Is your team really being innovative? We’re not trying to insult you—it’s just that “innovation” is too often used as a catchphrase for three completely different activities. And unless you’ve clearly defined the mission of your team, the confusion between these terms may lead to confusion in your mission.

• Optimization adds incremental improvements to an existing product or service. This isn’t nearly as “sexy” as innovation, but it’s crucial for extending the life of a brand and generating revenue. To succeed at optimization, you have to be absolutely obsessed with your customer and the design of your services—every step of the purchase process has to be made that much better.
• Diffusion introduces new ideas and emerging technology into an existing category. This is what everyone thinks about when they talk about creating new things: they jump on the most cutting-edge technology or coolest trend and apply it to their product or service. If you want to innovate, your company has to have a keenly developed sensing team—one that’s always exploring how new ideas and technology can be applied.
• Disruption creates new business models in order to reach new customer segments. Complacent competitors and unserved segments mean it’s time to find a new way of doing business. More than anything, this requires courage—a willingness to challenge the status quo, even if (and especially if) it threatens your company’s existing business model.

When it started, Airbnb disrupted the rental industry by allowing anyone (not just the wealthy) to experience vacationing in private homes. While iTunes was still selling music, Spotify diffused by charging a subscription fee to stream their entire catalog. And you may not consider it sexy, but in 2004 UPS optimized their service by excluding all left-hand turns and now saves ten million gallons of gas per year.

So which should your team focus on? It depends on the market:

• If you’ve identified an existing consumer need that’s just not being met by current options, your product is ripe for optimization. Be careful, as it can be hard to know when to stop supporting an existing product and introduce something new.
• If, on the other hand, you’ve identified an entirely new customer segment that’s being underserved, that’s an indication that you should be focused on disruption. This can take a long time to develop, though, so make sure you’re financially able to wait it out.
• If you’re noticing a new technological development or cultural trend (or, if you’re just using the process of elimination), that’s the time for diffusion. But remember that diffusion is a marathon, no single leap will be considered an innovation for very long.

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