Constant, incremental innovation of products or services has become a hygiene factor. This innovation is often easy to copy and consequently it does not create any strategic values. So how are strategic values being created today?
Already in 1975, Kodak developed their first digital camera but did not dare to challenge their business model which was based on selling cheap cameras and then sell films and photo prints for a consumer lifetime.
A couple of weeks ago they had to pay the price through bankruptcy. The automotive industry has the same principle, sell good cars with low margins and make money on the aftermarket. It may end up the same way.
However, there are exceptions, such as German Audi experimenting with new types of business models like selling 10.000 green miles and getting the car into the bargain. This observation is about where values are created – and it is on the outer edges of your business.
Product and service development are hygiene factors, but are not enough
We often meet clients who say to us: “We are niched and keep a check on our innovation work, at least as well as the rest of the market.” Often true and insightful.
But what has happened in recent decades and what is now increasing at a very fast pace, is that the innovation of products and services has become hygiene demands and neither differentiates nor ties the customers up as before.
With the Internet and increased prosperity on the planet, with an online university of world class which has created a new generation of engineers, designers, programmers etc., with increased availability and transparency, with a mobile workforce and a more integrated financial market, the game plan has changed.
Today, a new business is able to challenge old companies, where established models are repealed in seconds. Kodak descended because of the business model and the distribution channels, and not because of lack of technology or expertise in photography.
The mobile camera became the cheap option and photo prints are done through online services. Photo editing is integrated into the operating system and through online services. The iCloud and other cloud services help us to share, and we have never seen so many photos as now.
The outer edges drive the development of the great values - blood and rock and roll
Innovation is today an incremental and revolutionary (disruptive) improvement of internal and external conditions. It is in the borderland between internal and external that the greatest values are created.
The figure below, taken from Bearing Consulting’s library of methods for innovation work, illustrates where the values are being created. The largest values are created on the outer edges of the business.
Examples of innovation within delivery and consumption is how Apple got us to consume and receive deliveries of software via the App Store and how iCloud ties together applications and machines for seamless consumption and delivery. The same thing goes for Android.
Another exciting example of a company which rose from a bankruptcy threat in 2004 through innovating consumption and supply is Lego. Today Lego is being consumed in a new way, integrated with e.g. movies and merchandising. Furthermore, you can build and design your own LEGO and get it delivered to your home with an automatically generated description of the building. This is value adding on the outer edges of the deal.
Well known business models which have created major values are Spotify and Skype; none of them with new technology, but with completely new business models.
The uncrowned champion of operation would probably have to be Ryanair. Everything is run at the absolute lowest price, where nothing is sacred, not even the logistics at the airports. The model creates values larger than the innovation of products and services in the planes.
On the sales & marketing side, phenomena such as Lady Gaga are worth studying. These are brands that are built and innovated with strategies like launching blood-smelling perfume.
The product and service innovation placed in the middle of the figure are hygiene factors, though easy to copy and creating small strategic values.
Innovation – only for large companies?
But isn’t innovation just for large companies? Or passionate inventors living on bread and water? No, is the short answer. Innovational strength is about systematically working with your knowledge, skills, management style, culture, incentive models, processes and business models by challenging your own thinking in different ways.
For example there are 21 well-documented so-called "capabilities" and 10 well-covered personalities which support and create conditions for different innovation strategies and management styles to drive innovation.
Quite often, I see how companies have a strategy which is not anchored, or varying management styles which differ between departments in a counterproductive way.
A lot of companies have the force, energy and skills which, if you take the time to identify them, can create new competitive advantages from within. These assets cannot be copied on a coffee break and will create values at the outer edges. In a short as well as a long term.
This is innovation in our century.