Your newsletter on applied creativity, imagination, ideas and innovation in business.
Wednesday 15 June 2011
Hello and welcome to another issue of Report 103, your twice-monthly (or thereabouts) newsletter on creativity, imagination, ideas and innovation in business.
As always, if you have news about creativity, imagination, ideas, or innovation please feel free to forward it to me for potential inclusion in Report103. Your comments and feedback are also always welcome.
Information on unsubscribing, archives, reprinting articles, etc can be found at the end of this newsletter.
JEFFREY IS ON TWITTER: @creativeJeffrey
I have been playing with Twitter the past few weeks and am still trying to 1) find my voice there and 2) ensure I add mostly meaningful noise to an already very noisy place. My Twitter name is CreativeJeffrey and you can find me at http://twitter.com/creativeJeffrey.
MARKET LEADERSHIP AND INNOVATION
What is the purpose of innovation in your firm? You could probably argue lots of reasons. Innovation helps you improve your products, services and processes. Innovation is cool. Your competitors are doing it. And so on. These are all good reasons, but they are incidental reasons that are more about continual improvement than about true innovation. Because when it comes to corporate innovation, there is only one reason to innovate: achieving and maintaining market leadership. Everything else is trivial.
For the most part, market leadership comes either from being identified as the first company to claim a particular category; or by replacing a market leader through breakthrough innovation. Companies that defined a category and remain market leaders there include Coca-Cola and Groupon. Coca-Cola was the first cola drink and remains the market leader today. Groupon has been the first company to launch a “deal of the day” service that allows people to buy coupons, at highly discounted prices, that can be exchanged at local shops. The principle is that a minimum number of people need to buy the coupons before they will be released. If this minimum is not met, the deal is cancelled. Thus, shops can be assured of a minimum number of sales in exchange for offering deep discounts and so can move less popular items or offer services during slow times. A number of competitors have jumped into the deal of the day market, but Groupon remains the market leader and will likely hold the position until such time as a company comes up with a breakthrough innovation that puts them in front. In the meantime, there may be many companies that offer better services, better prices and other improvements over Groupon. But, as long as they simply focus on incremental improvements over Groupon, these competitors will lag far behind the market leader.
For an example of a company that took market leadership of a category through breakthrough innovation, consider Google. In the early days of the world wide web, Yahoo created a searchable web index (not a search engine, but rather a human compiled directory of the web) that was the market leader as a tool for finding what you wanted on the web. At the same time, Excite and Lycos became the first commercial search engines. Together with Alta Vista (which came a little later), they vied for search leadership. However, when Google launched its search engine with its breakthrough “page rank” innovation, it soon became the indisputable market leader. Google’s innovation so transformed web searching, that the other products simply paled in comparison. Now, MSN and Yahoo vie to market a better search engine. And who knows, it’s very likely that in some ways their products are incrementally better than Google’s. But until some company comes up with a breakthrough innovation that changes the way we are able to search for information on the web, Google will remain the market leader.
Maintaining Your Lead through Innovation
Once you have established your product as the market leader in its category, you need to continue to innovate in order to maintain that position. Otherwise, your product may sink beneath the sea of competitors striving to get a piece of your market.
Nokia is a good example of this. The company was one of the key developers of the GSM standard (which is used by most mobile telephone networks in the world today). Moreover, the world's first commercial GSM call was made on a Nokia telephone on July 1, 1991(1). As a result of their pioneering innovation in the field, Nokia was for years the market leader in mobile telephones. This assured them of great sales and an excellent reputation. But, in recent years, the company has grown complacent while Apple launched the iPhone, Research in Motion launched the Blackberry and other companies launched sexier, more sophisticated, high-end telephones. As a result, Nokia is no longer recognised as a market leader in mobile phones and is desperately reorganising in order to regain their foothold. I suspect that it is too late and premiership of the category is lost.
It is important to note that Nokia did not so much lose its leading position as a result of competitors striving to make better phones than Nokia. Rather they lost the position because Nokia themselves failed to strive to make better phones than Nokia. As a result, there is a lack of a clear leader in the mainstream mobile telephone market. Moreover, with so many players offering so many barely distinguishable products in the category of mobile phones, I predict there never again will be a market leader in the category.
