Why innovation?
Innovation has been getting a lot of attention at my company and others over the past few years. Why?
The huge successes achieved by innovative companies.
Note: Apple’s market capitalization has exceeded 600 Billion dollars.
It’s cheaper than acquisition.
Note: Consider the “total” cost HP has incurred in the acquisition of EDS, Compaq,Mercury, and the other companies.
It stimulates “organic” grow in existing and new markets.
Note: Organic growth is the best kind of growth. It’s unbridled and won’t tarnish brands like direct competition can.
Note: Anyone own an iPod? Anyone own a Zune? I rest my case.
Note: Companies that enter markets with a disruptive technology can leap-frog the competition because they are not saddled with an installed customer base on legacy systems that they have to support while attempting to compete with new entrants. How has Kodak faired in the digital market? Do you think they were challenged by having to maintain all those chemical plants and paper mills for the film processing business, while say Nikon didn’t have the same challenges. What about trying to compete with ITA in next generation technology while maintaining three legacy core systems?
[Probably would be good to introduce the “five forces” of market completion and the affect it has on innovation.]
Invention vs. Innovation
Is an invention by itself innovative? If not, then when does an invention become innovative?
In the book “Innovate the Future” by David Groslin, the author indicates innovation happens when a product or service is used and accepted by the consumer base and has been deemed to add some form or real, positive, and transformative value.
The key here is transformative value and to the extent that an invention changes your life style or the way you do business determines if it becomes innovative; otherwise, it falls into the category of a solution in search of a problem.
Innovations should not only cause your customers or employees to think smarter, but work smarter. Because in the end, no one gets paid to think!
I like to use the example of a cork screw. You know the metal screw with the fixed wooden handle. They are functional, but not always practical. It works, but it can be awkward when used by a novice. Do you want to use one of those next to a table in a restaurant with white linens and customers? Ever try to carry one of those around in your pocket or apron? This is a product that was ripe for innovation and below are some examples.
Hypodermic needle with CO2 gas
Pros: It works. It is impressive. It doesn’t leave cork residue.
Cons: What do you do when you run out of CO2?
The Rabbit
Pros: It definitely works. It’s a cool piece of engineering.
Cons: Where do you store it? Can you toss it into the kitchen drawer? I have one…somewhere.
Leatherman Juice
Pros: It’s a multi-functional tool with pliers, screwdriver, blade, and cork screw. What a great idea.
Cons: You’ve got to be stuck on a deserted island before you will use it, and then you end up using the knife blade to cut the cork out.
Folding pocket cork screw
Pros: It works…always. You can toss it in a drawer or carry it in your pocket. It doesn’t run out of gas.
Cons: None
Which of the above is an example of an innovation? Why?
Can you think of other inventions that were not innovative?
There’s probably a good chance you cannot name one, unless you were the inventor, because after all these products were never generally accepted.
Essentially, most innovation falls within one of three categories: Product, Processes, and Business Models.
Product This is the category to which most consumers are familiar. Product innovation involves introducing new products or enhancements to existing products, but also innovation around the Three P’s, which are Pricing, Placement, and Promotion.
Canon imaging technology comes to my mind. They knew their future was in processing digital images, so they developed a core technology that could be adapted to printers, scanners, cameras, etc. Now their business model is built on delivering derivative products based on the core technology.
Process This category is about innovation around internal processes by which companies develop and or deliver goods and services. It could be as broad as modifications to supply chain management or specific as invoice filing. These are changes introduced to the way companies do business that make the company more efficient, cuts costs, and ultimately improve their competitive position. These types of innovation are important to commodity base businesses that compete on a very slim margin. If you are in the food distribution business, do you think your customers would find value in getting perishable goods to them a day earlier? How about 2 days? Organization and reporting improvements can also become innovative.
Wal-mart is the category killer in their market for one simple reason; they are the kings of supply chain management. They are a commodity based business that competes on price alone. What do they say in their advertisements? “Prices are falling” They leverage IT systems for real-time management of distribution and operations.
Business
Model According to Wikipedia, a business model describes the rationale of how an organization creates, delivers, and captures value (Osterwalder, Pigneur, & Smith, 2010) . Thomas Friedman has written several books describing how in his terms the world is flat. What he’s really saying is that prior boundaries are being torn down that allow business and markets to expand in previously unimagined locations and speed. New opportunities require new innovative business models. The 50 year old Standard Industry Classification (SIC) was replaced in 1997 by the new North American Industry Classification System (NAICS) and doubled the recognized industry classifications from 10 to 20 (Kim & Mauborgne, 2004) . In the mid-90’s we saw monumental shifts in the classification in not just businesses but entire industries. We’re not talking evolution here. This happened because of the industries that sprung up around new business models that didn’t exist 5 and 10 years previously. It is said that the majority of business innovation is happening around business models.
These three categories also track very nicely to the three disciplines introduced in the book, “The Disciplines of Market Leaders” (Treacy & Wiersema, 1997) . In this book the authors make the case that to be a market leader, businesses must focus their core competencies in one of three categories:
- Product Leadership
- Operational Excellence
- Customer Intimacy
Wal-Mart clearly understands its discipline is operational excellence. People who go into a Wal-Mart are not expecting leading edge products or intimate customer service, just well stocked shelves at discounted prices.
