Abstract from http://innovationexcellence.com/blog/2014/01/12
When coming up with a new idea, often it can be helpful to think through categories of ideas first. For example, I don’t know about you but my creativity is actually enhanced when there are a few constraints put in place to help me know what is in scope or out of scope. Additionally it can also be helpful to know how some ideas can contribute to the overall strategy of the company or organization. You may come up with a fantastic idea but if it doesn’t jibe with the goals of the overall business, it will most likely get scrapped.
Conceptually, you can divide a new product or service ideas into four categories:
- New Market
All innovations can fall into one of these four buckets or a combination of these buckets. Let’s explore each of these buckets in detail:
A breakthrough innovation is what most people think of when they think of innovation – something new, bold and way ahead of the next best thing. Additionally, a breakthrough product often combines the functionality of several different products all into one.
There are several reasons these types of products are difficult to create such as: lack of resources, lack of laser-like focus necessary to achieve a breakthrough, lack of a detailed understanding of the end user and lack of required technical competencies – even with vast resources, intense focus and an understanding of end users, some projects will fail due to a lack of the core competencies needed in order to execute the project.
From a strategic perspective, breakthrough innovations are usually along the lines of high benefit or differentiation potential. This means that if your company is built around the strategy of what I like to call benefit leadership for which you generally charge a premium to your customers, then breakthrough innovations are vital to your success. If you charge a premium, you’ll need to deliver premium value and breakthrough innovations are perfectly suited for this generic business strategy.
Sustaining ideas have to do with improving the current product by developing generations 2, 3, 4, 5 and so on until the product reaches the end of it’s life cycle. Normally large companies are very good at creating sustaining innovations because their resources, business processes and cultures are setup in a way to enable sustaining efforts. Typical sustaining efforts include the following:
- Feature fixes/additions – most next generation products will come with a handful of fixes and/or new features that address previous gripes with the first generation products.
- Cost reductions – as sales volumes grow for a product, the cost of purchasing raw materials for that product decline in addition to design enhancements that simplify the product or enable it to use less expensive materials.
- Product line expansions (proliferation) – at launch most new products don’t have a full suite of products to meet each end-user segment’s needs and as a fix for that companies will fill out their product line by offering additional sizes, colors, etc.
With regards to strategy, sustaining products are all about milking the breakthrough product (a benefit leadership strategy) by extending it’s life cycle as long as it can go. Most breakthrough products will not last very long without a sustaining effort behind them. And this sustaining effort is where profitability is maximized because unnecessary costs can be removed and the benefits of the product (the value proposition) can steadily improve.
There are several things to consider when exploring new markets for your product including:
- Adjacent spaces – what industries or uses would you consider as adjacent? Often adjacent spaces are fertile grounds for introduction of your existing product(s) or service(s).
- Other jobs to be done – like in the Arm and Hammer example, baking soda was capable of performing multiple “jobs” for the customer quite well, even though at the beginning Arm and Hammer was only thinking of the job of baking. What other jobs does your product do? Could those be marketed for other customers?
- Customer usage studies – for some products, customers may already be using your product in new and different ways that you haven’t considered yet. Ethnographies or other observation type market research methods are best suited to bring those use cases to light.
New market innovations can be extraordinarily successful if executed well. In some cases, all it takes to introduce a product into a new market is educating your customers, both current and new, about the other things your product can do. In other cases, in order to be successful in the new market you may need to make slight modifications to the product to better suit the new use case or application. Either way, new markets should be viewed as vast frontiers of unexplored territory where you may prove your solution to be highly valuable.
The strategy behind new market innovations can fall on either cost leadership or benefit leadership. The reason is because if you have a product that is basically a premium value product (benefit leadership) in its existing form and you manage to successfully apply that product to a new use case then the value of your product will need to be weighed in light of the alternatives for the new use case. For example, if Arm and Hammer baking soda costs $4/box while most other baking soda brands cost around $2/box then it’s safe to assume that the Arm and Hammer baking soda is viewed as a benefit leader product.
In other words, it performs the job of baking better than the lower cost alternatives. However, when used as a fridge deodorizer that same $4/box price will need to be weighed against other deodorizer products. For example if most fridge deodorizers cost an average of $8/bottle (or whatever the embodiment) then the Arm and Hammer baking soda is essentially a cost leader against the alternative deodorizers. This scenario is often what can make some products so successful when applied in a new way.
Disruptive Innovation = Simple, Low Cost Solution to Your Customer’s Problem.
Many companies who have followed this model have been successful disrupting larger, more established organizations and in turn setting themselves apart as leaders in their respective market.
The key things to keep in mind when coming up with disruptive ideas include:
- Look for competitors that have overserved their customers to the point where the solution is far more advanced (and expensive) than it needs to be in order to accomplish the main job to be done for that product
- Focus on one job to be done rather than several. Disruptive innovation is all about simplification and removal, the polar opposite of breakthrough innovations.
- Focus on making the solution the very best when it comes to doing that one thing for your customers.
- Remove as much cost as possible to make the end price affordable for most users. This often includes more than just product changes and it can mean removing middle men such as distributors and retailers who always add another successive layer of price burden to the product as it goes through the channel.
- Observe the industry trends regarding vertical integration. Disruptive innovation is usually most successfully done during times of vertical dis-integration, i.e. times when companies and products are becoming more modular and less reliant on their own in-house resources for building the entire solution. This is also referred to as commoditization phase. It’s usually much easier to implement a low cost, disruptive solution during a time of transition into a modular industry architecture than it is when industries are transitioning into a vertically integrated architecture.
In terms of strategic decisions, all these aspects (industry composition with regards to vertical integration as well as a business’ general strategic direction whether cost leader or benefit leader) need to be considered.
To complete this discussion it’s appropriate to point out that though a particular product can generally be classified along these lines, in some cases products may actually be a unique combination of the four types.
More details at – http://innovationexcellence.com/blog/2014/01/12