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This is part 1 of a series where I share my thoughts on how to delink innovation from sparks of great inspiration and make it a reliable process
I regularly get asked how easy is to create disruption in existing markets. Our markets are actually full of such examples.
Take the case of the airline industry, an elitist product that has transformed over the last few decades. From the days when only the rich could travel, the industry has seen emergence of new aviation model, a transportation system devoid of luxuries of the past at costs that are unimaginable in the past. The innovators have examined the offering, stripped away features that weren’t important to customers, while reducing cost significantly. There have been number of innovations in the way the offering is delivered; processes have been completely re-engineered, network of partners have been redesigned and profit models have been recreated.
The retailing industry has seen another massive transformation, primarily a technology led innovation. Here new players have discovered that they can use technology to deliver the offerings at significantly lower cost, while delivering better experience! This has led to large institutions going bankrupt and disappearing.
Mere technology evolution can’t explain the innovations enabled using digital technologies. The digital enabled innovations aren’t mere digitization of existing business, but a reimagination of how business can deliver offering using technology. This has meant whiz kids with little or no expertise in the specific industry redefine the industry; someone with no experience running a hotel can create a phenomenon like AirBnB. All that they needed was an ability to look at customer needs and figuring out how technology can enable new business models.
None of these were a result of serendipity. Most innovations had been in the making for most industries. The methods adopted have been well documented and multiple research papers have been written about them. Unfortunately, many seem to wait for their own Eureka moment, which is unlikely to come.
Innovation will be happen when organizations approach it as a science. It’s not the output of mad scientist that you see in the movies, but a thinking organization that has set out an ambition and built capabilities that are designed to deliver those ambitions.
There typically tend to be 3 innovation opportunities for any organization with regard to customer jobs to be done. In his book Jobs To be Done, Anthony Ulwick identifies 5 strategies, but to me 2 of them sustaining and discrete are not innovation strategies.
Differentiation: Deliver a much superior product or customer experience and be able to charge more.
Disruptive: Deliver a significantly cheaper product or service targeted at overserved customers, typically bottom of the pyramid
Dominant: Deliver a breakthrough innovation that is both superior and cheaper and appeals to a large market.
Differentiation strategy is when the market has a enough underserved customers, who are also willing to pay a higher price for the offering. A great example is the EVs today and mobile phones of the past. In both cases, the offerings appeal(ed) to a small audience that is willing to pay a premium. In the case of mobile phones it served the needs of those that required to communicate while they were mobile and were willing to pay for the early technology. Similar is the EV trend today, a small but significant customer base is willing to put up with limitations of an emerging technology, while holding environmental cause high.
The challenge with differentiation as a strategy is that over a period of time technology brings every player on par. As such this strategy has limited life cycle and often offerings that were introduced as differentiated products tend to become the baseline sooner than later.
Disruptive strategy works when there is plenty of overserved customers, a large potential customer base that doesn’t use the offering because a) has features which are more than what the users need b) it’s too complex to use, both of them having the potential to make it more expensive.
Examples of such situation are plenty. Phone cameras exists today because the digital cameras have many features that average users don’t need and are complex for most users. Phone cameras have eliminated a lot of features of the DSLR and point and shoot cameras as well as made it simple to use. They also realised that the vast majority don’t print their photos and merely share it on social media, something that requires only a small sensor.
Despite what smart phone manufacturer’s may claim, they are nowhere near the performance of DSLR’s (except the top one’s using computational photography, that are also expensive), but that’s what a very large customer base wanted.
Finally, the dominant strategy is when you can target all consumers in the market, under served, and over served included, and deliver them an offering that is better as well as cheaper. Such innovations require innovation that encompasses multiple elements; the offering, the experience factors and the configuration through which it is delivered. It requires organizations to have deep understanding of customer needs and not just market trends. It requires a good grasp of technology and how it can be utilized. It may not be essential to be the first mover in terms of use of technology, but requires marrying technology to needs.
The new millennium has seen explosion of such innovations that have redefined industries. Many of them have leveraged digital technologies and have come from what the traditionalists will call as upstarts. Brian Chesky and his co-founders managed to do this to the hotel industry when they came up with AirBnB. Travis Kalanik repeated it an year later when he disrupted the taxi industry. Information technology has been used to redefine financial services for more than decade now. The list is endless.
We now know that such innovation can be done in a systematic fashion. In this series of blogs, I will explore how organizations can eliminate serendipity associated with innovation by building capabilities and using systematic methods
Do reach out to me if you need support for your innovation efforts.
Krishnan Naganathan
Krishnan is a leading innovation consultant and focuses on helping people and organizations innovate and build capabilities for innovation. He brings over 25 years of experience in the industry and consulting. You can reach him by phone / WhatsApp: +919791033967 or email: krishnan@thinkhorizonconsulting.com