The 12 Different Ways for Companies to
Innovate PART II
Offerings
Offerings are a firm’s products and services.
Innovation along this dimension requires the creation of new products and
services that are valued by customers. Consider the Procter & Gamble
Company’s Crest SpinBrush. Introduced in 2001, the product became the world’s
best-selling electric toothbrush by 2002. A simple design and the use of
disposable AA batteries translated into ease of use, portability and
affordability. Moreover, Procter & Gamble’s no-frills approach enabled the
Spin-Brush to be priced at around $5, substantially cheaper than competing
products.
Platform
A platform is a set of common components,
assembly methods or technologies that serve as building blocks for a portfolio
of products or services. Platform innovation involves exploiting the “power of
commonality” — using modularity to create a diverse set of derivative offerings
more quickly and cheaply than if they were stand-alone items. Innovations along
this dimension are frequently overlooked even though their power to create
value can be considerable. Platform innovation, for example, has allowed Nissan
Motor Co. to resurrect its fortunes in the automotive industry. The company has
relied on a common set of components to develop a line of cars and sport
utility vehicles with markedly different styles, performance and market
positioning. Nissan uses essentially the same small engine block (a 3.5-liter
V6) to power its upscale models of a midsize sedan (Altima), large sedan
(Maxima), luxury sedans (Infiniti G and M series), minivan (Quest) and sports
coupe (350Z). Clever modifications of the common engine allow the production of
anywhere between 245 and 300 horsepower, creating enough distinctiveness
between the vehicles while gaining efficiency advantages.
Solutions
A solution is a customized, integrated
combination of products, services and information that solves a customer
problem. Solution innovation creates value for customers through the breadth of
assortment and the depth of integration of the different elements. An example
here is Deere & Co., which has combined an array of products and services
(including mobile computers, a Global Positioning System-based tracking system
and software) to provide an end-to-end solution to farmers who need to improve
their sowing, tilling and harvesting, as well as manage the business aspects of
their operations more effectively.
Customers
Customers are the individuals or
organizations that use or consume a company’s offerings to satisfy certain
needs. To innovate along this dimension, the company can discover new customer
segments or uncover unmet (and sometimes unarticulated) needs. Virgin Mobile
USA was able to successfully enter the U.S. cellular services market late by
focusing on consumers under 30 years old — an underserved segment. To attract that
demographic, Virgin offered a compelling value proposition: simplified pricing,
no contractual commitments, entertainment features, stylish phones and the
irreverence of the Virgin brand. Within three years of its 2002 launch, Virgin
had attracted several million subscribers in the highly competitive market.
Customer Experience
This dimension considers everything a
customer sees, hears, feels and otherwise experiences while interacting with a
company at all moments. To innovate here, the company needs to rethink the
interface between the organization and its customers. Consider how the global
design firm IDEO, headquartered in Palo Alto, California, has helped health
care provider Kaiser Permanente to redesign the customer experience provided to
patients.6 Kaiser has created more comfortable waiting rooms,
lobbies with clearer directions and larger exam rooms with space for three or
more people and curtains for privacy. Kaiser understands that patients not only
need good medical care but also need to have better experiences before, during
and after their treatments.
Value Capture
Value capture refers to the mechanism that a
company uses to recapture the value it creates. To innovate along this
dimension, the company can discover untapped revenue streams, develop novel
pricing systems and otherwise expand its ability to capture value from
interactions with customers and partners. Edmunds.com, the popular automotive
Web site, is a case in point. The company generates revenues from an array of
sources, including advertising; licensing of its tools and content to partners
like The New York Times and America Online; referrals to
insurance, warranty and financing partners; and data on customer buying
behavior that are collected through its Web site and sold to third parties.
These various revenue streams have significantly increased Edmunds’ average
sales per visitor.