So, what can a company do if it is not identified as the market leader for its category?
Create a New Category
In their classic marketing book, The 22 Immutable Laws of Marketing, Al Ries and Jack Trout argued that if you cannot be the market leader in your category, you need to define a new category to call your own(2). This is something that Apple is particularly good at. They did not invent the mobile telephone and any attempts they might have made to market and sell a typical mobile telephone would doubtless have performed poorly. Instead, they built the iPhone, an elegant and sophisticated touchscreen mobile phone with a number of intriguing applications on it. Interestingly, they were not the first in any of the features on their smartphone. But thanks to a beautiful phone, an elegant feature set and a powerful marketing machine, they were able to claim market leadership of their category of high-end smartphones. Moreover, they were able to market the category itself in such a way as to make it highly desirable to consumers.
Most likely we will see an increasing number of mobile phone categories as companies realise that market leadership of the entire mobile telephone spectrum is no longer a possibility.
What Does This Mean for You?
What does all this mean for you? It depends. If your company is truly a category leader – and I don’t just mean that you claim this honour in your marketing communications, but rather that you are recognised as the undisputed leader – you need to focus your innovation on sustaining that position through continual innovation. This means not only continually improving your product, but looking for breakthrough innovations that extend your leadership of the field. It may mean business model innovation that allows people to buy your product in new ways. It may mean process innovation that enables you to build your product more efficiently and with greater quality.
If you are not a category leader, then you have two choices. Your first option is to launch a breakthrough innovation, very likely a disruptive one, that allows you to replace the current leader of the category. Note that simply making a better product is not sufficient. Your product needs to be a huge innovative leap over the current leader so that there is no question about category leadership. Think Google versus Altavista and Lycos. Think Microsoft Word versus a typewriter.
Sadly, devising breakthrough innovations is difficult, particularly if you have a well established product. So a better approach might be called categorisation innovation. This begins by defining a new category in which your product will be readily identified as the first example of such a product and the undisputed market leader. This is broadly what Apple has done with the iPhone, iPod and iPad.
Categorisation innovation will probably require a combination of marketing innovation, product innovation and business model innovation. Firstly, you need to create a new category and demonstrate a need for it. After all, becoming the category leader in steam-powered mechanical tooth-brushing machines would be a relatively easy task. Convincing consumers of the need for such a product would be a real challenge!
Secondly, you may need to modify your product in such a way that it clearly fits the new category. At the very least, you may need to change the packaging.
Thirdly, you may need to modify the business model under which you sell your product. Indeed, it may well be that the business model is what makes you a category leader. Netflix, which lets subscribers order rental DVDs on the web and receive them by post, offers the same service as any video rental shop. It’s the business model that has established them as a category leader.
Aligning Innovation with Strategy
The key lesson to all of this is, that if you truly wish your business to be an innovative one, you need to align your innovation with strategy. Today a lot of CEOs simply tell managers to be more innovative, suggest investment in an idea management software product and hire the odd consultant. These half-hearted actions result in a handful of conflicting innovative initiatives. But the initiatives seldom align with strategy. The result is internal confusion about the purpose of innovation and haphazard incremental innovation.
Rather, top management needs to take charge of innovation, lay down innovation strategy in line with strategy and assign top people to draw up innovation plans that fit that strategy and aim to keep their products at the top of their respective categories. That may seem a tall order. But this is effectively what innovative companies like Apple, Google, Groupon, Twitter and others do.
As a final note, anti-conventional thinking (ACT), with its focus on moving away from conventional problem solving and solutions, is ideally suited for categorisation innovation. See http://www.jpb.com/creative/act.php
1) Multiple Authors, “Nokia”, Wikipedia, http://en.wikipedia.org/wiki/Nokia
2) Al Ries, Jack Trout (1993) The 22 Immutable Laws of Marketing, Harper Collins, USA
ENTERPRISE OPEN INNOVATION
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Jeffrey's Book: The Way of the Innovation Master
If you've enjoyed reading Report 103, you will enjoy Jeffrey's book, The Way of the Innovation Master even more!
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