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Prescribing Success with Disruptive Innovation

This is a guest post by Michael Mayers, an experienced innovation & new product development leader who has launched successful products in financial services, marketing services and health & wellness.  He tweets about innovation, entrepreneurship, and the joy of being a Brit in NYC at @mikemayers25.

At the time of writing Amazon lists 932 books released in the past 90 days under “innovation.”  Many of these will espouse a theory of one sort or another that seeks to systematize the process of successfully bringing new products to market.  And while most will deliver a superficially cogent model for the limited historic cases provided, nearly all of them will fail to deliver a prescription for future success that works in practice. (That’s right Stage Gate, I’m looking at you!)

Innovators Solution

But some time-tested theories do have prescriptive value.  In this blog post I take one such canonical model – Professor Clayton Christensen’stheory of Disruptive Innovation – and use three of its defining characteristics to help identify entrepreneurial opportunities and kick-start successful innovation strategy.

Look for 5 blade razors.

As markets mature industry leaders seek to capture increasing value from their best customers in an effort to drive profitable growth.  M&A aside this is typically achieved through the development of incremental, sustaining innovations – a process which most businesses become adept at executing.  The inevitable challenge comes when the pace of these innovations oversupply product performance for even the best and most demanding customers.  This oversupply, easily measured, is a key indicator that a sector is ripe for disruption. 

This tendency is surely no more obvious than Gillette’s flagship razor; the Fusion ProGlide with its parody-inducing 5 blades.  Arguably the maximal desired performance from the humble safety razor was surpassed decades ago with the twin-blade Trac II and the addition of a lubricating strip.

Enter Dollar Shave Club who, in 2011, recognized this performance oversupply and launched an innovative business model to attack the razor blade industry’s most over-served customers.  It’s first offering was a twin-blade razor – 70s “technology” in blade terms – sold online via a monthly subscription model at a fraction of the price of its big brand competitors.  And the attack plan is working:  The company raised $12MM in a Series B financing in October last year.

Ignore the best customers.

Take an industry’s best customers – those premium, big ticket whales with the eye-watering margins – and forget about them.  Successful disruptive innovations typically target current category low-end or non-consumers, and for two very good reasons:

Firstly, when a new entrant targets non-consumption the competitive response from industry incumbents is often muted to the extent that they may be ignored altogether; just as the personal computer industry was by mainframe manufacturers in the 1980s.  And if the interloper seeks to serve and incumbent’s low-end, low-margin customers they may even be happy to give up that pesky, profit-dilutive segment in the pursuit of better financial ratios; just as US car manufacturers gave way to Toyota in the 1980s in the compact economy segment.  And let’s face it, who wanted to sell low-margin compacts like the Corolla when you’ve earned the right to sell the S-Class? 

Secondly, the initial performance of new technologies usually fall short of the demands of an industry’s best and most sophisticated customers:  PC performance was a joke for mainframe computer buyers.  Either way a new entrant attack on an industry’s best customers is ill-advised.  Either a crippling competitive response or sophisticated customer demands will bring the upstart to its knees.  Much better to compete for low-end markets or outright non-consumption where your product can be the best alternative to nothing at all. 

Classic examples of this approach include Sony who offered a generation of new consumers access to personal, portable transistor radios while RCA doggedly stuck to heavy vacuum tube technology which afforded significantly better sound quality for the most discerning customer.  Or Nucor’s electric arc furnace, suitable only for the production of rebar at its outset, versus Armco’s integrated steel mills which produced much higher grade sheet steel.  Or Netflix’s streaming DVDs, utterly at the mercy of fickle bandwidth issues in those early days, versus Blockbuster’s DVD rental business with its significantly higher fidelity picture quality. 

When each of these technologies first launched they did not satisfy the current needs of their industry’s best customers.  Crucially – and fatally for the businesses who ignored them – each quickly shed their growing pains and enjoyed a higher performance gradient over time than existing ones.  The consequence?  Having established a beachhead amongst non- or low-end consumers those nascent technologies intercepted and then surpassed the performance of prior technologies.  Each successively picked off “low-value” customer segments from the bottom up until they adequately addressed the performance requirements of the entire market.  And it’s worth noting that Dollar Shave Club now offer 4- and 6-blade razor lines on their subscription model:  The move upmarket has begun.

