Thomas Edison once said, “I don’t want to invent anything that nobody will buy.” While haphazard innovations may generate revenue, if you really want to make innovation pay off big time, a strategy or game plan for using it within your organization needs to be developed.
The most important point about developing a strategy for innovation is to make something useful—a product or service people will buy. That is easy to say, but much harder to do.
There are two aspects to this: building something people want and making its value proposition attractive enough, so a sufficient number of people will buy it and make it commercially viable.
A great example is Tesla’s new Powerwall product. They created an advantageous innovation that yielded a strategic competitive advantage by combining the following two steps.
The first step is to identify markets that have significant growth potential and are at least somewhat related to existing markets in which it participates. Second, avoid trying to develop something totally unfamiliar to it by leveraging the company’s current core competencies.
Tesla did this very well because of the growing trend in solar power people and companies want energy independence. This will mean there is significant and growing market for electric storage systems. Additionally, because of its expertise with battery technology as a result of Tesla’s electric cars, it could take advantage of its current know-how.
Create Useful Innovation
The goal is to create economically useful innovation. But how do you do that?
Eric Schmidt, co-founder of Google, put it this way: “Ubiquity first, revenues later; usefulness first, usability later . . . If you can build a sustainable eyeball business, you can always find clever ways to monetize it.”
However, some of the most innovative institutions in the history of American business have been colossal economic failures. Xerox Corp.’s famed Palo Alto Research Center (Xerox PARC) gave the world laser printing, Ethernet, and even the beginnings of the graphical user interface—later developed by Apple—yet is notorious for never having made any money at all.
Keep in mind throughout this discussion on innovation strategy that as was detailed in our February 2018 Newsletter, there are nine different types of innovation, not just new products and services.
Incremental Versus Radical Innovation
In formulating an innovation strategy, it is paramount to be aware that when the entire landscape of innovation is considered, there are two broad categories of innovation—incremental and radical.
Xu, Wu, and Cavusgil describes the difference this way: “For incremental innovation, the type of knowledge involved is generally similar to the firm’s existing knowledge base . . . On the other hand, for radical innovation, the type of knowledge involved is often novel and beyond a firm’s current technology trajectory.”
Therefore, the level of newness in knowledge involved is the determining factor of whether an innovation is considered incremental or radical.
Apple’s iPhone
A good example of this is Apple’s iPhone. The first version of the iPhone was a radical innovation. Thereafter, Apple incrementally innovated various features as the smartphone market evolved.
Incremental innovation generally involves enhancements to existing products and services, not something entirely new to society. Instances of incremental innovations are: new features, additional flavors, different sizes and shapes, and new uses for an existing product. Other examples are “new and improved,” “more memory,” “faster speed,” “better” or “easier to use”.
The reason this differentiation is critical is that for incremental innovation, the resources and capabilities necessary to bring it to market are much less demanding than for radical innovation.
Develop an Overall Strategy
Innovation experts who have surveyed the landscape of creativity state that many companies’ innovation development portfolios have become less diverse over the past number of years. The number of existing product improvements and modifications (incremental innovation) in companies’ pipelines has almost doubled.
Increasingly, innovation for many companies means product-line extensions, improvements, and modifications. Many have chosen to focus on short-term, low-risk, simple development projects. This is compounded by the fact that companies are focusing on existing mature markets that can only provide limited revenue and profit growth.
This means if a market is not new or at least a growing one, firms are increasingly competing for a piece of a shrinking pie by spending funds on innovation that won’t provide long-term growth.
The development of a strategic, long-term radical approach begins by an organization looking outside itself to determine what markets, sectors, applications, product types, and technologies have significant growth potential. Ideally, these are areas that are at least somewhat adjacent to existing markets in which it currently participates.
Perform an Assessment
Additionally, an assessment should be performed to determine the company’s core competencies. This includes identifying the unique capabilities of the business that could be leveraged to advantage in other markets, applications, and sectors. The goal is to work from an organization’s strengths and base of knowledge instead of starting from zero in an entirely new market about which nothing is known.
This is exactly what Corning did when it leveraged its knowledge in glass and related materials to create a product used for flat LCD displays (for cell phones initially, then laptops and desktop monitors, and lastly for LCD TVs and larger displays). This type of thinking led to major innovations that were developed in each of Corning’s business sectors over the past decade, including the creation of four new product lines. These efforts literally turned the company around from having loses to huge profits.
Where to Start
First, evaluate your organization’s current expertise with innovation so you can determine whether your strategy needs to focus on incremental or radical innovation.
Depending on this analysis, if your organization is less experienced with innovation, then because incremental innovation is less demanding than radical, it is prudent to begin there so you can develop your expertise and tools and garner some traction – thereby setting you up for success with more challenging future projects.
Second, establish an overall innovation plan in the form of an innovation strategy document. It should state what innovation areas are most attractive to your organization and which ones leverage your current know-how. Part of this should include letting your staff know (don’t keep them in the dark) which areas you have targeted so they can begin to focus their minds, time, and energy in these arenas.
If you need assistance with developing an overall strategy of how to use innovation most effectively within your company, please contact us using the below information so we can be a resource to you in this crucial area.
Fountainhead Consulting Group, Inc. is an Innovation and Business Planning firm. During the past 17 years, we have shown over 1,200 companies how to achieve their goals by using our unique, comprehensive, and systematic FastTrak Innovation Program™, Innovation Academy™, and Structure of Success™ methodologies. Using the components in these methodologies, each month we examine an aspect of how to transform your business or organization into a true 21st Century enterprise.
Office phone: (770) 642-4220
www.FountainheadConsultingGroup.com
George.Horrigan@FountainheadConsultingGroup.com
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