What is innovation?

Unlike continuous improvement, innovation usually requires a shift in mindset and behaviour. Some innovations are transformational, while others emerge from seemingly simple but bold departures from established practices.

While it’s become a buzzword, innovation remains a critical lever that helps companies adapt, stay relevant and grow in a changing environment.

Why is innovation important?

Innovation allows your company to remain competitive. Your business may have a solid customer base, an excellent product, several suppliers and a perfectly working supply chain. Your sales may even be growing. But outside your company, your industry is changing. If you stand still, you’re at risk.

The most important question for a business owner to ask is “What will happen to us if we don’t innovate?”

The question is rhetorical. A company that doesn’t innovate risks becoming irrelevant, reducing its productivity, losing customers and ultimately going out of business.

Innovation requires taking stock and measuring impact. Because outcomes are uncertain, businesses must weigh potential rewards against the cost and risk of failure.

3 types of innovation: Incremental, expansive and disruptive

These types differ in scope, risk and impact. They require different mindsets and capabilities.

1. Incremental innovation

These are small, ongoing changes that boost efficiency within your current business model. While important, they are closer to continuous improvement than transformational innovation.

For instance, you could adjust your processes, increase your digital offerings, cut costs or upgrade your products and services. This type of innovation is typically ongoing, lower risk and focused on optimizing existing operations.

Many small businesses devote a significant share of their efforts to incremental improvements to support daytoday performance and stability.

2. Expansive innovation

This is a change that results from exploring new ideas.

Here, we are exploring areas that competitors aren’t considering. Many recent innovations use artificial intelligence; Maxa AI, for example, developed a platform that allows businesses to harmonize data from the different systems they use. While technology often enables expansive innovation, it is ultimately driven by human skills, like problem-solving and collaboration.

Expansive innovation also implies testing and prototyping, as well as evolving the business model. Its purpose is to sustain and grow the company in the long term.

3. Disruptive innovation

Disruptive innovation is often what people think of when they hear the word “innovation” because it involves fundamental change and higher uncertainty.

A disruptive innovation offers a novel value proposition.

In practice, this often means inventing or reinventing a product, service or business model, with potentially high rewards but also higher risk.

While innovation decisions are made at the individual business level, BDC supports entrepreneurs navigating these stages by helping them move forward with greater confidence.

Business model innovation

Business model innovation takes place when the processes the business has been using or the way its product is brought to market have been transformed. It’s a challenging type of innovation and is often imposed on a company that has little choice but to radically change. This is not change at an incremental level but one that can threaten elements of the company’s brand.

Shopify, Wealthsimple and Svante are examples of companies that disrupted the e-commerce, personal investing and cleantech industries. Many large operations had to rethink their business model because of their innovations.

How can leaders support innovation?

Leaders play a strategic role in innovation by shaping the environment in which individual ideas, initiatives and risk‑taking can emerge.

To support innovation, leaders need to clarify objectives and reduce unnecessary barriers. Their goal is to create conditions that encourage initiative and experimentation.

Leaders can allocate a budget and allow their team a certain amount of freedom to explore solutions. Innovating, like entrepreneurship, involves experimentation and uncertainty. People need enough autonomy, support and resources to test ideas and learn from failure.

What are the three stages of innovation?

Innovation projects generally go through three broad stages: design, testing and scaling. These stages help structure uncertainty rather than eliminate it.

1. Design stage: This is the stage where new ideas emerge. You explore potential solutions or business models that challenge existing ways of creating or delivering value.

You then design a prototype, often referred to as a minimum viable product, that has enough features to test key assumptions with early users or investors.

2. Testing stage: This is where you test different versions of your innovation in real-world conditions.

The faster you test your idea with potential users and customers, the faster you learn what creates value (and what doesn’t). This allows you to adjust before you go too far. It’s a risk reduction strategy.

3. Scaling stage: Once design and testing show that your innovation solves a real problem, you can consider scaling it.

In practice, this means developing an evidence-based business plan, investing in capabilities and change management, and making your product or service available to a larger market.

Protect your innovation

Innovation requires time, effort and the courage to take risks. Protect your innovation to capture the value of that investment.

Use this free intellectual property strategy assessment, developed by the Canadian Intellectual Property Office (CIPO) in partnership with BDC, to help guide the development of your IP strategy.

Next step

Innovation involves risk and uncertainty. BDC’s LIFT program can help you invest in advanced technology to modernize your business and stay innovative. Talk to a BDC advisor can help you step back, assess trade‑offs and get you moving forward with confidence.