Processes
Processes are the configurations of business
activities used to conduct internal operations. To innovate along this
dimension, a company can redesign its processes for greater efficiency, higher
quality or faster cycle time. Such changes might involve relocating a process
or decoupling its front-end from its back-end. That’s the basis of the success
of many information technology services firms in India, including companies
like Wipro Infotech and Infosys Technologies Ltd. that have created enormous
value by perfecting the model of delivering business processes as an outsourced
service from a remote location. To accomplish this, each process is decomposed
into its constituent elements so that cross-functional teams in multiple
countries can perform the work, and the project is coordinated through the use
of well-defined protocols. The benefits are flexibility and speed to market,
access to a competitive pool of talent (the highly educated and relatively
low-cost Indian knowledge worker) and the freedom to redirect resources to core
strategic activities.
Organization
Organization is the way in which a company
structures itself, its partnerships and its employee roles and
responsibilities. Organizational innovation often involves rethinking the scope
of the firm’s activities as well as redefining the roles, responsibilities and
incentives of different business units and individuals. Thomson Financial, a
New York City-based provider of information and technology applications for the
financial services industry, transformed its organization by structuring around
customer segments instead of products. In this way, Thomson was able to align
its operational capabilities and sales organization with customer needs,
enabling the company to create offerings like Thomson ONE, an integrated
work-flow solution for specific segments of financial services professionals.
Supply Chain
A supply chain is the sequence of activities
and agents that moves goods, services and information from source to delivery
of products and services. To innovate in this dimension, a company can
streamline the flow of information through the supply chain, change its
structure or enhance the collaboration of its participants. Consider how the
apparel retailer Zara in La Coruña, Spain, was able to create a fast and
flexible supply chain by making counterintuitive choices in sourcing, design,
manufacturing and logistics. Unlike its competitors, Zara does not fully
outsource its production. Instead it retains half in-house, allowing it to
locate its manufacturing facilities closer to its markets to cut product lead
times. Zara eschews economies of scale by making small lots and launching a
plethora of designs, allowing it to refresh its designs almost weekly. The
company also ships garments on hangers, a practice that requires more warehouse
space but allows new designs to be displayed more quickly. Thanks to such
practices, Zara has decreased the design-to-retail cycle to as short as 15 days
and is able to sell most merchandise at full price.
Presence
Points of presence are the channels of
distribution that a company employs to take offerings to market and the places
where its offerings can be bought or used by customers. Innovation in this
dimension involves creating new points of presence or using existing ones in
creative ways. That’s what Titan Industries Ltd. did when it entered the Indian
market with stylish quartz wristwatches in the 1980s. Initially, Titan was
locked out of the market because the traditional watch retailing channels were
controlled by a competitor. But the company took a fresh look at the industry
and asked itself the following fundamental question: Must watches be sold at
watch stores? In answering that, Titan found that target customers also shopped
at jewelry, appliance and consumer electronics stores. So the company pioneered
the concept of selling watches through free-standing kiosks placed within other
retail stores. For service and repair, Titan established a nationwide
aftersales network through which customers could get their watches fixed. Such
innovations have enabled Titan not only to enter the Indian market but also to
become the industry leader.
Networking
A company and its products and services are
connected to customers through a network that can sometimes become part of the
firm’s competitive advantage. Innovations in this dimension consist of
enhancements to the network that increase the value of the company’s offerings.
Consider how Mexican industrial giant CEMEX was able to redefine its offerings
in the ready-to-pour concrete business. Traditionally, CEMEX offered a
three-hour delivery window for ready-to-pour concrete with a 48-hour advance
ordering requirement. But construction is an unpredictable business. Over half
of CEMEX’s customers would cancel orders at the last minute, causing logistical
problems for the company and financial penalties for customers. To address
that, CEMEX installed an integrated network consisting of GPS systems and
computers in its fleet of trucks, a satellite communication system that links
each plant and a global Internet portal for tracking the status of orders
worldwide. This network now allows CEMEX to offer a 20-minute time window for
delivering ready-to-pour concrete, and the company also benefits from better
fleet utilization and lower operating costs.
