As business processes become commoditized in a developed economy, they are outsourced or offshored or both, leaving local companies with relentless pressure to deliver the next wave of innovation. Lack of innovation equals lack of differentiation equals failure to make the profits and revenues necessary to attract capital investment. It behooves us all to use our brains to get ahead of this Darwinian process.

To begin with, we need to appreciate how broad the domain of innovation really is. Sure, it includes the kind everyone knows: disruptive innovation, tech legends, and Silicon Valley lore. But we should not ignore the existence of more mundane forms that are just as effective, as the following taxonomy illustrates:

disruptive innovation. It gets a lot of attention, particularly in the press, because markets appear out of nowhere, creating massive new sources of wealth. It tends to be rooted in technological discontinuities, like the one that enabled Motorola’s rise to prominence with the first generation of cell phones, or in rapidly expanding fads like the Pokémon trading card game.

innovation application. It brings existing technologies to new markets to serve new purposes, as when Tandem applied its fault-tolerant computers to the banking market to create ATMs and when OnStar brought global positioning systems to the automotive market for roadside assistance.

Product innovation. Take established offerings in established markets to the next level, like when Intel launches a new processor or Toyota a new car. The focus may be on increasing performance (Titleist Pro V1 golf balls), reducing costs (HP inkjet printers), improving usability (Palm handhelds), or any other product improvement.

Innovation process. It makes established bidding processes in established markets more effective or efficient. Examples include Dell’s streamlining of its PC supply chain and order fulfillment systems, Charles Schwab’s migration to online commerce, and Wal-Mart’s refinement of vendor-managed inventory processes.

Experiential Innovation. Makes superficial modifications that enhance the customer experience of established products or processes. These can take the form of delights (You’ve got mail!”), satisfying (top line management at Disneyland), or reassuring (FedEx package tracking).

Innovation in Marketing. Improve customer contact processes, whether they are marketing communications (using the web and viral marketing trailers for The Lord of the Rings movie trilogy) or consumer transactions (Amazon e-commerce mechanisms and online auctions from eBay).

Innovation of the business model. It reframes an established customer value proposition or a company’s established role in the value chain, or both. Examples include such chestnuts as Gillette’s move from razors to razor blades, IBM’s shift to on-demand computing, and Apple’s expansion into consumer retail.

Structural innovation. Take advantage of disruption to restructure industry relationships. Innovators such as Fidelity and Citigroup, for example, have used the deregulation of financial services to offer a broader range of products and services to consumers under one umbrella. Almost overnight, these companies became sophisticated competitors to the old-guard banks and insurance companies.