Innovation is something of a "Holy Grail" in business circles but
despite the massive investments made by companies in the name of innovation,
new ideas, new products, new businesses don't have a good track record of
success. In his latest book, Clayton Christensen succeeds in diagnosing the
issues creating the innovation problem and sets out a framework for success.
Problems with Innovation
Christensen kicks off by reprising some of the issues concerning innovation
first identified in his first book “The Innovator’s Dilemma”.
There is wide agreement in Western economies that innovation is the primary
driver of growth and profitability. However not many companies have been able
to make substantial and sustainable gains from all of the effort they put
into innovation.
The author highlights different reasons for this for large and small firms. For the large ones a key problem is the effect of being stock market listed. In order to be seen to be successful companies have to over achieve on growth rates that have already been factored into their share price. This pressures the organisation into only investing in opportunities where the market size is both known and large and where there appears to be potential to achieve a high growth rate. The actual ability of the organisation to compete in a mature and competitive market is often not clear and there is an assumption that by spending sufficient money the obstacles in the market will be overcome. All of this comes at the expense of opportunities where the market size and growth cannot be easily assessed because the market is not fully formed or doesn’t yet exist but which have the potential to meet the investment criteria. The effect becomes institutionalised because managers tend to ignore risky ideas. They “know” the company investment rules and simply accept them or follow them so as not to jeopardise their own career. Those of you who have worked for, or are working for, large companies will know all about this effect.
For smaller companies the problem appears to be where innovation is focused. There is a tendency to look at innovation only in respect to existing product attributes. In 4sight’s experience this mindset leads to the “better mouse-trap” syndrome. We have met plenty of companies that bemoan their failure to succeed in the market when their product is functionally better than the market leader. The problem for them is usually that they have not understood the dynamics or segmentation of the marketplace and their competitive position within that market.
What is Innovation?
The book argues that the majority of businesses are engaged in “sustaining
innovation”. This form of innovation is focused on allowing them to
continue to compete in existing markets. It is usually focused on improvements
to the performance of products and services based on the needs of the highest
value customers. The problem is that “sustaining innovation” tends
to provide only short term advantage because immediate rivals will develop
similar features quickly (this effect can be seen very clearly in electronics
and cars, for instance).
Christensen argues that significant growth opportunities will only be achieved
if companies implement what he calls “disruptive innovation”,
in the form of new technologies, processes or channels, that can destabilise
existing market structures and create new customer segments.
The author distinguishes between two forms of disruption.
• “Low end disruption” where new players compete with incumbents,
usually on the basis of lower cost models, and pick off less attractive customer
(for instance, discount retailers Matalan).
• “New market disruption” where players create new markets by targeting “non-consumption” with products that are cheaper, easier to use or easier to buy than existing alternatives.
Christensen highlights two classic examples of the effect. The Sony Walkman and the Canon Desktop Copier. In the case of the Walkman the size of the product created new opportunities for people to listen to music. For the copier, disruption was achieved because photocopying was now available in the office or home environment – copying had instantly become cheaper and more convenient. But the innovation was also successful because of disruption to existing channels. It could be sold in office supply outlets or delivered through couriers, and it didn’t need frequent visits from engineers. Quite the opposite of the way the leading big copier suppliers like Xerox worked.
Solutions
One of the reasons why I recommend “The Innovator’s Solution”
so unequivocally is that there is a massive emphasis on practical solutions.
We have already used the strategies outlined here to look carefully at our
business. I am certain that the ideas can help you look at your business and
make your own changes.
I wanted to highlight just one of the solutions that Christensen puts forward. He advocates a new way of understanding what customers want to buy from us. He argues that customers “hire” products and services in order to perform specific jobs in specific circumstances. This simple thought has tremendous implications for the way we should analyse and understand the market for our own products and services, and replaces or at least supplements existing forms of market segmentation.
The author looks at the handheld device market with this new perspective. Instead of the market being defined by the nature of the product, pieces of hardware where innovation is about making them faster and more powerful, he defines it in terms of the circumstances of use - using “small snippets of time productively”. In this scenario competition is not from other handheld device manufacturers but from other ways of using those “snippets”: reading the paper, chatting on your mobile. This makes attributes such as processor speed and memory less important than what the device can do in short time slots. Adding mobile phone capability would be useful, so would access to news headlines. Now existing devices have these functions but they also have much more. They are not focused on this particular circumstance and as a result they are likely to be over –engineered and too expensive for the whole of the “small snippets of time” market.
Close
I can’t do justice to all of the powerful ideas in “The Innovator’s
Solution”. They are many and varied. What I hope I have done is is give
you a flavour of how usable the ideas are and how relevant they could be to
you. The rest is up to you.
Return to the main Arrowsmith Marketing Business Book Competition page
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