Innovation Examples
Can you list examples in each of these categories?
Product
|
Process
|
Bus. Model
|
FedEx TechConnect
| ||
Home Depot
|
*straddles two categories
Where would you put the following companies? Ask yourself…did their product or service exist before?
General Electric, SalesForce.com, Starbucks, Southwest, Pandora
Facebook: Does anyone know what Facebook’s product is? How about their business model?
What role does technology play in these innovations? What are some of the enabling technologies?
Internet, SaaS, SAP, microprocessor
Innovation Timing
To better understand the “necessity” for innovation and the timing, you must first understand consumer behavior and the adoption model they follow. Can anyone describe the Product Adoption model?
It’s depicted as a bell curve because it is intended to represent all consumption relative to a product or service in the form of incremental users over time.
A. Innovators
B. Early adopters
C. Early majority
D. Late majority
E. Laggards
What happens to a product at the onset of D?
· Incremental new customers starts to decline
· High margins disappear
· Competition intensifies
· It starts to commoditize
How do businesses compete on commodities? Price!
From a timing perspective, what do businesses or even markets do to protect their products from commoditization?
But when?
Not when ‘D’ starts because it’s too late. It’s at the onset of the prior phase ‘C’ just when things are getting good. To do this they have to knowingly give up profits and channel their resources to the new initiatives, which require discipline and forward thinking. Companies that base their products on ‘platforms’ will always have an advantage in this scenario. Remember Canon?
Incremental
Some product innovation is only intended to tweak a product relative to the competition. Companies may choose an “incremental” innovation whereby they introduce slight adjustments to a product to better position it against a competing product. An example of incremental innovation is the iPhone 4s. Some products may be released early to gain 1st adopter advantages and then follow with incremental innovation. This is very common with software applications. Many products follow a “good enough” product launch to get a footprint in the market, which is then followed by incremental innovation to keep the product current.
Disruptive
According to Groslin, disruptive technologies provide significant transformative value. Disruptive technologies tend to be game changers and leave the competition in their wake. Most often they are delivered by new market entrants and the introducing company quickly becomes the dominate player in the market. It is not uncommon for a new company to be founded on a single disruptive innovation, e.g., Google.
Think of the recorded music industry:
Vinyl -> Tape -> Digital
How many companies made the transition? How many new industries were born?
In the HBR case study, “Blue Ocean Strategy” (Kim and Mauborgne, 2004) the authors introduce the concept of Red Ocean vs. Blue Ocean. To what do you think the Red Ocean is a metaphor?
It means shallow water filled with sharks. It’s bloody, or in other words, there is fierce competition.
To what do you think the Blue Ocean is a metaphor?
Uncharted depths
According to the author which ocean is better suited for innovation?
Blue Ocean because it’s intended to imply uncontested markets where competition is irrelevant. Demand is created rather than fought over.
A blue ocean is created from within a red ocean when a company alters the boundary of an existing industry. By altering the boundary it implies the market is moved away from the shallow water and out into the deep blue sea.
Think about Cirque du Soleil. What did they create? Did they create anything new? Not really. They took components of shallow water industries, e.g., circus, acrobats, theater, and concerts, which all existed before and then bolted them together to create a new product. At the same time they altered the boundaries of each of these industries and pushed their solution out into the blue ocean where there was little to no competition.
Did they create new demand? Have you been to Las Vegas lately?
What type growth happens in a Blue Ocean? Organic, meaning those people who go to a Cirque performance may not have been to a circus performance since their children were young and now they are being enticed to return. The unique thing about Cirque is customers tend to be repeat customers and it’s not unlikely for them to bring new customers along. Would this happen in a Red Ocean?
HBR Case Study: TripAdvisor
Of the three strategic initiative underway at TripAdvisor in the case study (China expansion, develop vacation rental, and enter the flight search market), which one is ripe for innovation?
Think Blue Ocean – vacation rental
Why?
1. Alter existing boundaries
2. Create organic growth and new demand
Your Company
What are your company’s Red Oceans?
What are your company’s adjoining oceans?
Where are airlines innovating? (international Wi-Fi, lay flat seats, merchandising)
Where is your company vulnerable to disruptive technologies?
In what innovation category (product, process, business model) should your company focus?
Of the five forces of competition, which ones make the GDS industry attractive? Unattractive?
Works Cited
Groslin, D. (2010). Innovate for the Future: A Radical New Approach to IT Innovation. Prentice Hall.
Kim, W. C., & Mauborgne, R. (2004). Blue Ocean Strategy. Harvard Business Review, 4.
Osterwalder, A., Pigneur, Y., & Smith, A. (2010). Business Model. Retrieved May 2013, from Wikipedia: http://en.wikipedia.org/wiki/Business_model
Treacy, M., & Wiersema, F. (1997). The Discipline of Market Leaders: Choose Your Customers, Narrow Your Focus, Dominate Your Market.
