Innovation
is the Key
Everyone speaks about Innovation[1].
Innovation this, innovation that; we are a very innovative company… But what is
innovation? Innovation is as simple as taking something existing and transforming
it to something that creates new wealth or improves the well-being of society. An
innovation can be big or small, brand new or just a little bit different. It
all has to start with an idea. It takes 3 steps:
1. Ideate: an idea is born, and if other
people like the idea it goes through.
2. Create: the idea was experimented with
and materialized into usable prototype.
3. Validate: as more people tested and
approved the idea, the more that simple idea then made sense, and money!
Innovation can be Disruptive[2]
or Non-disruptive (Sustaining). The concept of Disruptive innovation was
introduced in 1990s by Clayton Christensen[3]
an American scholar and educator writer of the book The Innovator’s Dilemma. A
company follows a path of Sustaining Innovation when it improves it’s products
performance based on feedback from it’s best and largest customers. It’s usually
about reducing defects and making something faster or more powerful. In
contrast, a disruptive innovation often involves lower performance in many of
the key features valued by the market. It often means more defects and more
speed or power. A disruptive product appears as if it is doing everything
wrong. A large company with sophisticated and demanding clients can’t adopt
such a technology. Sustaining innovation satisfies a customer’s current needs
whereas disruptive technologies and business models evolve to meet customer’s
future needs.
Following a Sustaining Innovation
path makes a lot more sense in the short term, but it can ultimately doom the
company to failure. On the other hand, dedicating valuable resources to a niche
and unproven opportunities doesn’t make sense, but can be the future of the
company. Disruptive innovation is born from a niche that exists in a market
that is neglected by current market offerings. That small market segments cares
not about traditional performance features. Large companies need to listen to
their customers in order to continue successfully with their sustaining
innovations. But they need to look at niche markets and how they use their
products in order to identify potentially disruptive innovations and embrace
them. This is good news for Start-ups: as long as their innovation has the
potential to improve performance rapidly, it’s actually a good thing that their
initial market is small. This gives them more time to fine-tune their technology
and they don’t need to worry too much about their largest competitors. The only
way for giants to fight back is to launch their own disruptive innovation. To
succeed, they must treat the project as a separate unit with a different
business model and growth expectations. Ask what job the customer needs to get
done, segment customers by job and develop low-cost solutions to get the job
done.
Think of Disruptive Innovation as
a strong shift in an industry. An example is when the computer came along and
overtook the typewriter. There was very good electronic typewriter when the
computer came out, but nobody thought that computers where going to threaten
that industry, since at the beginning computers where so clumsy, nobody even
knew what they were going to be used for!! Also, think of analog photography
going to digital photography. They are exponential technologies: at the beginning
they are deceptive, things are evolving slowly and they are not as good as the
existing product offerings. But then they evolve, scale and increase by orders
of magnitude, and they all of a sudden become much better than the existing
product or services offering. Another very actual example is the Shale Oil
Revolution[4]
which introduces horizontal drilling as a new technology to reach reservoirs
that were already discovered but previously inaccessible. This represents a
Disruptive Innovation that changes the whole face of the industry, by
increasing the available global reserves to sky limits. By driving down the
costs, it has a negative impact on the most expensive oil extraction processes
like offshore oil.
Consider though that innovation
does not have to be something complex. Any small change can be innovation. A
change in the companies’ processes will count as innovation, and as such might
encounter resistance. This happens a lot when implementing or upgrading a new
software. A change in an accounting software might mean process efficiencies
and less working hours for the people in the accounting department. This might
mean more free capacity for other tasks, or a reduction in the head count. The Financial
Manager himself might resist it. Less people under his command will mean less
power in the organization. Not all Managers are in favor of process efficiency
and might be only interested in guarding their fortress.
Lean has introduced Business
Model Innovation with the Lean Canvas[5].
An organization’s business model can be described with 9 basic building blocks:
Customer Segments, Value Proposition, the Channels to each Customers, Customer
Relationships, Revenue Streams, Key Resources and activities required to create
value, the Key Partners, and the Cost Structure of the business model. These are
structured in a Business Model Canvas. It is a tool that helps map, discuss,
design and invent new business models. This works for Start-up entrepreneurs
just as well as for the most Senior executives.
Entering the Fourth Industrial
Revolution, innovation is Key to survival. Big companies must innovate or face extinction.
Entrepreneurs must reach those markets that big companies fail to capture.
Eventually, they will take the place that those large companies have left
empty. A global mindset is absolutely necessary, to capture those business
opportunities and rapidly expand them into the target markets. Knowing how to
work and collaborate with people from different countries and cultures will
become more and more important in a Globalized World.
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