By far the greatest proportion of product and process innovations are incremental. For the most part, innovations contribute to performance improvement through many small incremental changes rather than through ‘big bang’ radical change. However, failure to be alert to the need for radical innovation can be dangerous. The vacuum cleaner market, for example, was marked by years of small incremental innovations until the emergence of the radically different Dyson vacuum cleaner resulted in dramatic loss of market share by incumbent firms.

Things going on outside an organisation are often drivers to innovation, such as competition, technical change, or regulatory changes, such as restrictions on pollution. Customer inputs to innovation (or ‘market pull’) have been observed for years. An ‘intelligent’ customer that makes demands and suggestions can be of great benefit. Those organisations that recognise and react to customer problems, or lapses in quality, are likely to have a strong drive for incremental innovation. The systematic searching for new ideas from customers may be a valuable source of information and ideas that drive innovation.

However, there is, paradoxically, a danger in listening too intently to current customers. They may not be able to see beyond the current product or service. Research has shown how previously innovative firms such as IBM and Xerox missed out on disruptive (or radical) innovations that had dramatic effects on their dominant market positions. Precisely because these firms listened to their customers, invested in new technologies that would provide their customers better examples of the existing products that they wanted, and because they carefully studied market trends and systematically allocated investment capital to innovations that promised the best returns, they lost their position of leadership.

It seems that the apparently good business practice of ‘listening to the customer’ may be appropriate as inputs to incremental innovation, but may leave your organisation dangerously exposed when radical innovations create a major discontinuity in the wider market. It is not surprising that this is described as the innovator’s dilemma.

Market demand is therefore only one driver. There is also the dynamic of technological development, which affects both suppliers and users of technology. Many studies have shown that new product innovation results from a new technological opportunity being coupled with market potential, rather than from specific customer demand. The Sony Walkman is an example of a product innovation based on perceptions of potential demand for a product that previously did not exist, coupled with the opportunities provided by electronic miniaturisation. Similarly 3M’s Post-it notes resulted from a developer of a technology (a non-permanent adhesive) seeking an application in a specific product for which there was no prior demand.

To achieve the necessary cost reductions, speed of response, and flexibility to enhance their potential for innovation, many organisations have had to restructure. Initially, companies tried to meet this challenge with more of the old strategies - downsizing and delayering, and divesting non-core business. Many companies have reorganised into more responsive structures by decentralising production to multidisciplinary teams, which are organized in product or service-related cells and divisions acting as their own profit centres. The new leaner twenty-first century organisation often finds development and growth now occurs through partnership and alliance with other companies, even old enemies, who can provide the necessary expertise or capital to compete.

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