Updated: Jan 23, 2020
This article is part 2 of this series on innovation strategies. Links to other parts are below
In the first part, we defined 3 types of innovation, changing the known, changing the boundaries and changing the game for the business. Core innovation is about changing the known for the organization.
Every organization must consider innovating its core, there simply is no escaping from this need. Every market and product goes through multiple stages; emergent, growth, maturity and decline. Increasing the life before the market or product gets commoditized or goes into decline require the organization to continually improve and continually innovate.
Clay Christiansen (Christensen, C. (2006). The innovator's dilemma. New York: HarperCollins Publishers.) defines the concept of sustaining innovation and efficiency innovation. He defines sustaining innovation as one that improves existing products with better value. It doesn’t necessarily, bring in new customers or markets into play but provides a better platform for competing with your competition. On the other hand, efficiency innovations are those that will reduce the cost of making and delivering products or services.
Your efforts at changing the known can be either a sustaining or efficiency innovation. Sustaining innovation will help you with a larger market share and/or higher margin. But remember you are going to be replacing an existing product with a better value proposition. Efficiency innovations are focused on profitability improvement and when well executed, will actually result in job losses.
Sustaining innovations take two shapes, predominantly, developing distinguishing features and functionality and/or creating complementary products and services. These would mean either product performance or product system innovations.
One remarkable feature of sustaining innovations is that, when the product or offer is in an emergent phase, it is common to find the product to be “underpowered” for the problem it's solving. However, as sustaining innovations happen, its common to find offers to be “over specified”, customers would rarely need all the features that are included in the offering.
A second observation is that rarely does an entrenched player lose their established markets and most profitable customers to new entrants with sustaining innovations. New entrants succeed most often by playing at the periphery of the markets and gradually catch up with entrenched players.
Entrenched players in the market are often seen to come up with sustaining innovations even before their competitors are ready with their offers and begin differentiation for different customer segments, carving out niches.
Finally, sooner than later the offers get commoditized and players enter the phase of efficiency innovations.
Here are some strategies for sustaining innovations
Develop offers of superior style, design, quality and reliability
Make the offer simple and easy to use, removing superfluous details and features. Most emergent phase offers tend to be complex, to begin with, and go through a rapid phase of simplification.
Provide exceptional customer engagement functionality that builds loyalty and willingness to pay a premium
Make safety a differentiator. Eliminating dangers in use can be a major source of innovation.
Aggregate features found in multiple offers into a single offering.
Focus on sustainability, minimize the environmental impact of the offer/product and focus on reduction in the use of energy and material. Companies have set themselves apart by doing simple things as doing away with packaging containers.
Make it easy to customize the offer to individual needs
Segment and create an offer that appeals to a specific audience
Sell related or ancillary products or services
Enable third parties to add functionality through plug-ins and interfaces
Build modularity, provide an offering that can be used individually, but can do more when combined with other elements in the module.
Create product and service platforms that can be combined with other partner offering to create a holistic experience.
The central theme for all sustaining innovation is to ensure customer loyalty and preventing your customers from shifting. Every business can be assured of one single fact, your offering will be duplicated. Sustaining innovations are key to make sure that your customers stay with you and your competitors' customers switch to your offering.
Efficiency innovations become critical during the later stage of growth and maturity. This is about ensuring that the organization can deliver the product at either lower cost or at a higher margin. While these innovations may require investments, they have high IRR and release free cash flows. The focus is on higher quality, higher productivity, lower inventories, lower costs, etc.
Toyota is probably the benchmark here with the use of the Toyota Production System, which has become de facto operation excellence standard. TPS has been the secret recipe (no longer a big secret though) for Toyota to keep itself ahead of the competition and become one of the most admired companies in the world.
Organizations, however, have to ensure that efficiency innovations don't displace sustaining innovations and breakthrough innovations. The risk is clear and omnipresent; efficiency innovations have lower risk, higher IRR and as such look more attractive on the books.
Here are some strategies for efficiency innovations.
Standardize to improve quality, reliability and reduce cost
Focus on process efficiency; move from people doing the job to people doing it more efficiently and in the end automation – robots and algorithms.
Build flexible delivery systems in both manufacturing and distribution that provides the ability to react fast and keep inventories low
Outsource and engage suppliers as partners to work for you.
The central theme for efficiency innovation is enhancing your ability to deliver your offer much faster, at a lower cost and with a lower capital requirement. These should provide a significant commercial advantage.
Combining Sustaining and Efficiency Innovations
Keeley (Keeley, L. (2013). Ten types of innovation) and others found that organizations that used more than one type of innovation were more successful than those that depend only on product performance or any one type of innovation. If an organization focuses on sustaining and efficiency innovations simultaneously, there is an opportunity for multiple types of innovation.
For example, an organization that has developed flexibility and reliability can build elements of channel innovation and service innovation with its product performance innovation and open up new opportunities. Organizations that haven’t focused on efficiency innovations, struggle to meet the scaling up needs of sustaining innovations, higher standards of service requirements and the differing needs of multiple channels that channel innovations focus on.
In summary, to succeed with core innovations, you need to look beyond product/offering. Look at opportunities for both sustaining and efficiency innovations, that will bring into play other types of experience innovations.
Krishnan is a consultant with more than 25 years of experience. His purpose is to help India and it's entrepreneurs be global leaders in innovation