The Art of Innovation
It’s inevitable that every company must be out there battling for market share, but you don’t really want to be in a situation where the competition is so stiff that any potential upside is eroded away in the process—―a scenario known as perfect competition in economics.
To avoid perfect competition, companies must strive to build an economic moat that gives them a sustainable competitive advantage over time. While these protective moats can arise from a number of different sources, in today’s information economy they most often arise from the power of innovation.
But where does innovation come from, and is there a universal framework that can be applied to help consistently make big breakthroughs?
From a R&D Tax Credits perspective, when does Innovation qualify and when does it not?
The 10 Types of Innovation
After examining over 2,000 business innovations throughout history, a Deloitte owned company (Doblin) uncovered that most breakthroughs don’t necessarily stem from engineering inventions or rare discoveries.
Instead, they observed that innovations can be categorized within a range of 10 distinct dimensions—and anyone can use the resulting strategic framework to analyse the competition, to stress test for product weaknesses, or to find new opportunities for their products.
Here are the 10 types of innovation:
| # | Innovation Type | Description |
| 1. | Profit Model | How you make money |
| 2. | Network | Connections with others to create value |
| 3. | Structure | Alignment of your talent and assets |
| 4. | Process | Signature of superior methods for doing your work |
| 5. | Product Performance | Distinguishing features and functionality |
| 6. | Product System | Complementary products and services |
| 7. | Service | Support and enhancements that surround your offerings |
| 8. | Channel | How your offerings are delivered to customers and users |
| 9. | Brand | Representation of your offerings and business |
| 10. | Customer Engagement | Distinctive interactions you foster |
Innovation Types #1-4: “Configuration”
According to Doblin, the first four types of innovation centre around the configuration of the company, and all the work that happens “behind the scenes”.
Although innovation types in this category are not directly customer-facing, they can still have an important impact on the customer experience. How your company and products are organized can have a crucial downstream effect, even enabling innovations in other categories.
Innovation Types #5-6: “Offering”
When most people think of innovation, it’s likely the offering category that comes to mind.
Making improvements to product performance is an obvious but difficult type of innovation, and unless it’s accompanied by a deeply ingrained company culture towards technical innovation, such advancements may only create a temporary advantage against the competition.
This is the part of the reason that Doblin recommends that companies focus on combining multiple areas of innovation together—it creates a much more stable economic moat.
Innovation Types #7-10: “Experience”
These types of innovation are the most customer-facing, but this also makes them the most subject to interpretation.
While other innovations tend to occur upstream, innovations in experience all get trialled in the hands of customers. For this reason, intense care is needed in rolling out these ideas.
Making Innovations Happen in Your Organization
How can organizations approach the 10 types of innovation from a more tactical perspective?
One useful resource is Doblin’s free public list of over 100 tactics that correspond with the aforementioned framework.
The one-pager PDF provides a range of typical dimensions for approaching each type of innovation. In essence, these are all different ways you could consider when trying to differentiate your product or service—and at the very least, it provides a useful thought experiment for managers and marketers.
R&D Tax Credits
Whatever route your ‘innovation’ strategy takes, you will need to consider the below in order to determine whether it qualifies for R&D Tax Credits.
THE ADVANCEMENT OF KNOWLEDGE
According to HMRC: ‘An advance in science or technology means an advance in overall knowledge or capability in a field of science or technology (not a company’s own state of knowledge or capability alone). […] An advance in science or technology may have tangible consequences (such as a new or more efficient cleaning product, or a process which generates less waste) or more intangible outcomes (such as new knowledge or cost improvements, for example).’ The latter is where software development falls.
Latest guidance also makes clear that the advance must be in the underlying technology, meaning what matters is the technological input, rather than the commercial output.
THE RESOLUTION OF UNCERTAINTY
If no competent professional in the field has overcome a particular challenge, but your new software resolves the difficulties and challenges, your R&D would qualify. However, the knowledge gained must not have simply been adapted from freely available knowledge. HMRC will want to see how the improvements to the software were made, what problems you faced, and how you overcame them.
MSC R&D
Being one of the leading companies in the R&D Tax Credits market, specialising in software claims, we can ensure your claims are compliant and optimised – encompassing all qualifying activity which is not always confined to the product itself.
