Radical Product Innovation (RPI) and Incremental Product Innovation (IPI) were introduced by Schumpeter as the concept of “innovation” alone seemed too broad. RPI can be understood as the introduction of a product that wholly replaces an existing product to create something substantially unique. Whereas IPI is a series of small adjustments or upgrades made to a company’s existing product range (Schumpeter, 1989). One can see that the two kinds of innovation are vastly different, and therefore one can ascertain that the implications of implementing either strategy within a firm would result in various consequences. Furthermore, the recent introduction of Architectural Product Innovation (API), a concept which suggests that innovative firms should change the way in which the components of a product are linked together while preserving the core design concepts, has also added to the debate (Henderson & Clark, 1990). The following essay aims to explore and evaluate these forms of innovation and assess their effects on the firm as well as any other wider implications they may have.
RPI is more commonly practised amongst smaller, more entrepreneurial firms as they tend to be leaner and more agile than their incumbent counterparts. Chester Carlson’s establishment of Xerox is arguably a direct consequence of RPI as the development of xerography enabled him to disrupt the entirety of the market (Dessauer, 1971). RPI’s provides practising firms with the ability to disrupt which in turn has direct consequences on market share and concentration in an existing market, while also providing the RPI practising firm with the ability to create new industries (Chandy & Tellis, 2000). Furthermore, the level to which a firm practises RPI also may have a positive correlation on labour productivity. The understanding regarding this phenomenon is based on the principal that firms with a more radical innovation policies tend to have a greater density of skilled labour to match their research and development requirements. Empirics have shown that firms with higher proportions of skilled workers tend to be more productive and therefore one could argue that firms that tend to more commonly practise RPI have higher labour productivity (Gonzalez, et al., 2016). This theory was ratified by the results of an empirical study of Spanish manufacturing and service companies that showed RPI did in fact have a positive and significant impact on labour productivity (Gonzalez, et al., 2016). Clearly one can see that there are significant positive implications to the firm for employing RPI strategies namely in competition and labour productivity however, it is valuable to note, that there are negative implications to the firm should it be applied inappropriately. RPI involves a higher level of risk as companies move towards exploring more indeterminate ideas with limited knowledge bases. This often requires firms having to invest in specialists which greatly increases costs to the firm. Given the risky nature of RPI there is a significantly high probability that the results may not be entirely feasible to implement, resulting in a waste of both capital and time for the company, increasing the likelihood of insolvency (Bessant, et al., 2014). Furthermore, the argument that RPI leads to new market creation and the establishment of monopoly power for the firm is inherently flawed, as it fails to consider competitors that may replicate the original concept and enter the market (McDermott & O'Conner, 2002). An example of this can be seen through Uber who were forced to sell their South-East Asia network to their bigger regional rival Grab. Although Uber’s concept was entirely novel at the time of their establishment, new entrants prevented them from consolidating their monopoly power in contrast to the original argument. (Aravindhan & Somerville, 2018). Ultimately, one can see that the use of RPI has various implications for the firm and although the upside potential of becoming an industry leader is quite promising, the challenges with regards to monopoly power and managing RPI do present several drawbacks which could limit the benefits significantly.
Incremental Product Innovation provides a contrasting approach to innovation with regards to RPI and the resultant implications to the firm are often vastly different. RPI is significantly promoted by an aggressive technology policy and the concentration of technical specialists. Whereas IPI tends to be promoted in large, complex, decentralized organizations that have market dominated growth strategies (Ettlie, et al., 1984). The concept of IPI is deeply rooted in the philosophy that significant change comes from the aggregated effort of numerous smaller innovations, applied towards the same purpose. An illustration of this concept can be seen in the American nuclear power industry which over the past 25 years has doubled output, despite a reduction in the number of firms in the industry (Moser, 2012). Industry leaders have had to innovate without disruption as the core concept of nuclear fission remains unchanged; and yet the results are arguably as impressive as any RPI case study one can find, highlighting the potential gains to a firm and industry practising IPI. Furthermore, using the same example, one can see the macroeconomic potential of IPI as well, as without incremental improvements within the nuclear power industry one could argue that America’s energy demand would have failed to have been met (Moser, 2012). Moreover, the competitive advantages posed by IPI are critically important to incumbent firms in established industries. Firms in the cardiac pacemaker industry often benefit by bringing incremental innovations to market even though the new products may cannibalize the sales of existing profitable products. The more often an industry incumbent was among the first to introduce important incremental product innovations the greater its market share in the industry leading to reduced likelihood of insolvency (Banbury & Will, 1995). However, it is of value to note that IPI alone is not viable as a business strategy as the disruptive capability of RPI can render entire industries obsolete due to its new market creation capabilities. (Chandy & Tellis, 2000). Furthermore, IPI as a concept is based on the principle of innovating a prior existing product. It is a fair assumption to state that all existing products would have had to be new at some point in their life cycle. With most new products being developed using RPI one can see that there is a certain element of interdependency between the two concepts as if not for RPI there would be no existing product to improve upon. The interdependency between both forms of innovation has led to the theory that for firms to truly benefit from innovation they need to adopt an ambidextrous philosophy in which they must pursue both RPI and IPI (Tushman & O'Reilly, 1996).
This ultimately brings forth the notion of Architectural Product Innovation, a concept which aims to bridge the gap in knowledge between IPI and RPI. The distinction between RPI and IPI has led to valuable insights as it enabled us to consider ‘innovation’ as more than a singular broad topic. However, evidence suggests that the debate is fundamentally incomplete as firms that involve apparently minor changes to existing products have disruptive capabilities that can have dramatic implications to the firm and its industry. Xerox’s failure to adapt to competitors making minor changes to printing technology in the 1970s resulted in a loss of nearly half their market share despite them being pioneers in the industry (Henderson & Clark, 1990). The concept of changing the way in which the components of a product are linked together while leaving the core design concepts of the idea relatively untouched is fundamental to API. The business implications are similar to RPI in the sense that it has the capability to disrupt markets and cause a revaluation of market share and concentration, as the Xerox example shows. Thus, the potential up-side to implementing such a strategy is massive as it could cause new leaders to emerge in established industries (Chandy & Tellis, 2000). However, the generally poor management of architectural knowledge often means that it is not clear what information is genuinely architectural. To identify architectural information firms often must invest a significant amount of time and resources to distinguish the information. This exercise could potentially result in nothing lucrative being discovered, and considering the competitive nature of most industries a significant resource investment into inconclusive results could be detrimental to the firm (Henderson & Clark, 1990). Furthermore, once an organisation has identified its architectural knowledge it faces the challenge of applying it effectively to truly architecturally innovate a product. This requires further investment and research and requires the organisation to re-orientate itself using this newfound information. A re-orientation at this level would be extremely time-consuming and challenging as the firm would have to abandon previous industry knowledge and develop a certain level of flexibility which longer established firms lack (Henderson & Clark, 1990). API arguably results in interesting breakthroughs such as Uber developing Uber Eats using its prior existing taxi infrastructure to deliver food and enter a new market, but the requirements to achieve it are often out of reach for many firms rendering the potential upsides redundant.
One can see that the business implications for the various forms of innovation are quite balanced. When considering RPI and IPI the stage of the firm’s life-cycle could potentially play a role with regards to implications to the firm as their interdependent relationship is dependent on the business’s maturity. API seems to provide a bridge in the knowledge gap between these two forms of innovation, but the business implications of it are quite like that of RPI; namely the potential to disrupt and the potential to waste resources. Ultimately however, one can see that the business implications of each form of innovation provide both upside and downside potential, it is more a matter of appropriateness in implementation that decides the success of the strategy.