29 July 2012
In a previous post, I show that not all innovation is the same. By putting innovation on a two-dimensional matrix, different types emerge — from incremental to game changers. This isn’t new per se, but it does help locate initiatives relative to each other.
Some business stakeholders are swinging for the fences in their innovation efforts: they want the big wins. And rightfully so: reaching for the stars keeps the company pushing forward, beyond what it can currently deliver. This inspires and motivates employees and management alike. But sometimes this quest for the next biggest and best thing overshadows everything else.
In particular, incremental innovation is underrated, I believe. I’m not just talking about continuous improvements and optimization of existing products, rather clear steps forward that keep a business in the game.
And I’m not alone. Innovation expert James Gardner writes in his book Future Proof Banking. He describes how incremental innovations not only sustain a business but are prime source of positive returns. They’re downright profitable:
People are surprised when I tell them most returns from good innovation programmes come from incremental innovation.
Perhaps the most famous incremental innovator is Toyota. The volume written about this company and its rise from relative mediocrity to global dominance on the back of small, quite basic changes is monumental. Founded in 1937, the company started commercial passenger car production in 1947, and by the 1980s was consistently ranked higher than any other manufacturer in owner satisfaction surveys. Attention to detail, and making small changes to create lasting improvements, led the company to become the largest automotive manufacturer in the world by 2007. Clearly, incremental innovation can pay, even if the individual changes aren’t exciting and high profile.
Convincing people that small improvements are important is a big challenge for an innovation function. A common response to the idea that innovators should do incremental is that innovators who do so are reducing themselves to optimisers. (p. 11)
Breakthroughs, as Gardner points out, are risky with a lot that can go wrong. They also often suck up more money than they bring back in the short-term, but also in the long-term. So it’s no wonder some companies have done well focusing on incremental innovation.
Marriott hotels, for example, are known for continuous innovation. They identify the services people want and launch them in a planned way to continually “wow” customers and keep the competition guessing.
Even Apple, which frequently tops lists for the most-innovative companies, profits from incremental innovation. Sure, Apple has launched more game changers than any other company in recent times. But after the initial release Apple sees huge returns from incremental innovations. In his article “Incremental Change Wins Apple Big Gains” tech commentator Glenn Fleishmann describes Apple’s incremental approach:
Apple is consistently criticized by pundits, bloggers, other firms, and market analysts for either innovating too much with initial releases (the MacBook Air, the iPhone, and the iPad, notably) or too little in subsequent product revisions. There’s a reason for that. I want to defend Apple’s incremental improvements as the basis of its success in the market, something its competitors seem baffled by, because they apparently don’t understand the difference between revenue and profit, and between delighting customers with products that can be used for several years and those that are obsolete before they’re even sold.
The advantage of incrementalism seems clear if you can make products that are outstanding enough to cut through the clutter of the marketplace. Rather than focusing at any point in the last decade on a cheap item that could outsell PC and then handset competitors, Apple has largely focused on releasing hardware that costs more in order to buy more of the future for its purchasers. The iPad is unusual, in that it marks the first time that Apple can be both ridiculously ahead on price relative to features and have such an extreme lead over competitors that it can maintain its position, all while making only incremental improvements.
The key, I believe, is having an incremental innovation strategy. Sequences of smaller innovations — taken together or spread out over time — can give the illusion that a company is moving forward faster than competitors.
One such strategy is “The Long Wow,” a concept first developed and described by Adaptive Path’s Brandon Schauer. With this approach, companies strive to pace features that will give a “wow” experience over time. He writes:
Plan and stage the wow experiences. Developing all your ideas at once is a risky undertaking. Instead, organize a pipeline of wow moments that can be introduced through your platform of touchpoints over the long haul. As you learn more about your customers and how they perceive the wow moments you can better organize your pipeline of ideas for development. Outline where and when additional wow experiences will emerge in the future, unfolding in a coordinated network of experiences.
Finally, consider also Steven Johnson’s notion of the “adjacent possible,” one of the core concepts of his excellent book Where Good Ideas Come From. Johnson shows that innovative ideas aren’t conjured up out of thin air; rather, they most often come together by combining existing ideas in new ways. Rarely in the history of innovation has man leaped forward ahead of what’s currently possible. Johnson explains:
What the adjacent possible tells us is that at any moment the world is capable of extraordinary change, but only certain changes can happen.
The strange and beautiful truth about the adjacent possible is that its boundaries grow as you explore those boundaries. Each new combination ushers new combinations into the adjacent possible. Think of it as a house that magically expands with each door you open. You begin in a room with four doors, each leading to a new room that you haven’t visited yet. Those four rooms are the adjacent possible. Three new doors appear, each leading to a brand-new room that you couldn’t have reached from your original starting point. Keep opening new doors and eventually you’ll have built a palace. (p. 31)
So not only is incremental innovation profitable, it’s also necessary to fuel and support breakthroughs from a creative standpoint. It’s the foundation that helps you build a palace of innovation.