Understand why the product is hired.

Why did you hire that non-fat latte you had this morning?  It’s an odd turn of phrase but you did, in a sense, hire it to do some jobs.  Maybe it was to give you a boost of energy.  Or to stave off hunger pangs until lunch.  Perhaps it was just a useful distraction or a focal point around which to socialize with colleagues.  Maybe it was all of those things.  Once you accept that we hire products and services to perform “jobs-to-be-done” (JTBD) on functional, emotional and social dimensions a whole world of insight will open up about consumer motivations and the building blocks of competition and product performance from the consumer perspective.

The story of Febreze illustrates this well.[1]  Now a $1B product Febreze was very nearly a total failure for P&G.  Functionally, it performs an obvious JTBD:  It neutralizes odors in household fabrics.  Early marketing efforts focussed heavily on this performance dimension but sales were muted.  Both the R&D and marketing teams were bewildered as to why such an obviously useful product was failing to gain traction.

Post-launch research highlighted an interesting but troubling phenomenon:  Customers were often desensitized and oblivious to even the most pungent odors in their own homes.  Functionally, Febreze solved an issue for a home’s visitors rather than its owners. 

But the P&G team had a stroke of luck:  They observed a few customers who, having worked hard to clean their homes, were then liberally applying Febreze with a final flourish.  Diving deeper into this behavior the researchers found that some customers were hiring the product to provide a visceral emotional reward at the end of a period of cleaning – a means to enhance the satisfaction of having a cleaned a room.  The penny dropped and Febreze was quickly repositioned for its emotive, rather than functional, qualities and sales soared. 

This story is often positioned as a flash of marketing positioning brilliance; a Eureka! moment that’s difficult to replicate.  But when viewed through the lens of JTBD it becomes clear that a more systematic understanding of the emotional dimensions to cleaning a home may have saved P&G from considerable heartache.  And while Febreze is now a roaring success one has to wonder how many potential category killers have been pulled from the market for want of a better understanding of what the customer was actually trying to achieve?

Flip the coin.

I’ve been looking at this in terms of using the Disruptive Innovation framework to find innovation opportunities.  However, if you are an enterprise manager working in an established industry then you can easily turn this around to find corresponding threats.  Ask yourself whether you are oversupplying your customers and delivering your own version of the 5 blade razor.  For a moment, put your best customers out of your mind and think about how traditional non-consumers and low-end markets might be better served by competing technologies.  And put the product marketing brochures to one side and ask what jobs to be done you satisfying amongst your customer base.  And finally, if and when you identify a threat or technology that is picking off your least profitable customers, don’t flee upmarket:  Stand, fight and innovate right back.

[1] This story is recounted from “The Power of Habit: Why We Do What We Do in Life and Business” by Charles Duhigg.

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Apple iPad and Google Buzz: Harsh Reality of Innovation

Nothing like putting your heart and soul in an innovation, and then getting this:

[tweetmeme source=”bhc3″]

Man, tough audience. But very much in keeping with some the best advice on innovation. Which is, you can’t have innovation without some failure along the way. It’s inevitable.

That advice is both true, and glib. Innovation consultant Jeffrey Phillips catches the right spirit when he says:

Another thing about “failure” is that we try to kid ourselves that failure is a “good thing” a learning opportunity.  Well, not in most cultures.

This is the reality of innovation. It’s tough. The more disruptive an innovation, the tougher it gets. And we’re in the middle of seeing how it plays right now with Apple iPad and Google Buzz.

Let me ask you this: Do you personally think either the iPad or Buzz will be guaranteed successes for their respective companies? Be honest now.

My guess is you’re like most of us: I don’t know.

Well, truth be known, neither do Apple and Google. But they’ve got a history you’d bet on.

Apple and Google: Big Time Failures, Big Time Innovations

Both Apple and Google have had their share of duds in the market:

Obviously, these companies do not have a perfect record of successful innovations.

But they do have a record of pressing through failures and continuing to roll out innovations. In fact, they’re consistently ranked the best in the world:

It pays to stick-to-it in trying out innovations. But can everyone?