Brand
Brands are the symbols, words or marks
through which a company communicates a promise to customers. To innovate in
this dimension, the company leverages or extends its brand in creative ways.
London-based easyGroup has been a leader in this respect. Founded by Stelios
Haji-Ioannou, easyGroup owns the “easy” brand and has licensed it to a range of
businesses. The core promises of the brand are good value and simplicity, which
have now been extended to more than a dozen industries through various
offerings such as easyJet, easyCar, easyInternetcafé, easyMoney, easyCinema,
easyHotel and easyWatch.
Putting the Innovation Radar to Work
The various examples of Nissan, Virgin,
Edmunds.com and others help illustrate the many possible avenues of innovation,
but companies can reap greater value by thinking of those dimensions as
intertwined within a business system. Consider Apple Computer Inc. Its famously
successful iPod is more than a nifty product. It is also an elegant solution
for customers (simple, integrated buying and consumption of digital music),
content owners (secure pay-per-song model for legal music downloads) and its
manufacturer (the discovery of new growth markets). With respect to the
innovation radar, Apple attacked not only the offerings and platform dimensions
but also the supply chain (content owners), presence (portability of a
customer’s entire collection of music, photos and videos),
networking (connecting with Mac or Windows computers), value capture (iTunes),
customer experience (the complete iPod experience) and brand (extending the
Apple brand).
In our current research, we are investigating
how companies can use the innovation radar to construct a strategic approach to
innovation. Specifically, the radar could help a firm determine how its current
innovation strategy stacks up against its competitors. Using that information,
the company could then identify opportunities and prioritize on which
dimensions to focus its efforts. For example, we have worked with a top global
bank to benchmark its innovation profile against that of its top three
competitors in a major Latin American country. (See “Innovation Profiles of
Four Leading Latin American Banks.”) Such analyses can reveal the strengths and
weaknesses of each company as well as any promising opportunities, particularly
those overlooked by the industry as a whole.7
Innovation
Profiles of Four Leading Latin American Banks
Benchmarking the innovation radars of
competitors can reveal the relative strengths and weaknesses of each company.
Traditionally, most firms’ innovation
strategies are the result of simple inertia (“this is what we’ve always
innovated on”) or industry convention (“this is how everyone innovates”). But
when a company identifies and pursues neglected innovation dimensions, it can
change the basis of competition and leave other firms at a distinct
disadvantage because each dimension requires a different set of capabilities
that cannot be developed or acquired overnight. And innovating along one
dimension often influences choices with respect to other dimensions. Brand
innovation, for example, might require concurrent innovations along the
dimensions of customer experience, offerings and presence. As such, selecting
and acting on dimensions that define a firm’s innovation strategy requires a
deliberate, portfolio-based approach that must be communicated clearly within
the company as well as to external constituents. All of that takes considerable
effort and time. So, for instance, when Enterprise Rent-A-Car Co. began placing
rental car locations in the neighborhoods where people lived and worked rather
than at airports (thus innovating along the dimensions of customers and
presence), entrenched competitors Hertz Corp. and Avis Corp. found it difficult
to respond.
As we continue to expand our database of
radar profiles, we will be able to test a broad set of hypotheses. For example,
our research to date supports the notion that successful innovation strategies
tend to focus on a few high-impact dimensions, rather than attempting a shotgun
approach along many dimensions at once. Ultimately, the innovation radar could
guide the way companies manage the increasingly complex business systems
through which they add value, enabling innovation beyond products and
technologies. In doing so, the framework could become an important tool for
corporate executives, entrepreneurs and venture capitalists — anyone seeking
growth through innovation.
Mohanbir
Sawhney, Robert C. Wolcott and Inigo Arroniz
https://sloanreview.mit.edu/article/the-different-ways-for-companies-to-innovate/?social_token=6dbb3cc0c7bef9768f2ae4a3512bf7f2&utm_source=twitter&utm_medium=social&utm_campaign=sm-direct
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