of modern enterprises, reshaping business models, operations, and entire industry structures. Yet, innovation is not a one-size-fits-all term; it’s a multifaceted concept that takes different forms and impacts various aspects of business. The innovation we encounter today goes beyond disruptive, technology-based changes. It’s not always about making waves; sometimes, it’s about making ripples through incremental advancements. In the context of the Fourth Industrial Revolution, it becomes crucial to distinguish between incremental and disruptive innovations, as they spring from different processes and characterize a firm’s innovative capacity differently.

The Industry Innovation Model by Portulans Institute

This model recognizes the multifaceted nature of innovation, capturing how it shapes industrial dynamics. It investigates innovation’s impact on industry productivity, reflecting the complexities within each industry’s unique innovation ecosystem.

Types of Innovation: Incremental and Disruptive

The Portulans Institute’s Industry Innovation Model emphasizes the need to distinguish between incremental and disruptive innovations in industries.

Incremental Innovation: Often referred to as continuous or sustained innovation, incremental innovations are those that maintain the rate of improvement for current customers and markets. These innovations allow firms to maintain incumbency within a specific market and customer base, enhancing existing products and services based on the attributes that customers already value. Incremental innovation is about playing safe, focusing on making existing products and services more competitive. A classic example of incremental innovation is Google’s Gmail, which incrementally became more competitive within an established market niche, ultimately becoming the world’s leading email service.

Disruptive Innovation: Defined as the introduction of new, unfamiliar, and initially unpopular technologies, disruptive innovations create markets where none previously existed. Often high-risk, these innovations are usually spearheaded by smaller companies, start-ups, or labs sponsored by incumbent firms. Once disruptive architecture gains a foothold in new markets, incremental innovation can take over to enhance the architecture’s performance, indicating that innovation breeds innovation. An example of disruptive innovation is Netflix, which introduced inexpensive online streaming, a move that ultimately led to Blockbuster’s downfall.

Delving Deeper into the Index’s Structure

The intricate structure of the Industry Innovation Model is designed to effectively measure the innovative potential of different industries. It operates on an index-oriented methodology, featuring two main sub-indices: the Production Sub-Index and the Innovation Sub-Index.

The Production Sub-Index

This sub-index is a multi-dimensional tool that assesses the contextual factors or ‘enablers’ driving innovation activities in industries. It encapsulates four critical pillars, each exploring a different aspect of the innovative ecosystem:

Context: This pillar assesses the state of the innovation ecosystem. It gauges the influence of regulatory structures, financial markets, and global competition on innovation. It explores the extent to which laws and regulations are conducive to innovation, encouraging or discouraging entrepreneurial activities.

Human Capital: This pillar focuses on the quality and quantity of human resources available in an industry. It evaluates factors such as educational levels, skills, and the capacity of the workforce to adapt to new technologies.

Technology: This pillar examines the digital infrastructure necessary to support innovation. It includes aspects such as R&D investment or resource allocation, digital sophistication or digital capabilities, and technology partnerships or collaborations. These elements help gauge the accessibility and utilization of technology within the innovation ecosystem.

Leadership: The Leadership of an organization plays an important role in the innovation initiatives within the firm and can define the culture, instill strong governance, and promote creativity and innovation within the organization. This pillar analyzes the quality of leadership in relation to innovation with respect to these factors.

The Innovation Sub-Index

This sub-index is designed to assess the outcomes of innovation in a specific industry. It measures the impact of both incremental and disruptive innovations, considering their effects on business, societal, and environmental aspects. The Innovation Sub-Index is split into three distinct pillars:

Business Innovation: This pillar looks at the tangible and intangible results of innovation. It focuses on innovation in products, services, and new ventures, while distinguishing between incremental and disruptive innovation.

Societal Innovation: This pillar evaluates the broader societal impacts of innovation, including its effects on social protection, social inclusivity, and inequality. By considering the societal implications, this pillar aims to gauge the extent to which innovation positively influences and benefits the larger community.

Environmental Innovation: This pillar evaluates the environmental consequences of innovation. It reviews how new products, processes, or services affect the environment, focusing on aspects such as energy efficiency, waste reduction, and the promotion of sustainable practices.

In conclusion, the Industry Innovation Model is not just an analytical tool; it’s a strategic instrument for industries to navigate the tides of change. By highlighting the importance of both incremental and disruptive innovations and their effects, it equips industries to forge a path that is innovative, inclusive, and sustainable. It pushes them towards a future where they do not merely survive the Fourth Industrial Revolution but thrive in it. Discover more about your industry’s innovation journey in the Fourth Industrial Revolution at this link. Join us in shaping the future.

Shailja Bang Shah is a Thematic Research Analyst and has experience in leading and managing Composite Index projects. At Portulans Institute, she is responsible for project management, research, policy analysis, and communications support for the Vietnam Industry Innovation Index in association with VinUniversity.

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