IIPS Quarterly, Volume 6 Number 3
Policy Research

Laws of Innovation and Strategies of Innovation
Kanji Amemiya
Senior Research Fellow

1. Are all corporate activities innovation?
Nearly all corporate activities fall under one of two descriptions. The first is “activities
that create new products or services,” and the other is “activities that refine and improveexisting products or services.” For instance, considering such cases as automobiles,refrigerators, televisions, and airplanes, initially developing and practically
implementing these products is the former; improving or refining these products toimprove their performance or functionality while updating or upgrading them is thelatter. Creating new products—as in the former description—is an extremely difficult
corporate activity. However, once a product has been developed and implemented, andonce the economic effects of its widespread adoption are manifested in the market, theproduct’s name is left to posterity as a “groundbreaking innovation.”
Nevertheless, these products, which have all been implemented and used in waysthat now seem perfectly ordinary, did not first appear before consumers as finishedproducts. Even after they were commercialized and released in the market, repeatedprocesses of minor refinements and improvements resulted in improvements in theproducts’ performance and functionality, with the products thus penetrating the market
and gradually becoming more practical to use. As a corporate activity, groundbreaking
innovations do, indeed, tend to receive all the glory. However, the down-to-earth
corporate activity of repeated refinements and improvements while a product isbecoming widely used is still essential.
To what, then, does the word “innovation” refer: truly groundbreaking innovations,or refinements and improvements to existing products and services? Groundbreaking
innovations are characterized by discontinuity, in that they are newly created. There arethus two schools of thinking: one that maintains, based on the notion that suchinnovations produce economic returns in the market, that only groundbreaking
innovation is true innovation; and one that argues that, because minor refinements andimprovements done as extensions of existing products and services also create
economic value, refinements and improvements are included within the concept ofinnovation, alongside the groundbreaking form.
2. The school of thought that does not count refinements and improvements toexisting products and services as innovation
Companies develop new products, services, and technologies, grow by allowing thesedevelopments to permeate society and become widespread, and thereby create a place
for themselves in society. Without the corporate strength to continue to provide
excellent products and services in the long term, a company cannot be a going concern.
Groundbreaking innovation, whereby such products and technologies are created anew,
affects whether a company succeeds and is what constitutes true innovation. Thus, theterm “innovation” means, precisely, the production of something new or the productionof something that already exists using a new method. Joseph Alois Schumpeter
1understood innovation as a force acting within the economic system and argued in thismanner. (Schumpeter J. A. The Theory of Economic Development: An Inquiry into
Profits, Capital, Credit, Interest, and the Business Cycle, Cambridge: Harvard
University Press. 1934) Production here refers to the combination of various “materialsand forces” capable of being exploited; an innovation combines materials and forces ina form that differs from those that came before—in other words, it is a “newcombination.”
Thus, the argument that groundbreaking innovations are the true innovations
focuses on the creation of new products and technologies and, therefore, stresses two
characteristics: “discontinuity,” which characterizes the importance of innovations not
being extensions of the past, and “creative destruction,” by which new creations
produced within companies as sources of change drive out existing products, services,and technologies.
Consider the Internet, for example: It was a technology that could not even haveexisted in the past. The Internet is a massive, distributed network that interconnects
numerous smaller networks around the world. It became remarkably widespreadbecause it created a variety of new services—including email; sharing and releasing ofdigital information; distribution of video, music, and other content; and online
shopping—and thereby became an established part of people’s lifestyles and produced
countless online providers. Thus, the discontinuous changes that the Internet caused
generated structural changes in companies, society, and the economy. At the same time,by functioning as a discontinuous innovation, the Internet both created new value anddisrupted existing products, services, technologies, and so forth.
According to Schumpeter’s view that innovation plays the central role as the driverof the economy’s growth and development, creative destruction is the very essence ofcapitalism. The source that gives rise to innovation is, at its root, not changes in theexternal environment but creation internal to companies. To achieve sustained economicdevelopment, it is crucial to repeat the process of creative destruction by constantlyproducing new innovations. What is important is not looking for a short-term
equilibrium but considering how to disrupt currently existing structures through creation.
3. The school of thought that counts refinements and improvements to existingproducts and services as innovation
Nathan Rosenberg argued that, in addition to groundbreaking innovations, refinements
and improvements to existing products and services can also be considered part of thecategory of innovation, if one conceives of such refinements and improvements as eachbeing small, incremental innovations. (Rosenberg, N. Inside the Black Box: Technologyand Economics, Cambridge University Press 1983) Even after a groundbreaking
innovation has occurred, continuous and gradual efforts that are extensions of what hascome in the past—refinements and improvements—are still required before that
innovation can permeate society and become widely used. Rosenberg, who expresses
the concept of innovation as “the process by which firms master and get into practiceproduct designs and manufacturing processes that are new to them,” understands theidea broadly and argues that the role that such cumulative, gradual innovations play iscrucial.
Excellent products, services, and technologies do not appear in the market incompleted states from the start. To be sure, companies should release excellent products
and services in their perfected states—that is, they should release them in the most2

