Innovation and Inertia
Innovate or else become extinct
The modern era is an exciting period as respected companies bite the dust and new names become household terms. It is a time of Darwin’s survival of the fittest. It is a time for innovation to take centre stage.
Category Life Cycle
Every product or service category goes through several phases in its life. Initiation of a new category is the first phase and is marked by six stages. The category is introduced and the ‘early market’ reaction indicates if it has potential. The next stage is a ‘chasm’ as early adopters lose interest and progress stalls. One needs to ‘Cross the Chasm’ by identifying and targeting pragmatists who see this category as addressing one of their important needs. The category then enters the ‘Bowling Alley’ stage as multiple avenues become visible. Now, if the category is any good, it passes through the ‘Tornado’ stage of explosive growth as killer apps using the category are released to the market. The final stage is when the category reaches ‘Main Street’ and emphasis shifts to deployment.
The next phase in the evolution of the category is ‘Growth Markets’ and is the fun period when sales are zooming with high profitability. Growth then flattens as the category reaches the ‘Mature Market’ phase and emphasis moves to efficiency improvements and wresting market share from the competition. As opportunities dry up, the category enters the ‘Declining Market’ phase and the market looks for the next disruptive innovation. The category reaches ‘End of Life’ when only die-hard loyalists continue patronage and it is time to focus on maximizing returns before phasing out. Not being aware of where you are in the cycle is first step towards your extinction. Kodak executives struggled with this life cycle with the hope of revitalizing the life-cycle using digital imaging. The company was in “film sales” business and tried to survive by moving to china and reduce costs. Kodak got entangled in cost cutting strategy rather than realizing that their product has reached a “Declining Market” phase. The challenge they had was demarcating their technology curves for each of their products in different BU’s ; and their business model to grow and make profits. The business model was to sell cameras at low cost but the film sales will make up those loses. As film technology was replaced by digitization, the model started to crumble. I believe the upper management understood this but the middle management didn’t; Fisher the new CEO ( the former Motorola CEO) tried to exploit new technologies and divest as well. As story goes, Kodak insiders resisted his “changes”.
The company leadership needs to have a good understanding of innovation in order to successfully manage it. They need to clearly understand their ‘Core Competencies’ which they need to leverage. A good ‘Competitive Analysis’ of their rivals unearths potential opportunities. They need to assess innovation opportunities in their own portfolio depending on the ‘Category Maturity’ of their various offerings.
Types of Innovation
To fully understand innovation, one can see it in different zones. ‘Product Leadership’ is the most exciting type as completely new markets are created. This zone can be a ‘Disruptive’ type as a completely new technology or business model is introduced. Another type is ‘Application Innovation’ as newer uses of existing products are devised. ‘Product innovation’ is another type which brings new features to existing products. Finally, ‘Platform Innovation’ comes with the introduction of intermediate layers bringing new capabilities without having to redesign the product.
Innovation from the ‘Customer Intimacy’ zone adds features to make it more useful to the customer or to increase profits for the vendor such as adding a cherry flavor to Coke. One could apply innovation to the purchasing phase by leveraging newer marketing channels such as social networks. Finally one could focus on improving the customer experience.
In the ‘Operational excellence’ zone, innovation targets the raw material, parts and processes of production. Improvements by smoothly integrating diverse elements bring in new business while prolonging existing customer relationships. As the category reaches end of life, the ‘Category Renewal’ zone focuses on improving returns by re-positioning the product or by venturing into a merger or acquisition to extend the life. The companies need to be prepared way before the products come into category renewal phase; otherwise its too late.
Managing Inertia
Managing inertia in the company is the most critical success factor if innovation is to take place. Re-positioning valuable resources is an important requirement. People need to be moved from roles in ‘context’ categories to ‘core’. This can be done by simplifying tasks, so that less skilled resources can get the job done or by outsourcing these tasks.
The first step is to do an analysis of the current business and locate all product/service categories in the four quadrants of Core-Context mapping. The next step is to identify resources in each of these quadrants specifically the top performers. Then set up an ambitious resource map of how you intend the resource mapping to be. Develop a plan for resource movement keeping different category schedules in mind. Create a sense of urgency to enable everyone to buy in to the transition. Embark on process optimization aimed at freeing key resources from mission critical roles. Even though different hurdles will be encountered do not let up on the pressure and ensure things are constantly moving to plan.
Today’s business imperative is to constantly raise the bar and unless the company innovates on a continuous basis, they are doomed to extinction.