The Third Way to Innovate
The concept of innovation is not a new one. Every company must find new ways to create, lead, organize and sell in order to stay relevant in today’s marketplace. And being innovative can result in long-lasting competitive advantages for companies.
More companies are moving beyond incremental innovation toward radical innovation because business leaders are led to believe that disruption is the only way to innovate. But as Wharton Professor David Robertson explains in “The Power of Little Ideas,” there is another way: developing a portfolio of complementary innovations around a core product. Unlike disruptive innovation, this third way does not change the central product in any fundamental way but it can deliver an equally potent advantage to the innovating company. In his book, Robertson illustrates how many well-known companies, such as CarMax, GoPro, LEGO, Gatorade, Disney and Novo Nordisk, used this approach to overcome competition and achieve great success. Robertson talks about this low-risk, high-reward strategy and his new book with YPO.
What distinguishes the Third Way?
It’s a set of complementary innovations focused on a core product or service to help to fulfill a single promise to the customer. It’s a centrally and closely managed portfolio of innovations. Coordinating the innovation of partners within your own company to bring about a whole portfolio of complementary innovations is really hard to do. If you don’t set up the roles, the processes, the metrics and the business relationships in the right way, it is pretty much impossible to execute.
What is the process for this approach to innovation?
The first step is counterintuitive: it’s to think about where you won’t innovate! Every company has a product that helped make the company great and that customers depend upon. But, too often, management’s attention is focused on the next big thing – those shiny new opportunities that are revolutionary and disruptive. That old workhorse of a product often doesn’t get the attention it deserves. So the first question you should ask yourself is: what are our “crown jewels”? Which products have been central to the success of our company? Then, the second step is, for each, ask yourself: what is the business promise around that product? Why do our customers buy that product and what are they trying to do with it? Once you’ve completed those two steps, the third step is to start brainstorming and developing ideas for new products and services. But this should be a very targeted development process, focused on developing innovations that will help your customers get more value from your products? Finally, think through how you can execute this.
What is the biggest challenge to this approach?
One of the biggest challenges is the role of the team leader. Too often we call that person the product manager. But if we want to develop a family of innovations around a central product or service then we need to expand that person’s role so they have the freedom to go out and build partnerships, develop different types of products and services and explore different business models. Companies will sometimes try to do a new thing in an old way – they’ll set up a team to only develop a product when the market is demanding a more complete solution. When they do that, they’re unintentionally sabotaging their teams.
How does this approach impact leadership?
Executives must reinforce the importance of understanding the total customer situation. Make sure that teams are not just looking at what they can do to make the product better but what the company can do to make the customer successful. Sherwin-Williams Co., for example, considers innovation as “dating, not fighting.” If you think about innovation as dating your customer, then you start to think about who that person is, what their hopes, fears, passions and dreams are, and how you can create a deeper and broader relationship with that person. The way to push your teams to innovate is to require that they come back from their field research trips with that broader view of what the customer cares about and how to help the customer get more from the product.
Are there any common pitfalls to avoid?
If you’re trying to create a portfolio of solutions, then a narrow approach to business case development can torpedo an effort before it even starts. You need to have the flexibility to innovate in lots of different ways but you also need the discipline to remain focused around the central product or service, the customers who depend on delivery of that product and the business promise you’re trying to fulfill. It’s a different balance than other types of innovations. If that central product falters, then everything around it falls apart.
What are the greatest benefits to this approach?
In many industries, having a better product may get you a couple of months of competitive advantage. If you have a portfolio of innovations that support the customer and what they need, then you are looking at five to 10 years of competitive advantage. It’s very similar to what we’re taught to do with our financial investments: If you have a portfolio approach to innovation, then you’re spreading your risk. If one of those innovations doesn’t work, you’ve got three, five or eight other ones that can fill in, and so you can afford to take more risks.