Excerpted from "The Future of Management," by Gary Hamel with Bill Breen. Look for new excerpts weekly.

Innovation comes in many flavors: operational innovation, product innovation, strategy innovation, and, of course, management innovation. Each genre makes its own contribution to success, but if we were to array these various forms of innovation in a hierarchy, where higher tiers denote higher levels of value creation and competitive defensibility, management innovation would come out on top. Understanding why this is so is an important step in building your company’s commitment to management innovation, so let’s work our way up from the bottom.

At the base of the pyramid is operational innovation (see figure below). In a world of hypercompetition, operational excellence is essential, but in the absence of some Toyota-like management innovation or Ikea-style business model breakthrough, operational innovation seldom delivers a decisive, long-term advantage. This is true for several reasons. First, operational preeminence often depends heavily on the quality of a company’s IT infrastructure.

Unfortunately, advances in hardware and software tend to diffuse rapidly, making IT-based advantages notoriously difficult to defend.13 Secondly, many companies today outsource a wide range of business activities to third parties—vendors who often serve several companies within a single industry, and who typically lack the incentives to help a single customer build a standout advantage. While outsourcing and offshoring can help a company stay even with the competition, they seldom yield a significant proprietary advantage. Finally, there is a growing swarm of consultants who work long days transferring best practices from exceptional companies to mediocre ones. This, too, tends to level out operational advantages.

Next up the food chain is product innovation. There’s no doubt that an iconic product can lift a company from obscurity to cult status in short order (think, for example, of Dyson’s bagless vacuum cleaners). Yet in the absence of enforceable patent protection, most products are quickly knocked off. In addition, an ever-accelerating pace of technological progress often gives upstarts the opportunity to leapfrog yesterday’s pioneers.

As a result, breakthrough products seldom grant a company long-lasting industry leadership. For example, it only took a few years for Samsung to improve upon Nokia’s superslick mobile phone designs, for other golf club makers to match the playability advantages of Callaway’s Big Bertha irons, or for Hoover to come up with its own “Cyclonic” vacuum cleaner.

Further up the stack is strategy innovation—bold new business models that put incumbents on the defensive. Standout examples include Ryanair, Europe’s leading low-cost airline, Apple’s iTunes music store, and Zara’s chic but cheap couture. A killer business model can generate billions of dollars in market value for the innovator—but on average, a distinctive business model is more easily decoded and counteracted than a heretical management system.

Wal-Mart’s supposedly invincible lead in discount retailing hasn’t prevented other retailers, like Costco and Target, from flourishing. America’s crop of low-cost airlines, including Frontier, JetBlue, AirTran, and America West (recently merged with US Airways), have purloined entire chapters from Southwest Airlines’ once-unique playbook. And although India’s outsourcing pioneers—companies such as Infosys and Wipro—have become industry giants, they must still scramble every day to defend their lead from a horde of envious and determined wannabes who are equally eager to exploit India’s wage advantage.

The point is, not all types of innovation are created equal. When focused on big, chunky problems, management innovation possesses a unique capacity to create difficult-to-duplicate advantages. Why? Become some heresies are more heretical than others. You, for example, would probably find it easier to adjust your fashion preferences than to transpose your religious beliefs. Similarly, most executives find it easier to acknowledge the merits of a disruptive business model than to abandon the core tenets of their bedrock management beliefs.

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MORE ON MANAGEMENT AND INNOVATION:
The Future of Management (Hardcover)
Innovate--Inexpensively (HBR Article Collection)
The Why, What, and How of Management Innovation (HBR Article)