In the end, none of this is an either-or question: companies need incremental innovation, breakthroughs and disruptions alike. To do this, there must be a comprehensive innovation program in place to channel attention and effort in the right direction.
We can use matrix for the “Four Zones of Innovation” to balance resources. I’m suggesting a ratio of 5:2:2:1, as shown in the chart below:
If you had $1 million, for instance, you’d dedicate $500k to incremental development, $200k to breakthrough ideas and disruptions each, and $100k to a game changer. You can argue with this distribution (please do!). But for immediate returns, focusing on incremental innovation makes sense.
The point is that incremental ideas shouldn’t be neglected: they are profitable and can fund your big idea projects. And they also provide a stepping stone toward game changers via the adjacent possible.
3 June 2012
“Innovation” is a tricky word to define: it means different things to different people. A recent article in the Wall Street Journal entitled “You Call That Innovation?” provides a solid review of the use of the word “innovation” in business contexts.
The article points out that some people limit the scope of term. Scott Berkun, author of The Myths of Innovation (see my review), reserves “innovation” for civilization-changing developments, like electricity and the telephone. This avoids the dilution of the term, which has already become the buzzword du jour.
In a broader perspective, some consider any change to be an innovation. Etymologically, this is acceptable: the Latin root “innovare” simply means to renew or change.
To distinguish between these two extremes, some definitions view innovation on dichotomous scale. For instance, Michael Porter talks about “continuous” and “discontinuous” technological changes; Tushman and Anderson distinguish between “incremental” and “breakthrough” innovation; Abernathy and Clark refer to “conservative” vs. “radical” innovations; and Clayton Christensen shows the difference between “sustaining” and “disruptive” innovations. While this helps differentiate types of innovation efforts, viewing innovation along one dimension doesn’t tell the whole story.
To clarify the situation, I’m proposing a 2-dimensional picture of innovation:
- The y-axis indicates the degree of technological progress an innovation brings with it. Moving from low to high along this line indicates improving existing capabilities, services and products.
- The x-axis shows the impact an innovation has on the market, also from low to high. This usually entails new business models or reaching underserved target groups.
This gives rise to four distinct zones of innovation:
- Incremental innovations involve modest changes to existing products and services. These are enhancements that keep a business competitive, such as new product features and service improvements.
- Breakthrough innovation refers to large technological advances that propel an existing product or service ahead of competitors. This is often the result of research and development labs (R&D), who are striving for the next patentable formula, device and technology.
- Disruptive innovation is a term coined by Clayton Christensen. In his best-selling book The Innovator’s Dilemma he shows that disruptive innovations “result is worse product performance, at least in the near-term. [They] bring to a market a very different value proposition than had been available previously” (p. xviii).
- Game-changing innovation transform markets and even society. These innovations have a radical impact on how humans act, think and feel in some way.
My proposed view of innovation isn’t original. It’s directly influenced by a model developed Wheelright and Clark (1992), which is mentioned as a way to prioritize and plan for innovation in the book The Innovator’s DNA. Still, I believe my approach improves their model and sheds new light on some important differences in our discussions and efforts around innovation.
Chief among these is the confusion between “breakthrough” and “disruptive” innovation. Scott Anthony et al. point to this common misconception the book The Innovator’s Guide to Growth (see my review). They write:
The word disruption itself is loaded with alternative meanings and connotations, many of which run counter to the precise pattern Christensen identified is his original stream of research. As the concept has seeped into the mainstream, this language “disconnect” has led to confusion, misunderstanding, and the occasional misallocation of resources… The error people make most frequently is assuming that a great leap forward in performance is synonymous with disruption.
Breakthrough innovations promise significant improvements in performance compared with existing products. Examples include the Airbus 380, Nokia’s flagship Lumia 900 phone and Microsoft Office 2007. To contrast, disruptive innovations address underserved market needs with products that are more convenient to access, easier to use, and cheaper to buy. Examples include budget airlines, plain vanilla $25 mobile phones, and “good enough” web-based word processing software.
The value of viewing different levels of innovation along two dimensions, as in the graph above, is that you can plot different trajectories of innovation that keep breakthroughs separate from disruptions, as needed.
What’s more, the above zones of innovation can better guide innovation efforts. I believe a good innovation program should balance attention to each zone. Each has a different purpose and requires a different strategy:
- Incremental innovations help keep a company in the game and provide short-term revenue.
- Breakthrough innovations can catapult a product or service well ahead of competitors.
- Disruptions usually entail a change in a business model, making them harder to implement. One strategy is to create a separate brand or company that operates at a lower level than its parent — perhaps more like a startup. (See my review of Xiameter, a sub-brand of Dow Corning launched to address the low end of the market.)
- Game changers transform markets. They introduce new product categories, for instance, which can ensure long-term success for a business.
Of course the lines between each zone are blurry. And you can argue about the labels themselves. But it’s the logic behind the above graph that’s key here. I’ve found it helpful in explaining innovation to clients and hope you find it helpful too. I hope you’ll adopt my labels.
Please let me know what you think.