The 12 Different Ways for Companies to
Innovate PART I
Companies
with a restricted view of innovation can miss opportunities. A new framework
called the “innovation radar” helps avoid that.
Faced with slow growth, commoditization and
global competition, many CEOs view innovation as critical to corporate success.
William Ford Jr., chairman and CEO of Ford Motor Co., recently announced that,
“[f]rom this point onward, innovation will be the compass by which the company
sets its direction” and that Ford “will adopt innovation as its core business
strategy going forward.” Echoing those comments, Jeffrey Immelt, chairman and
CEO of General Electric Co., has talked about the “Innovation Imperative,” a
belief that innovation is central to the success of a company and the only
reason to invest in its future. Thus GE is pursuing around 100
“imagination breakthrough” projects to drive growth though innovation. And
Steve Ballmer, Microsoft Corp.’s CEO, stated recently that “innovation is the
only way that Microsoft can keep customers happy and competitors at bay.”
But what exactly is innovation? Although the
subject has risen to the top of the CEO agenda, many companies have a
mistakenly narrow view of it. They might see innovation only as synonymous with
new product development or traditional research and development. But such
myopia can lead to the systematic erosion of competitive advantage, resulting
in firms within an industry looking more similar to each other over
time. Best practices get copied, encouraged by benchmarking. Consequently,
companies within an industry tend to pursue the same customers with similar
offerings, using undifferentiated capabilities and processes. And they tend to
innovate along the same dimensions. In technology-based industries, for
example, most firms focus on product R&D. In the chemical or oil and gas
industries, the emphasis is on process innovations. And consumer packaged-goods
manufacturers tend to concentrate on branding and distribution. But if all
firms in an industry are seeking opportunities in the same places, they tend to
come up with the same innovations. Thus, viewing innovation too narrowly blinds
companies to opportunities and leaves them vulnerable to competitors with
broader perspectives.
In actuality, “business innovation’’ is far
broader in scope than product or technological innovation, as evidenced by some
of the most successful companies in a wide range of industries. Starbucks
Corp., for example, got consumers to pay $4 for a cup of latte, not because of
better-tasting coffee but because the company was able to create a customer
experience referred to as “the third place” — a communal meeting space between
home and work where people can unwind, chat and connect with each other. Dell
Inc. has become the world’s most successful personal computer manufacturer, not
through R&D investments but by making PCs easier to use, bringing products
to market more quickly and innovating on processes like supply-chain
management, manufacturing and direct selling. And Google has become a
multibillion-dollar goliath not because it has the best search engine, but
because it pioneered “paid search” — the powerful concept that vendors would be
willing to pay Google to match consumers with relevant offerings as a
by-product of free searches the consumers conduct.
Conversely, technological innovation in the
laboratory does not necessarily translate into customer value. For instance,
high-definition television is a radically new innovation from a technological
perspective, requiring new recording, transmission and receiving equipment,
communication frequencies and programming. But the result — an incremental
improvement in picture sharpness — is of limited value to the general consumer.
One of the most technologically advanced computers ever created was the NeXT
Cube, developed by Steve Jobs’ company NeXT Computer, Inc. The product featured
a host of technological advances, including clickable embedded graphics and
audio within e-mail, object-oriented programming, magneto-optical storage and
an innovative operating system. But the NeXT Cube was a commercial flop. Few
compatible software applications were available, and consumers balked at the
prospect of switching to a radically new system.
About
the Research
We developed the innovation radar based on
interviews from managers responsible for innovation-related activities at
several large companies across a range of industries. Participants included
Boeing, Chamberlain Group, ConocoPhillips, DuPont, eBay, FedEx, Microsoft,
Motorola and Sony. We also reviewed the academic literature on innovation to
help identify and define the radar’s 12 dimensions. To measure those
dimensions, a comprehensive set of questions was compiled, following
well-accepted best practices in metrics and questionnaire design.i
Two distinct sets of measures were created
for each dimension: (1) reflective measures to obtain an overall metric for the
actual level of innovativeness at each dimension and (2) formative measures to
gain insight into activities or factors that contribute to the observed level
of innovativeness.
Defining Business Innovation
To avoid innovation myopia, we propose
anchoring the discussion on the customer outcomes that result from innovation,
and we suggest that managers think holistically in terms of all possible
dimensions through which their organizations can innovate. Accordingly, we
define business innovation as the creation of substantial new value for
customers and the firm by creatively changing one or more dimensions of the
business system. This definition leads to the following three important
characterizations.
