Effective innovation project classification determines which initiatives succeed and which fail. Understanding innovation project classification helps leaders allocate resources appropriately, set realistic expectations, and dramatically improve success rates across all project types.
A widely-used heuristic for classifying innovation initiatives distinguishes project types by their success rates. Here are the four innovation project classification categories and their typical success rates (i.e. projects achieving their performance targets and outcomes):
Continuous Improvement Projects: 70% Incremental Innovation Projects: 55% Sustaining Innovation Projects: 40% Radical Innovation Projects: 15%
As the complex and complicated nature of projects increases, so does the uncertainty of what to do and the risk of how to do it. Increasing uncertainty and risk are reflected in declining success rates.
Two Leadership Challenges
At the business stakeholder level, there are two fundamental challenges: “Run the Business” and “Build the Business.”
“Run the Business” focuses on increasing the financial contribution of existing solutions to business goals. This first challenge features the goal of improving the execution of providing existing solutions for current customers to increase current revenues and profits.
“Build the Business” focuses on creating new solutions to change the competitive position of what you sell to both existing and new customer segments, seeking to increase future revenues and profits.
The Four Categories of Innovation Project Classification
Understanding how innovation project classification aligns with business objectives is essential for effective resource allocation and realistic success planning.
1. Continuous Improvement (CI) Projects
Focus: “Run the Business” better to increase the financial contribution of existing solutions.
Objective: Increase efficiency, reduce variance of outputs and outcomes, and reduce costs.
Real-World Example: Toyota’s legendary production system exemplifies continuous improvement. Through their kaizen approach, they continuously refine manufacturing processes by reducing waste, minimizing defects, and shortening production cycles. A specific example: reducing the time to change dies in stamping presses from hours to minutes, dramatically increasing factory efficiency without changing the fundamental product.
2. Incremental Innovation (II) Projects
Focus: “Run the Business” better and improve the competitive positioning of existing solutions to eliminate the threat of losing sales to competitive solutions.
Objective: Improve the performance of existing solutions to enhance the user experience within current customer segments.
Real-World Example: Apple’s annual iPhone updates represent incremental innovation. Each year brings improved cameras, faster processors, and better battery life. Apple enhances the existing smartphone solution without reinventing it. The iPhone 15’s move to USB-C charging addressed a customer pain point while maintaining the core product experience that users expect.
3. Sustaining Innovation (SI) Projects
Focus: “Build the Business” by identifying and realizing opportunities for increasing revenues and profits from existing solutions.
Objective: Increase the differentiation and utility of existing solutions to improve the user experience within current customer segments.
Real-World Example: Microsoft’s evolution of Office 365 into Microsoft 365 illustrates sustaining innovation. They took their existing productivity suite and added Teams for collaboration, advanced AI features through Copilot, and cloud-based accessibility. This differentiation significantly expanded the solution’s utility and opened new revenue streams from their established customer base.
4. Radical Innovation (RI) Projects
Focus: “Build the Business” by identifying and realizing opportunities for future revenues and profits from new sales of new solutions.
Objective: Invent and introduce new solutions to existing and new customer segments, providing better user experiences.
Real-World Example: Netflix’s shift from DVD rentals to streaming represented radical innovation. They didn’t just improve their mail-order service. They invented an entirely new solution that transformed how people access video entertainment. This required new technology, new infrastructure, and served both existing customers and entirely new market segments in fundamentally different ways.
Why Innovation Project Classification Matters
According to research from Harvard Business Review, organizations that properly classify their innovation initiatives and align resources accordingly achieve significantly higher success rates. The innovation project classification framework prevents the common mistake of applying continuous improvement methodologies to radical innovation projects, or expecting 70% success rates from inherently uncertain radical initiatives.
Different classification types require different:
- Leadership approaches – CI projects need operational excellence; RI projects need entrepreneurial vision
- Resource allocation – CI projects use existing capabilities; RI projects require new competencies
- Risk tolerance – CI projects have predictable outcomes; RI projects embrace uncertainty
- Success metrics – CI projects measure efficiency gains; RI projects measure market transformation
- Timeline expectations – CI projects deliver quick wins; RI projects require patient capital
Organizations that master innovation project classification align their governance, funding, and talent strategies with the inherent characteristics of each project type. This alignment dramatically improves outcomes across the portfolio.
Applying Innovation Project Classification in Your Organization
Start by auditing your current innovation portfolio through the lens of innovation project classification. Most organizations discover they’re over-investing in incremental improvements while under-investing in the sustaining and radical innovations that drive future growth.
Match your project classification to your strategic objectives. If you’re defending market position, emphasize continuous improvement and incremental innovation. If you’re building future competitive advantage, allocate more resources to sustaining and radical innovation despite their lower success rates.
Conclusion
Clarifying the leadership challenge helps make sense of the different kinds of innovation projects you could engage in. By understanding what you’re trying to do, why, and how through proper innovation project classification, your success rates within each class of project increase.
Innovation, and the change you seek to make, becomes easier. With discipline and practice, innovation as an outcome of your projects becomes the norm rather than the exception.
💭 What types of innovation project is your organization focusing on right now?
© 2025 Agile Innovating LLC | Kevin Fee