Does Your Company Really Want Radical Innovation?

In Psychology Today, a professor at the University of Michigan gets to the issue:

From vaccines to Velcro, many inventions were spawned from accidents, seeming failures. But when Fiona Lee, psychology and business professor at the University of Michigan, explored which conditions help people experiment with novel ideas, she uncovered an interesting phenomenon: “Managers talk a lot about innovation and being on the cutting edge, but on an individual level, many people are not willing to try new things.”

What’s holding us back? A fear of failure.

Think about your own reaction to the question of whether the iPad and Google Buzz will be successful. It’s easy enough to be uncertain as an observer. But imagine if you have to put shareholder capital in to it, affect your brand in the market and risk some career trajectories?

I will often read of the importance of taking risks and accepting some level of failure for companies to be innovative. This is very true. But it can be glib to summarily dismiss companies for not “getting it”. When they’re made up of people like you and me who possess ordinary…well, human characteristics.

Because how do you know when you’re iterating toward a true high-value innovation, or you’re just spinning your wheels? I’ll turn again to Jeffrey Phillips:

As Edison and countless others have demonstrated, you rarely get it right the first time, and if you are stymied by early failure, then you’ll never find and implement the best ideas.  Innovation, as has been pointed out by individuals with far more to say about it than me, will create some failures.  Your job isn’t to avoid the failures, since you can’t predict them in advance, but to reduce the cost and impact of the inevitable failures.  In other words, keep moving.

As I said before, I can’t know for sure whether the Apple iPad or Google Buzz will be successful. But kudos to those companies for rolling out innovations that might fail. And in case you’re wondering whether allowing employees some latitude to fail is worth it, check out the 5-year stock performance of Apple and Google versus the S&P 500:

Let’s take this one out with the great speech from Teddy Roosevelt:

It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.

Indeed.

I’m @bhc3 on Twitter.

Apple iPad and the Radical Innovation of Meaning

Ultimately, the iPad is a large iPod touch: a great device to draw your inspiration from, but perhaps not the seismic shift in technology that we were expecting.

Claudine Beaumont, Apple iPad review, The Telegraph

The much anticipated announcement of Apple’s iPad tablet was met with a resounding…”ho hum” or worse from much of the technology crowd. The biggest criticisms were its lack of key features (no Adobe Flash, lack of USB ports, where’s the camera?, etc.). Apple iPad as a technology innovation disappointment.

But with Apple, and Steve Jobs, that’s not really the point now, is it?

[tweetmeme]

Sure, Apple has had plenty of technological innovations along the way. But then, so has its competitors. Yes, Steve Jobs is a showman, but that effect only lasts for MacWorld presentations.

No, what Apple does well is put forth “radical innovations of meaning”. That term is from Roberto Verganti, who wrote about the concept in his excellent book Design-Driven Innovation.

Apple’s skills with design-driven innovation are what will make the iPad a success.

Design-Driven Innovation: Innovation of Meaning

“Market? What market! We do not look at market needs. We make proposals to people.”

Ernesto Gismondi, Chairman, Artemide, Design-Driven Innovation

Verganti’s books builds the case for a different form of innovation. One in which companies tap the undercurrents of societal changes early, and create products addressing them. As Artemide chairman Gismondi puts it, these products are so different, they are akin to “making a proposal” to a market. They are not linear updates to existing products.

As Julian Bleeker notes in his review of the book, design-driven innovation is not a “follow the trends” approach. “Trends” are what any company can do. Rather, it’s deciding that conditions are right to introduce a product that plumbs changes previously unexplored in your industry.

Verganti describes this work as the radical innovation of meaning. Many purchases are based as much on meaning as they are on features. Innovation of features is an ongoing process for companies. But innovation of meaning is a stunted process for many firms.

