
As I was perusing Chuck Frey’s Innovation Weblog this morning, I noticed a recent post by Charlie Alter titled “Demand innovation step 3: Finding new growth opportunities.” In this article, seven principles are highlighted. As I pondered the points, it struck me that the advice put forth in this article was actually pretty poor. Let’s dissect the suggestions made by Charlie Alter and understand what a good innovation driven growth strategy should look like.
Alter: “Shift from a “Product Centered” sales growth strategy to an “Economic Centered” model”
Better Advice:
Customer/Market Centric innovation is the most effect path to growth hands down. Focusing on the term Economic Centered can lead to serious problems for a company. The last thing you should want to do is get sucked into the vast gaping void of commodity hell. Yet, this is exactly where you will end up if you make economics the central piece of your innovation strategy.
The keystone supporting the architecture of your business and innovation strategy must be value. It is the value proposition that gets customers to buy; it is highly differentiated value that drives market share attainment; it is tight full product value alignment that builds customer affinity.
This high value delivery is achieved by immersive understanding of the opportunity space defined by your target customer’s unspoken needs, goals, and aspirations. While Alter does acknowledge this, the emphasis on economics is wrong. The focus must always be on the customer. Customer focus leads to high value delivery. Deliver high value and the economics will follow.
Alter: “Stop relying on developing the latest blockbuster products and develop a series of evolutionary”
Better Advice:
Sorry, if you want to be the leader, you can’t pick between ‘Big I’ and ‘little i’ innovation. The only winning game plan is to pursue both. Strategy and tactics are two sides of the same coin. The evolutionary innovations that provide incremental value enhancements to your existing customers are very important. It is these everyday innovations that sustain the value of your existing revenue channels, help ensure the ongoing profitability of the business, and can provide the cash needed to fund new opportunities.
However, becoming reliant on incrementalism is a go out of business strategy. It is this mindset that creates the environment for disruptive market change. By focusing too tightly on the current needs of today’s best customers, companies become inured to the constantly changing market/customer ecosystem in which they operate. They stop changing and developing. In an ever changing world, when you stop changing, you start dying.
Learn to eat your own lunch before someone else does. In parallel with the incremental innovation, companies must engage in continuous reevaluation and innovation of their products, their services, and themselves. It can be scary to think of creating a new product that may undermine an existing cash cow. But always remember that someone is going to do it. Isn’t better if that someone is you?
Look for new markets, too. You can tap into vast new revenue opportunities and extend the revenue life of your current products by applying simple sustainable innovation practices. Can you identify new communities of users for your existing product? What is the fundamental component of your offering that is the source of its value? Can that component be retargeted to a different space where it can enjoy a second revenue identity? Are there licensing opportunities to be had?
It is these two approaches, self re-invention and white space development, which should be at the heart of your strategic innovation thinking. With the dual tracks of tactical and strategic innovation, you will ensure both the short-term and long-term success of your company.
Alter: “Look at the size of your business, no matter how large or small, for the advantages it represents”
Better Advice:
It is always import to look at the elements of your business and consider how they can be leveraged to competitive advantage. But never try and justify the status quo by focusing solely on the positive. Every aspect of your business, its size, your organizational design, your sales mechanism, etc., presents both advantages and disadvantages. You need to understand both sides and consider how to optimize each element of the whole to deliver maximum customer value and corporate performance.
Taking the specific issue of organization size as an example, don’t assume your current configuration is the right one. Does your size and organization really fit the optimal business model for your market and target customers? The answer to this question may change the way you think about the business. You might find you need to grow the organization to map properly to the business model and growth goals; perhaps you will find that you have excess capacity that must either put to a value driving use or trimmed out. You might even come to the realization that a fundamental shift in the business model is important.
Alter: “Make sure profitable growth is driven through every level of your company”
Better Advice:
On this point, I fully agree with Alter. Every company must maximize its return on investments. Every dollar (Euro, Pound, Yen, etc.) which is misspent detracts from that attainment. As Charlie advises, do redirect those wasted resources into activities that can drive revenue and value growth for the company. This is as true for a start-up as it is for a major enterprise. As Clayton Christiansen put it, “Be patient on revenue, but impatient on profitability.” One doesn’t have to look far these days to see the wreckage of start-ups that became proof points for this when their venture capital partners decided to turn off the funding flow.
Alter: “Develop lots of small or even maverick ideas for growth rather than a few large ones”
“One simple rule is that the more ideas for growth the better”
Better Advice:
More is not always better. Contrary to the popular mantra that you need to throw as much stuff against the wall to see what will stick, the go generate a ton of ideas approach to innovation is counterproductive and a legacy view of the world that tenaciously hangs on because sometimes something does in fact stick. When you have too many ideas to wade through, the sea of ideas itself becomes the roadblock to innovation.
Companies have limited resources and cannot afford to waste cycles winnowing down a mountain of questionable and mostly incremental concepts looking for that one gem. Rather than letting a million flowers bloom and die only to find that in doing so they have depleted the nutrients in the once fertile ground that was your business, you are much better off selecting a handful of high quality ideas that have a much better chance of success because you can properly focus your energies on tending the innovation garden.
This is fundamentally where needs led innovation diverges from the old school thinking of idea first innovation. By clearly identifying the target audience, their needs, and then applying sustainable innovation methods to find the best way to deliver value to that audience through a brilliant solution that meets the needs, you will have the surest path to corporate value creation. In short, you don’t need 3000 ideas to create one new product, you just need one. Sustainable innovation practice is all about identifying the one idea the first time.
Alter: “Form a small cross-functional team and visit your best customers to determine what types of challenges and problems they encounter during their business processes that “surround” the products or services they buy from you”
Better Advice:
On the surface, this is basically good advice. Understanding the entire use model and eco-system that your product or service is a part of can help you develop many good strategic insights. However, always remember the limitations of your current customer experience. Today’s best customers may not in fact be tomorrow’s high value customers. Be wary of the pitfalls of steering the future course of your enterprise by always looking in the rearview mirror.
Do pay attention to your top customers, as they can help you understand the requirements for on-going incremental innovation as well as give you insights into easily entered adjacent markets. But don’t neglect your underserved customers. Understanding their issues can give you insights into vulnerabilities that could be exploited by a disruptive agent. Also remember to listen to all the voices of innovation: the voice of the customer, the voice of technology, the voice of regulatory influence; and the voice of your business. When you can properly harmonize these different voices, you are properly orchestrating the business strategy for innovation.