There Are 3 Ways to Innovate, But Only 1 Can Win The Future
The next big thing always starts out looking like nothing at all
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Very few businesses last. While we like to think we live in a particularly disruptive era, this has always been true. Entrepreneurs start businesses because they see opportunity and build skills, practices and processes to leverage it. Yet as the world changes, these strengths often become vulnerabilities.
The problem is that the past is not always a good guide to the future. Business models, even the successful ones, are designed for inertia. They are great for leveraging past insights, but are resistant to change. Success does not, in fact, always breed more success, sometimes it breeds failure.
That's why every business needs to innovate. Yet innovation is not, as some would have us believe, just about moving fast and breaking things. It's about solving the problems you need to create a better future. Most firms are good at solving everyday problems, some can move into new categories, but few are able to pursue the grand challenges that survive for the long term.
1. Getting Better At What You Already Do
Every year, Apple comes up with a new iPhone. That's not as exciting as it used to be, but it's still key to the company maintaining its competitive edge. Every model is a bit faster, more secure and has new features that make it more capable. It's still an iPhone, but better.
Some self-appointed 'innovation gurus" often scoff at this type of innovation as "incremental" and favor new technologies that are more "radical" or "disruptive," but the truth is that this is where you derive the most value from innovation -- getting better at what you already do and selling to customers you already know.
So the first line of defense against irrelevance is to identify ways to improve performance in current practices and processes. The problem, of course, with this type of innovation is that your competitors will be working on the same problems you are and it takes no small amount of agility and iteration to stay ahead. Even then, any victory is short-lived.
Still, most technologies can be improved for a long time. Moore's Law, for example, has been around for almost 50 years and is just ending now.
2. Applying What You're Already Good At To A Different Context
Amazon started out selling books online. It then applied its approach to other categories, such as electronics and toys. That took enormous investments in technology, which it then used to create new businesses, such as Amazon Web Services (AWS), Kindle tablets and its Echo line of smart speakers.
In each case, the company took what it already did well and expanded to an adjacent set of markets or capabilities, often with great success. The Kindle helped the company dominate e-books and strengthened its core business. AWS is far more profitable than online retail and accounted for virtually all of Amazon's operating income last year.
Still, adjacent opportunities are can be risky. Amazon, despite its huge successes, has had its share of flops too. Whenever you go into a new business you are, to a greater or lesser extent, charting a course into the unknown. So you need to proceed with some caution. When you launch a new business into an adjacency, you are basically launching a startup and most of those fail.
3. Finding A Completely New Problem To Solve
Besides getting better at what you already do and applying things you already know to a different market or capability, you can also look for a new problem to solve. This is, of course, the most uncertain type of opportunity, because no one knows what a good solution will look like.
To return to the Moore's law example, everybody knows what a 20% performance improvement in computer chips looks like. Metrics for speed and power consumption have long been established, so there is little ambiguity around what would constitute success. Customers will instantly recognize the improvement as having a specific market value.
On the other hand, no one knows what the value of a quantum computer will be. It's a fundamentally new kind of technology that will solve new types of problems. So customers will have to explore the technology and figure out how to use it to create better products and services.
Despite the uncertainty though, I found in the research that led to my book, Mapping Innovation, that this type of exploration is probably the closest thing to a sure bet that you're going to find. Every single organization I studied that invested in exploration found that it paid off big, with extremely high returns even accounting for the inevitable wrong turns and blind alleys.
The 70-20-10 Rule
Go to any innovation conference and you will find no shortage of debates about what type of approach creates the most value, usually ending with no satisfying conclusion. The truth is that every organization needs to improve what they already do, search for opportunities in adjacencies and explore new problems. The key is how you manage resources.
One popular approach is the 70-20-10 rule, which prescribes investing 70% of your innovation resources in improving existing technologies, 20% in adjacent markets and capabilities and 10% in markets and capabilities that don't exist yet. That's more of a rule of thumb than a physical law and should be taken with a grain of salt, but it's a good guide.
Practically speaking, however, I have found that the exploration piece is the most neglected. All too often, in our over-optimized business environment, any business opportunity that can't be immediately quantified in considered a non-starter. So we fail to begin to explore new problems until their market value has been unlocked by someone else. By that point, we are already behind the curve.
Make no mistake. The next big thing always starts out looking like nothing at all. Things that change the world always arrive out of context for the simple reason that the world hasn't changed yet. But if you do not explore, you will not discover. If you do not discover, you will not invent. And if you do not invent, you will be disrupted. It's just a matter of time.