Take a product that has an accepted use, a common set of features, and provide something new that turns the traditional meaning of the product on its head. In the book, he describes multiple examples of this, drawn mostly from Italy, his home country. For example, Alessi, a manufacturer of household items, successfully innovated the meaning of many common items. It introduced a series of playful characters that represented everyday kitchen items:

While it may sound trivial as you read this, this product line was an absolute gangbuster in sales. Alessi figured out that people still enjoyed playful experiences, even as adults. No one else was thinking this way in the industry at the time. But now the kitchenware actively pursues emotional design. It was no accident either. Alessi spent time researching changes in societal norms. That we still like to be kids was a change they saw (and one that many of us today take for granted).

Companies that do this well are both influencers and participants in what Verganti describes as the “design discourse”. This is an ongoing conversation with thinkers, tinkerers, researchers and companies who target the same evolving changes in societal context. Often, these are people outside your industry who are studying the same changes you are interested in.

It is by accessing these networks where companies can “see” evolutions of societal norms that offer opportunity. These are opportunities not driven by expressed consumer desires, but by shifts in cultural norms. Done well, companies that successfully innovate the meaning of products enjoy significant growth and profits.

Oh, and early on, these innovations of meaning can be slow to gain acceptance by the market. Explains the early iPod and Nintendo Wii reactions.

Apple iPad: What Is Its Radical Innovation of Meaning?

OK, if iPad is innovating meaning even more than it is technology, what meaning might that be? Here’s my best guess:

iPad is tapping into an emerging dynamic of a more interactive, tactile experience with digital technology and information. These interactions make technology less of an interface, and more of an extension of ourselves and our environment.

The tweets above are a couple that show the natural way children engage with technology. Given the iPhone experience, they turn around and want to apply it to other devices. Buttons on devices, our traditional form of interaction, are divorced from the screen. They provide a measure of distance from the digital experience.

Touch, however, represents a new level of intimacy in the digital experience. In technology terms, it’s just an alternative form of interface. Touch, mouse, tab, whatever. But touch is a vital human sense, and a core part of experience. It’s how we interact with others, how we shop, experience textures and so much more.

In terms of the “design discourse”, there are pointers of changes ahead in terms of integrating touch more deeply into our digital engagement.

Digital Wellbeing Labs: Responsive Feedback Behaviors

Designer Alexander Grünsteidl noted the impact of both the iPod and the Wii on our perception of how to interact with technology:

The Wii and iPhone, and before the iPod click wheel, have created a popular introduction to gesture based interfaces, demonstrating responsive feedback behaviours, applying “natural” physical effects like flipping and inertia, similar to the ones we are accustomed to in the real world, to improve usability expectations of an interface.

As new “cultures of use” emerge we are creating opportunities to form a language of gestures, similar to the conventions of “right-clicking” and standardised keyboard shortcuts.

Note the term “culture of use”. Not industry trends. Because the dominant form of interaction for computers and video games is still mouse and buttons. And consumers aren’t asking for touch.

But there is an underlying change in thinking about how people interact with technology and information.

Architectural Design: Digital Intimacy

University of Nottingham Nottingham UK student Stephen Townsend received a commendation in the recent President’s Medal competition in the U.K. His entry, Digital Intimacy, depicts a concept where interaction is built into the architecture.

If you notice the graphic to the right, you will see people reaching out their hands and interacting through touch. Townsend calls it the “kinesthetic interaction space”. Kinesthetic refers to a style of learning based on physical activities.

He designed this kinesthetic interaction space as a therapeutic solution for children with special needs. Here’s how he describes it:

The ‘Kinesthetic Interaction Space’ is conceived as an interactive architectonic intervention aimed at children with autism, providing sensory stimulation to assist with intervention methods and aid interaction with other children through shared kinesthetic experience. The focus of the thesis is on the development of dynamic material systems that could enable new forms of interactive environment. Architecture is conceptualised as an embodied interface and physical space has been fused with digital media in order to stimulate the imagination of inhabitants. K.I.S. is intended to facilitate playful explorations and fluid dialogues between people. The user learns to interact with their environment through an intuitive process, engaging the physical presence of inhabitants and forming spatial narratives.

While Townsend’s concept addresses children with autism, the underlying design is consistent with greater digital intimacy overall.

TEDEx Talk: Phones That Touch Us

PhD student Fabian Hemmert presented at a recent TEDx talk. He is working on a concept where phones include physical movements that better connote actions to people using them. In the video below, you’ll see him describe how the phone would shift weight in relation to changes in movement on a map.