Business Innovation is About New Value, Not
New Things. Innovation is
relevant only if it creates value for customers — and therefore for the firm.
Thus creating “new things” is neither necessary nor sufficient for business
innovation. Customers are the ones who decide the worth of an innovation
by voting with their wallets. It makes no difference how innovative a company
thinks it is. What matters is whether customers will pay.
Business Innovation Comes in Many Flavors. Innovation can take place on any dimension of a
business system. The Home Depot Inc., for example, innovated by targeting “do
it yourselfers,” an underserved customer segment. JetBlue Airways Corp. has
succeeded in the U.S. domestic airline market by offering a better customer
experience that includes live satellite television, leather seats and
fashionably clad flight attendants. And Cisco Systems Inc. has improved its
margins through process innovations, such as the company’s ability to close its
quarterly financial accounts on the same day that its quarter ends.
Business Innovation is Systemic. Successful business innovation requires the careful
consideration of all aspects of a business. A great product with a lousy distribution
channel will fail just as spectacularly as a terrific new technology that lacks
a valuable end-user application. Thus, when innovating, a company must consider
all dimensions of its business system.
The
Innovation Radar
The innovation radar displays the 12
dimensions of business innovation, anchored by the offerings a company creates,
the customers it serves, the processes it employs and the points of presence it
uses to take its offerings to market.
A 360-Degree View
The question then immediately arises: How
many possible dimensions of business innovation are there, and how do they
relate to each other? For three years, we have examined that issue in depth
with a group of leading companies, including Motorola, Chamberlain Group ADT,
Sony, MicroSoft and ConocoPhillips. (See “About the Research.”) Based on
discussions with managers leading innovation efforts at these companies and a
comprehensive survey of the academic literature on the topic, we have
developed, validated and applied a new framework called the “innovation radar.”
This tool presents and relates all of the dimensions through which a firm can
look for opportunities to innovate. Much like a map, the innovation radar
consists of four key dimensions that serve as business anchors: (1) the
offerings a company creates, (2) the customers it serves, (3) the processes it
employs and (4) the points of presence it uses to take its offerings to market.
Between these four anchors, we embed eight other dimensions of the business
system that can serve as avenues of pursuit. Thus, the innovation radar
contains a total of 12 key dimensions.
The 12 Dimensions of
Business Innovation
|
DIMENSION
|
DEFINITION
|
EXAMPLES
|
|
Offerings
|
Develop innovative new products or services.
|
• Gillette Mach3Turbo razor
• Apple iPod music player and iTunes music service
|
|
Platform
|
Use common components or building blocks to
create derivative offerings.
|
• General Motors OnStar telematics platform
• Disney animated movies
|
|
Solutions
|
Create integrated and customized offerings
that solve end-to-end customer problems.
|
• UPS logistics services Supply Chain Solutions
• DuPont Building Innovations for construction
|
|
Customers
|
Discover unmet customer needs or identify
underserved customer segments.
|
• Enterprise Rent-A-Car focus on replacement car
renters
• Green Mountain Energy focus on “green power”
|
|
Customer Experience
|
Redesign customer interactions across all
touch points and all moments of contact.
|
• Washington Mutual Occasio retail banking concept
• Cabela’s “store as entertainment experience” concept
|
|
Value Capture
|
Redefine how company gets paid or create
innovative new revenue streams.
|
• Google paid search
• Blockbuster revenue-sharing with movie distributors
|
|
Processes
|
Redesign core operating processes to improve
efficiency and effectiveness.
|
• Toyota Production System for operations
• General Electric Design for Six Sigma (DFSS)
|
|
Organization
|
Change form, function or activity scope of
the firm.
|
• Cisco partner-centric networked virtual organization
• Procter & Gamble front-back hybrid organization
for customer focus
|
|
Supply Chain
|
Think differently about sourcing and
fulfillment.
|
• Moen ProjectNet for collaborative design with
suppliers
• General Motors Celta use of integrated supply and
online sales
|
|
Presence
|
Create new distribution channels or
innovative points of presence, including the places where offerings can be
bought or used by customers.
|
• Starbucks music CD sales in coffee stores
• Diebold RemoteTeller System for banking
|
|
Networking
|
Create network-centric intelligent and
integrated offerings.
|
• Otis Remote Elevator Monitoring service
• Department of Defense Network Centric Warfare
|
|
Brand
|
Leverage a brand into new domains.
|
• Virgin Group “branded venture capital”
• Yahoo! as a lifestyle brand
|
CONTINUES IN PART II
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