By Jo Geraghty, Co-founder & Director at Culture Consultancy

When organisations think about innovation, they often fall into a common trap: they either stay too comfortable with small improvements or dream too big about turning everything on its head.

The result? It’s twofold. Firstly, they either end up not moving the needle at all or moving too far, too fast without a real sense of direction.

But secondly – and perhaps most importantly – they miss the third kind of innovation that sits between iteration and overhaul, and the one that could actually transform their business: differentiated innovation.

The innovation spectrum: where are you stuck?

Most organisations find themselves at one of two extremes. On one end, they’re deeply entrenched in incremental innovation – making small improvements to existing products and services. A tweak to the recipe, an update to the UI, maybe streamlining a process.

It’s comfortable, it’s predictable and it’s necessary for every company. It’s the kind of innovation that rarely gets much attention when it happens – but that also means it rarely moves the needle significantly.

On the other end lies radical (or disruptive) innovation – the alluring promise of taking on the status quo, revolutionising your industry and being forever remembered as pioneers.

There’s no denying how appealing that is. But in order to truly break new ground, you need massive resources, high risk tolerance, and agile structures that most established companies simply don’t have.

The overlooked middle ground

Between these two extremes is differentiated innovation – the often-overlooked middle ground that offers the best balance of risk and reward.

With differentiated innovation, you’re doing one of two things. You’re either making meaningful adaptations to the products or services you already offer, or you’re expanding into an adjacent market where you already have some competitive advantage.

Take Coca-Cola for example. They’ve been quoted famously in the past as having a 70/20/10 split between incremental, differentiated and radical innovation. For them, that 20% allocated to differentiated innovation might once have included the development of Diet Coke – a meaningful adaptation of their existing drink to create a new product.

Or it might involve stepping outside of the cola space and experimenting with a Coca-Cola-branded orange fizzy drink. It’s different enough from what they currently do to give them an opening in a brand new market, but not so different that it would require one of the world’s biggest beverage companies to overhaul their organisation.

Differentiated innovation offers several advantages:

1. It builds on existing strengths while pushing boundaries
2. It requires less organisational disruption than radical innovation
3. It delivers more substantial results than incremental improvements
4. It provides a testing ground for more ambitious future innovations

For instance, in 2025, implementing AI solutions within your existing products represents differentiated innovation – it’s novel enough to create significant value but builds on your current offerings rather than replacing them entirely.

Signs you might be missing the sweet spot

If you are stuck at one extreme end of the innovation spectrum, it’s not always easy to tell what’s going on. That said, there are some symptoms to watch out for:

• The majority of your innovation portfolio is made up of small, steady improvements. When you complete each innovation project, the returns from it are low and uninspiring.
• Alternatively, you keep trying to make the leap to radical innovation but repeatedly fall short. Projects don’t end up completing, the scope gets reined back before the end because of budget or resource constraints, or radical ideas are shut down before they can take off.
• Your teams feel unchallenged, but either they’re not ready to take on a radical innovation project or your resources aren’t ready to support one.
• Customer feedback suggests opportunities to make bigger changes, but not on the scale of a complete overhaul.

Finding your way to the sweet spot – and to innovation that moves the needle

Before you start changing up your innovation strategy, you first need to know where exactly on the spectrum you are.

You can start this step right away. Gather up your leadership team, grab a whiteboard and map out your projects across the innovation spectrum. Categorise each one as incremental, differentiated or radical, then take a step back and see how they’re laid out.

If most fall into the incremental category with a few ambitious moonshots on the other side, that’s a good sign you’re missing opportunities in the middle.

After that, it’s a question of creating structured spaces and building the right skills to allow for more differentiated innovation. Don’t ask everyone to put forward any and all ideas – that’s what leads to ambitious projects that don’t get liftoff.

Instead, define specific areas where meaningful adaptation could create value. What adjacent markets could enter? How could you significantly enhance your current offerings? What are your customers asking for?

Differentiated innovation also requires different skills than incremental improvements. Your teams need the ability to think beyond “What have we always done?” while staying grounded in organisational realities. They need to be able to look at the market and customer feedback, and pick out strategic opportunities to explore.

Your future growth likely lies not in the comfortable realm of incremental changes or the risky world of disruption, but in the powerful middle ground of differentiated innovation. The question is: Are you ready to start exploring it?

Want to learn more about building innovation capabilities in your organisation? Email human@cultureconsultancy.com to book a call with Cris Beswick or Jo Geraghty.