As Hemmert notes, humans live in a physical world, one “which tastes good, feels good smells good”. He wants to design products that better integrate that experience.

iPad: The Future of Computing

Those three examples I just gave are part of a larger design discourse about the nature of digital engagement in our future. Are we “locked in” to the mouse and keyboard? Or will we continue to evolve the interaction experience?

In Wired, Brian X. Chen sees things similarly:

If you think about how a computer like this will impact people sociologically, suddenly the iPad is far more than a larger iPod Touch, as many have described it. It’s the computer for everyone: an idea Apple has been working toward for years.

That doesn’t mean the iPad will be the only computer for everyone and destroy every PC on the market, because that’s not even remotely likely. But it will introduce a significant new category.

They won’t live on desks, the way desktops do, and they won’t be carried everywhere, the way mobile phones are.  They’ll just be there, around the house, on tables and counters, the way today’s books, magazines, games, and newspapers are, booted up, ready to use.

Keep in mind student Stephen Townsend’s kinesthetic interaction space, built into the house. How about an iPad in every room of the house, ready to go? You can see thinking evolving on similar lines here.

I can see people becoming quite attached to their iPads. Their little units of digital intimacy.

Once you see where this is going, it should come as no surprise that Apple may be working on a larger version of its iPad, as a full computer. Steve Jobs is placing his chips on this radical innovation of meaning.

I’m @bhc3 on Twitter.

Crowdsourced or Elite Unit Innovation?

A classic dilemma for companies is determining the best way to foster innovation. There are many good books with different approaches. Clayton Christensen’s Innovator’s Dilemma has influenced a generation’s thinking about innovation. He focuses management and entrepreneurs’ attention on the Big I: disruptive innovation.

One outcome of the popularity of Christensen’s book is the awareness people have that entrenched business practices can inhibit companies’ ability to recognize and address discontinuous innovations from new market entrants. Motorola, for example, is often held up as an example of this. The company continued to develop only analog cell phones even as the digital phones were getting traction. In clinging to analog, which it dominated, it fell far behind in the mobile phone market.

A key practice espoused by Christensen is for companies to tackle discontinuous innovations by creating separate divisions. These divisions have an R&D profile, meaning they are funded without requiring a financial return. They do not have to prove themselves to sales or other parts of the organization. This gives them the room they need to figure out how to approach the impending market shift.

The issue with the popularization of this framework is that it sets up a binary approach to innovation. You’re either addressing disruptive or discontinuous innovations, or you’re executing on yesterday’s business. It’s this dichotomy that obscures the value of innovations that move organizations forward, competing to increase market share and profits.

To that end, let’s examine two ways companies create work structures for innovation.

Integrated or Separate Innovation

The graphic below highlight two very different ways to approach innovation. And that’s a good thing.

Innovation Work Structures

Separate Division: As advised by Clayton Christensen, this approach is best for companies that need to address disruptive innovations. And all companies need to address disruptive innovations.These days, it’s not a matter of if, but when. For fundamental market shifts, too much is invested in the current operations for companies to address changes. Freeing a group of people from these constraints is critical, if the corporate culture is not open to big-bet innovations.

A couple examples of interest here. First, let’s go back to Motorola. Yes, the company muffed it badly on the transition from analog to digital. But there was something that it did right years before. Motorola researcher Jim Mikulski could see in the 1960s that existing cellular technology was insufficient for the emerging uses of the mobile technology. He had a new technology to replace it, and asked the head of Motorola’s communications division, John Mitchell to fund its development. Mitchell said “no”,

Arguing that 400MHz technology offered sufficient capacity and met consumer needs. The Communications Division current product line was the market leader, and a new product, which would likely cannibalize the current system, was deemed to be both unnecessary and potentially harmful to this business line.

So Mikulski found refuge in Motorola’s Corporate Research Laboratory. He worked on the new technology there, receiving funding for its development. When his view of the coming changes proved to be true, Motorola was ready with its new technology.

In other words, he addressed innovation that affected the communications division in a completely separate division.

