In a previous post we explored the concept of ‘enterprise accelerators’ as a vehicle for inspiring innovation. Used in the right way, they can provide focus to organisations that would otherwise struggle to develop disruptive innovation. We believe that, for all organisations, there is little choice about whether to innovate or not. While an ‘accelerator’ may not be right for your organisation, the cost of doing nothing is terminal – “innovate or die”. But, before you head full-on into an innovation program or process you must recognise this – not all innovation is equal.
Our partners at Doblin have popularised ’ten types of innovation’ categorised into innovations relating to an organisation’s internal configuration, innovation in an organisation’s offerings and innovation pertaining to the customer experience. They compared the innovation process followed by nearly 2,000 companies over the last 100 years under the premise that all innovation could be broken down, analysed and systematically achieved. Off this analysis, they grouped their findings into ‘simple’ vs. ‘sophisticated’ innovation.
Simple innovations are focused on only one or two types of innovation. While necessary to keep pace with the market, they are the least likely to create a sustainable competitive advantage. In the minor leagues of innovation, organisations tend to focus on the known, which is neither particularly delightful for the customer nor startling for the competitor. Simple innovations, particularly in product offerings, can be fatal when they represent the sum total of innovation. Consider the executives of Kodak, who devoted great amounts of focus and energy to ensure their products were the apex of ‘film-based digital imaging’. They constantly improved existing product performance and the product system around film, leading to technology like the Kodak Advantix Preview – a state-of-the-art film camera with a digital preview screen. Press releases at the time boldly claimed: “We listened to consumers and learned that most still prefer film, but they wanted to make sure the pictures they took turned out how they wanted”. It was this religious devotion to film that would blind Kodak to the flexibility and affordability of the digital camera, a technology it brought into the world but would ultimately be its downfall.
Sophisticated innovations, on the other hand, combine many types of innovation. While they include the added complexity of internal collaboration and coordination between different business units, these innovations are also more likely to delight customers, confound competitors and give organisations the kind of competitive edge that will be rewarded by the market. When we looked at the leading innovators in each industry, we found that they routinely combined multiple types of innovation to outperform their peers. Using this lens, we revisited a popular example of disruptive innovation to better understand why it succeeded and how organisations could replicate that success.
When Apple announced iTunes and the iPod in 2001, it expanded its product offering beyond computers and transformed itself from Apple Computer into Apple Inc. Mp3 music players were nothing new at the time, but the iTunes + iPod combination used a simple interface and superior transfer speeds to address common customer concerns with rival products. By itself, this was a relatively simple product innovation that enhanced existing functionality and married it with a complementary piece of software. It was not until iTunes evolved into the iTunes Music Store that the iTunes + iPod combination became a source of sustained competitive advantage that would elevate Apple far beyond the reach of its competitors. What may have looked like just another iTunes software update actually bolstered Apple’s product innovation with:
- Service innovation: The ability for customers to browse, purchase and download individual songs for just 99 cents from all the major record labels was a novel service that enhanced the iTunes + iPod combination. In the post-Napster era, the iTunes Music Store introduced ground-breaking personal use rights that allowed unlimited use of downloaded music in CDs, iPods, Macs, iPhoto and iMovie
- Profit model innovation: The iTunes Music Store shifted the central axis of value, moving Apple from the hardware business into the content business and making it the no.1 music retailer on the planet by 2010. While it certainly boosted the sale of iPods (from under 1M in 2003 to over 4M in 2004 and 22.5M in 2005), it also created a new revenue stream around content delivery that, even today, could be a Fortune 500 company in its own right
- Network innovation: By changing the way customers buy music, Apple fundamentally altered how record labels and artists marketed and sold music – bringing them all within its orbit. At launch, Apple managed to sign up all the major record labels and offered a modest library of 200,000 songs. With 1M songs purchased in the first week and 25M by year end, the music industry would find itself captive to Apple’s success
- Brand innovation: To accompany its shift into music, Apple designed one of the most memorable ad campaigns of the last decade with their dancing silhouettes. The white earbuds featured would quickly become a symbol for Apple’s new mainstream cool
There’s no doubt that the iTunes + iPod combination required careful orchestration across a number of different areas (e.g. software teams, hardware teams, marketing teams, negotiations with record labels) over a long development horizon. The combination of content, software and hardware proved to be a sustainable source of competitive advantage that would be successfully replicated with the App Store + iPhone. Now, over ten years later, some would argue that Google is the only competitor beginning to catch up.
In this article, we’ve highlighted two innovative companies but only one would successfully leverage innovation to be the most valuable company in history. If you accept that that not all innovation is equal and your organisation is seeking to thrive rather than merely survive, then the question is not “how can we be innovative?” but “how can we innovate broadly across our organisation?” To answer this, we recommend taking three steps:
1) Investigate the types of innovation that are most overlooked in your industry but most relevant for your customers
2) De-emphasise product innovation from the mix and focus on innovating in categories – i.e. how else could you configure your assets? What new platforms can you build? What experiences can you foster for your customers?
3) Check that you’re using multiple types of innovation – while organisations that used 1-2 types of innovation are able to stay ahead of the market, organisations that used 5 or more types of innovation significantly outperformed the market (see graph below)