Kodak was, for years and years, a very good product innovator: the company introduced hundreds of innovations over the span of more than 100 years…most of which related directly to film. At their peak the company had few competitors and about 87% share of the market; then came digital technology.
Digital photography rocked Kodak’s world but it shouldn’t have. Had the company expanded its focus from solely product innovation to including business innovation (process for introducing new ideas, workflows, methodologies, services or products), it might not have suffered the fate it has (which isn’t dissimilar to that of the horse-drawn buggy and the razor strop).
Product innovators think this way:
“As a toothpaste manufacturer, we’ll capture market share by improving our products with new flavors, new packaging forms and even some of the latest tooth care introductions like whitening and germ fighters; we’ll extend the line or improve the product where surveys have indicated drawbacks in functionality or features.”
Product innovators are spending most, if not all, their innovation effort zeroing in on the tangible “thing” that they’re going to sell to the consumer…they care about making it better (or cheaper or faster or…) but not about doing it differently. They’re satisfied, generally speaking, with being the best at what they do and enhancing that position every year. The auto industry, for example, is more interested (or sees more profitability) in adding streaming music and heated steering wheels than in coming up with entirely new concepts like Musk’s electric car, the Tesla. This kind of incremental thinking is what causes such proliferation in many categories, and actually makes it harder for consumers to select the right products for them. Take a look at the myriad of options in categories such as toothpaste, deodorant and skin care, and see how tough it is to distinguish between all the offerings.
Business innovators, on the other hand, think this way:
“We need to closely monitor markets, consumers and trends, looking for opportunities to influence and change concepts and processes. We need to think about new ways to live, work, think and play, then develop capabilities and products that make it reality.”
Business innovators are the people who gave us smart phones, Uber, Redbox and Vistaprint – all of which changed the very way we interact with and access products. They think in terms of “what can we be tomorrow?” rather than “what are we and how can we keep it up?” They also think about the desired consumer experience to envision new possibilities, rather than being confined to thinking about product “improvements.”
Product innovation is important – we’re not suggesting that you’re doing it wrong if you’re improving and adding features to your products; these are valuable activities that keep most companies alive. But are you investing enough time and resources into the types of innovations that could change how things are done?
The 70/20/10 Rule
Some of the most sophisticated innovation companies in the world today apply the 70–20–10 percent rule when allocating resources to their innovation efforts. For Google, as an example, it means that 70% of employees’ time is to be spent on the company’s core business, 20% on projects related to the core and 10% on projects not related to core business at all – looking for that breakthrough idea. According the Harvard Business Review in the article “Managing Your Innovation Portfolio,” companies that followed those allocations outperformed their peers, typically realizing a P/E premium of 10% to 20%.
The same article notes that the return ratio of this approach is roughly the inverse of the allocation described: Core innovation efforts typically contribute 10% of the long-term, cumulative return on innovation investment; adjacent initiatives contribute 20%; and transformational efforts contribute 70%. The temptation is to either front-load the near-term, quick-hit core budget or just as detrimental, ignore the near-term product innovation initiatives and invest too heavily in longer-term transformational activities.
It’s not easy for most companies to reorient their budgets, cultures, processes and systems to this way of doing innovation, but the payback can be significant. And it’s an approach that’s critical if your company has recognized that it can’t compete on great products alone.
If you’re committed to allocating resources toward more transformational concepts, you’ll begin by thinking about what’s possible beyond your products – what experiences are consumers having with other businesses in other categories that might be applied to yours? What are the opportunities to completely change the experience they have with your product? Are there ways your company can transform the way your potential customers live and work? Some of the tools we use to gain deeper insights from consumers are these:
Transforum®: A dynamic online idea generation forum that leverages the brainpower of our Brain Trust – two dozen thought leaders including futurists, cultural anthropologists, engineers, consumer psychologists, trend spotters, inventors and artists, who aren’t limited by conventional wisdom, all collaborating with you to create breakthrough new solutions.
FlashPoint: Innovation workshops that help clients connect with consumers, ensuring that the client team sees, feels, thinks and reacts through the consumer’s heart and mind.
Re/Discovery: A unique ideation consulting partnership that brings experienced consumer researchers and product developers together to help you reframe technology leads or competencies your company may already have to create disruptive new technology applications.
If your 2015 innovation budget doesn’t currently have resources set aside for business innovation and focuses exclusively on product innovation, you may want to take another look and adjust. To help jumpstart your innovation team’s efforts, download our innovation worksheets. When you’re ready for focused engagement, or frustrated enough to know you can’t keep approaching innovation as you have been, give us a call.