Innovation is one of the hottest words in business, and with good reason. With the availability of capital and the speed of information today, holding a competitive lead is harder than it has ever been. But as a buzzword, “innovation” gets stretched to serve almost any purpose — a halo dropped onto otherwise ordinary work, muddying the term until it means everything and nothing.
To harness innovation for its real potential, you have to do two things most companies skip: define it precisely, and then classify the different kinds of it. Those aren’t academic exercises. They are the difference between governing an innovation well and quietly strangling it.
Why innovation is so hard to define
Part of the problem is that “innovation” is most often used to describe the result of innovating rather than the process. “Isn’t this an amazing new product — a marvel of innovation?” “This company’s business model is so innovative.” That usage breeds a pervasive “I know it when I see it” vagueness. It also turns the people who produce those results into “innovators,” as if innovation were a genetic trait rather than a set of practiced behaviors and methods.
The other part is that there are several genuinely different types of innovation, and the industry has never settled on clear, broadly accepted terms for them. Drawing on decades of practitioner experience in corporate innovation and new business development, we use a consistent definition of innovation and a consistent way of classifying its forms.
Innovation is the application of creativity to produce novel solutions that address a meaningful problem or unmet need.
Why the definition matters
“Fine,” you might say, “but why does it matter?” It matters because you can’t measure what you can’t define, and you can’t get better at something you can’t measure. More to the point: what you do, how you do it, and where you do it all change depending on the type of innovation you’re after. Classification isn’t taxonomy for its own sake. It’s the first governance decision you make — and getting it wrong is one of the most expensive mistakes in corporate innovation.
Two dimensions: Type and Scope
We classify innovation along two dimensions. The first is the Type of innovation; the second is its Scope.
Type refers to the source of the problem or unmet need — whose problem you’re solving.
- Market-facing innovation addresses a problem for a market or for customers outside the company: new features, products, business models, or lines of business. Market-facing innovation drives the top line.
- Operational innovation addresses a problem the company has for its own benefit — process and operational improvements. Operational innovation drives the bottom line.
Scope refers to the magnitude of change from the status quo, from small to large.
- Sustaining (Core) — continuous improvement of existing products or processes.
- Incremental (Adjacent) — closely related to what exists, but a step or two away in one or more dimensions.
- Disruptive (Transformational) — a major departure from the status quo across multiple dimensions.
That second list deliberately maps to the way disciplined innovation portfolios are actually run. Sustaining work sits in the Core, Incremental work is Adjacent to the Core, and Disruptive work is Transformational — the three project classes a portfolio is built from. Naming the scope is the same act as naming the class, and the class is what determines how the work should be governed.
Why classification changes what you do
Here is the practical payoff. Each class of innovation carries a different risk profile, a different time horizon, a different investment level, and — critically — a different fit with the company’s existing Resources, Processes, and Priorities (RPP). Core work runs comfortably on the company’s default RPPs. Adjacent work often surfaces partial RPP mismatches that need explicit attention. Disruptive work frequently requires governance, resourcing, and decision-making structures that look little like the company’s normal operating model.
This is why a single, uniform stage-gate process applied across every class is so dangerous. As we put it in our portfolio work: disruptive projects evaluated against Core-business criteria almost always look bad — and a single uniform stage-gate process applied across Core, Adjacent, and Disruptive projects is one of the most common reasons disruptive projects in established companies fail. The fix isn’t more discipline; it’s class-appropriate discipline — evaluation criteria specified at the intersection of stage and class, decisions made on evidence-readiness rather than the calendar, and the four honest outcomes at every gate: Continue / Pivot / Pause / Stop.
Classify first, in other words, and the governance follows. Skip the classification, and you default every project to the Core-business playbook — which is exactly how the transformative work dies.
How the category of innovation affects what you do
Putting the two dimensions together gives six combinations. Here’s the risk profile and the way to run each, grouped by Type.
Operational innovation
Sustaining (Core). Lowest risk; the company’s default Resources, Processes, and Priorities fully support it. Run it as routine operational improvement with standard performance metrics and little or no formal gating, inside core-business functional operations.
Incremental (Adjacent). Moderate risk, and it may surface partial RPP friction. Run it as defined projects with class-appropriate criteria — pilot first, then migrate the result into core operations. It typically lives in core functional operations, or in an advanced-development / innovation team that hands its work back into core.
Disruptive (Transformational). Highest risk; it reimagines the operating model itself, and the company’s default RPPs often misfit. Pursue it under evidence-based stage-gating with the four outcomes — Continue / Pivot / Pause / Stop — plus option-value and learning metrics and custom governance with explicit autonomy. Run it through a chartered cross-functional team with executive sponsorship, separate from day-to-day operations, with explicit triggers for integrating back in.
Market-facing innovation
Sustaining (Core). Lowest risk; it extends the current offering to the current market. Run it with standard product management and roadmap execution, market and customer metrics, and light gating, inside core-business functional operations.
Incremental (Adjacent). Moderate risk; this is existing-product-into-new-market or adjacent-product-for-existing-market work, and it usually surfaces partial RPP mismatch. Manage it with stage- and class-specific evaluation criteria, test with customers, and migrate to core once proven. It lives in an innovation group within core functional operations, or a centralized innovation team that migrates its work into core.
Disruptive (Transformational). Highest risk, time, and investment — and the highest upside: a genuinely new product creating a new market, where default RPPs rarely fit. Run it under independent governance: evidence-based gates, Continue / Pivot / Pause / Stop, class-specific criteria (never Core-business criteria), and affordable-loss / option-value framing. House it in an independent innovation org with autonomous governance, top-down support, and a clear role in the company’s growth strategy — possibly with external incubation or strategic equity investment, set up with clear objectives, decision criteria, and integration triggers.
A final nuance: which playbook applies also depends on whether you’re considering one discrete innovation or a whole portfolio of innovation projects. A single project gets classified and governed on its own terms; a portfolio gets an intentional mix across these classes, calibrated to its objectives and the organization’s risk tolerance. But the starting move is the same in both cases — classify the work honestly, because the class is what tells you how to resource, govern, and evaluate it.
The bottom line
Classifying innovation isn’t pedantry. It’s the first and most consequential decision you make about a piece of work, because it sets the criteria everything downstream is judged against. Get it right, and Core, Adjacent, and Disruptive work each get the governance they need. Get it wrong — or skip it — and you’ll measure your most transformative bets against the wrong yardstick and wonder why they keep dying in committee.
Related reading: The Uncomfortable Truth About Your Innovation Portfolio Strategy on intentional portfolio mix, and Combining Organic Incubation, Equity Investment, and Acquisition for Diversified Growth on whether to grow by building, investing, or acquiring.