complete state at that time. However, there is no such thing as a product that is entirelycomplete from the beginning. It is only after a company engages in ceaselessrefinements and improvements that excellent products and services start to reachcompleteness. Perceived problems with products and services arise not just internallywithin companies but also among market actors such as consumers and competing firms.
Because the problems that come to the fore from the market are entirely unanticipatedby the company, they create more room for refinements and improvements, allowing
products to develop and gradually become complete.
One example of this process is the iPad, which went on sale in April 2010. Initially,various media outlets bashed the iPad as a defective product that lacked essentialfeatures: no camera, no multitasking capabilities, no flashcard reader, no USB ports, andtoo many other defects to list. Apple proudly sent the iPad out into the market as ahighly complete product, and yet the market reaction was chilly. Subsequently, Apple
further developed the iPad through the aggregation of various refinements andimprovements. With the release of the iPad 2, Apple raised the device’s level ofcompleteness as a highly versatile tablet by adding one camera to the front and anotherto the back, and making it one of the first to deliver multitasking in the tablet market
with the development of iOS 4.2.1. Thus, Apple resolutely accomplished gradualinnovations—refinements and improvements—developing the iPad into a highly
complete product. When one considers the robust numbers of iPad units that Apple later
sold, it is clear that continuous innovation, in which next-generation products improvedon the flaws of their predecessors, created value on the demand side, and had economic
effects on the market, promoting the adoption of the iPad.
Because such gradual and continuous innovation involves refinements andimprovements that are extensions of what already exists and represents theaccumulation of numerous small innovations, it is called “incremental innovation” or“sustaining innovation.”
4. The relationship between discontinuous innovation and continuous innovation
through refinements and improvements is a trade-off
As described above, discontinuous innovation is the type of innovation that gives rise to
new and groundbreaking products, services, and technologies. By contrast, continuous
innovation is the type of innovation by which companies attempt to make refinements
and improvements to already developed products, services, and technologies. One might,
then, wonder about the relationship between these two types of innovation. This
question can be answered by considering whether it is possible to generate
discontinuous and continuous innovations at the same time.
Because, by definition, discontinuous innovations are characterized bydiscontinuity, they arise anew through the abandonment of the past. In other words, thistype of innovation is the act of casting aside the concepts that underlie existing products,
services, and technologies, and creating something new. Existing knowledge andexperience are not required; rather, they would be burdensome. Ideas and insights thatgive rise to new things are crucial, and it is also crucial not to be bound by existing
concepts. However, if one concentrates on continuous innovation, then one loses theideas and insights that discontinuous innovation requires. This is because, when one isengaged in continuous innovation, one accumulates knowledge and experience throughrepetitions of the process of gradually and continuously refining and improving and,
therefore, one tends only to attempt to understand things on existing dimensions.
3Because the knowledge and experience accumulated while engaging in continuous
innovation interfere with the ideas and insights necessary to make discontinuous
innovations, it follows that it is extremely difficult to create discontinuous innovations
while engaged in continuous innovation.
An example of this is Sony’s television business. Sony had developed cathode-ray
tube (CRT) television sets from early in its existence and continued to push forwardwith refinements and improvements to CRT technology from a leading position in thetelevision set market. Because of this, Sony was late in starting development of flat
panel television products, and, when the era of the flat screen TV arrived, Sony’stelevision business suffered, and the company lost its position as a leader. The turning
point for Sony was the development of the Super-Flat Trinitron picture tube. With thisdevelopment, Sony succeeded in creating a completely flat screen, something
previously thought impossible to achieve with CRT technology. With the success of theWEGA television sets that inherited this technology, Sony came to cling tighter andtighter to CRT technology. Because Sony continued to develop its television set
business along the existing technological dimension of cathode-ray tubes, it postponed
the development of new technologies, to the point that its BRAVIA television sets,
which were equipped with liquid-crystal panel displays, went on sale five years after
Sharp’s similar offering, the AQUOS. Even after the creation of the BRAVIA brand,Sony continued to devote itself to refining and improving the CRT technology used in
the WEGA brand, unable to make the decision to end production of CRT television sets
until demand in the market for them declined significantly. Sony’s television set
business thus demonstrates the difficulty of creating discontinuous innovations while
engaging in continuous innovation.

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