Microsoft, on the other hand, has programmatically set up a separate division for innovation. The Microsoft Research group works on ideas that may never have commercial appeal. But some of their work has resulted in product features and direction for its new Natal gaming system, its Bing search engine, and an upcoming release of Outlook email.

They have a separate division, but the innovations arguably are of the sustaining variety, not disruptive.

Integrated into Daily Work: In this work structure, everyone is involved in innovation. The company sets expectations, and encourages employees’ to share ideas. Done right, this is in-the-flow stuff. Employees are encountering issues to be addressed daily, and they’re hearing new customer feedback all the time. They are well-positioned to come up with innovative solutions and products, if senior management makes that a priority.

Whirlpool is a good example of this. In 1999, then-CEO David R. Whitwam made the determination that Whirlpool needed to stop competing on price, and make innovation its central strategy. Fast forward to today, and the results have been stellar. Whirlpool has escaped competing as a commodity vendor, with $4 billion in revenue (21% of total sales) generated from its innovation efforts. Are they satisfied? No. CEO Jeff Fettig stated that while participation in innovation from 5,000 employees is good, he’s looking to increase it to 15,000.

That’s integrating innovation into employees’ daily work for sustaining innovation. In this case, sustaining innovation has been the source of growth and profits.

Another company where innovation is part of everyday work is 3M. The company is legendary for its innovation. And clearly, the encouragement of all employees to be part of innovation has taken hold. For instance, there was this story recently in Fast Company:

3M told a great innovation story at the ARF annual conference about a new product that started with a complaint call into customer care. The representative did his own research online, came up with a solution, filmed a video that he put on YouTube and re-contacted the customer to see if that is what he was looking for.

The sheer volume of ideas that employees have to improve companies’ existing businesses puts a premium on crowdsourcing ideas. And inevitably, some of that culture and the ideas emerging from sustaining innovation will relate to discontinuous or disruptive innovations.

Why Not Do Both?

Google is a good example of a company that does both. It’s 20% time for employees to devote to innovation is the stuff of business legend. And according to the company, half of its new products result from this employee time.

But then look at Google Wave. This project was done beyond 20% time. It was actually a completely separate project developed by a 5-person “startup” team in Australia, far from the company’s Mountain View, CA headquarters. Google Wave is transformative, and will likely usher new design principles into a host of software applications.

Google is a good example of an innovation-led company. They mix the elite unit approach to innovation with the everyday encouragement for employees to innovate.

There’s not this dichotomy of “all disruptive/discontinuous innovation, or you’re just falling behind”. Rather, it’s a smart blend of the strategies.

I’m @bhc3 on Twitter, and I’m a Senior Consultant with HYPE Innovation.

My Ten Favorite Tweets – Week Ending 081409

From the home office in Taiwan…

#1: Investigating this foreign land, Facebook, now that FriendFeed is to be folded into it. Already had FriendFeed features, so kinda familiar.

#2: Imaginatik CEO @mark_turrell & I (with Spigit) debate the merits of Enterprise 2.0 and innovation: http://bit.ly/Dd55d Good stuff

#3: Jeffrey Phillips: The directed, invitational external community model best for generating disruptive innovations #spigit09

#4: Jeffrey Phillips: Great exercise is to purposely build ‘failure projects’. Learn what can go wrong, pick up signals for innovation #spigit09

#5: Reading: Should you do only things that are “strategic”? http://bit.ly/HTQty by @bankervision Small stuff in aggregate much bigger

#6: Great list by Gary Hamel: 25 Stretch Goals for Management http://bit.ly/vd8om (found via @sniukas) #innovation #e20

#7: Microsoft’s SharePoint Thrives in the Recession http://bit.ly/17g5I2 Microsoft is getting stronger in the #e20 space

#8: What Works: The Web Way vs. The Wave Way http://bit.ly/ZYWPN by @anildash His take: Google Wave will inspire changes, not *be* the change

#9: Has seeing the time “11:11” on a digital clock ever freaked you out? You’re apparently not alone: http://bit.ly/XrqVB

#10: Hiccups tip: Eat a teaspoon of sugar. My Dad taught me that, and it works every time. There must be a scientific explanation.