Disruptive innovation in practice

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Avoiding five common pitfalls in building innovation capabilities


This post is written by New Markets Advisors' David Farber:

While the term “innovation” has recently been lambasted for both its misuse and its overuse, there is no denying that a strong innovation program is an essential component of long-term organic growth.  Despite their importance, innovation programs frequently become sinkholes for employee time and company money.  Far too often, these programs become holding pens for pet projects from senior management or high-cost training programs that fail to produce meaningful output.  By mining insights from our own capability-building projects and reviewing contemporary case studies from a wide range of industries, we have identified five of the most common mistakes companies make in launching new innovation programs.Image from Activision

1.  Focusing on leadership buy-in.  Those looking to launch innovation programs often exert substantial effort trying to get senior leaders on board.  And, to be fair, a lack of leadership backing can destine an innovation program for a lifetime in low-profile purgatory.  The problem, however, is that too little effort is spent getting (mid-level) managers and team members on board.  With poorly designed programs, team members often find that working on innovation projects interferes with their ability to do their “day jobs.”  Similarly, managers find that working on innovation projects makes it more difficult to meet their existing performance targets.  If innovation is meant to be anything more than a few big-bet projects carried out by a dedicated innovation team, then innovation efforts need to be closely aligned with corporate objectives, and performance evaluations need to reflect the company’s focus on innovation.

2.  Providing training in isolation.  Too often, employees are thrust through an innovation training mill that provides consistent training, but a complete lack of follow-through.  Companies spend exorbitant sums of money on one-off training sessions that do little more than ensure that a large portion of the workforce has achieved a baseline competency in innovation.  On occasion, employees even turn around and leverage their new qualifications for better jobs at other organizations.  By tying innovation training to ongoing project work, companies can combat the innovation vs. day job mentality, reduce employee defection rates, and foster a deeper understanding of innovative behaviors.  Moreover, as project teams continue their work throughout the organization, innovation lessons are spread at a faster rate, and team members are forced to continue using the methods they learned, rather than treating their training as a one-and-done experience.

3.  Layering new programs over old ones.  When helping clients launch new innovation programs, one of the most common questions we get asked is how this program relates to the countless other programs employees have been introduced to.  Over the long run, employees wonder which of their 15 methodologies should be applied to a particular challenge, or they assume that the newest program simply replaces those from prior years.  At the outset, companies need to spend time creating alignment on why the new capability is important for the organization, how it differs from existing initiatives, and when employees should use any new tools or learnings.  If the answers to these questions are not clear, leadership will be unwilling to invest in the program, and employees will be unwilling to embrace it.

4.  Reinventing the wheel.  Innovation often gets treated as an ethereal specter, just beyond the grasp of mere mortals.  Because of its unusual status, managers often combine ad-hoc practices in an unstructured fashion, hoping that innovative ideas will get captured along the way.  Innovation never seems to be attempted the same way twice.  In reality, innovation is a managed process built around established business fundamentals.  Many of innovation’s core elements – ideation, business planning, prototyping, and scaling, for example – have been practiced throughout the organization and perfected over the years.  Rather than reinventing the innovation process every time, companies need to create a consistent program that preserves institutional knowledge.  A good innovation program combines best practices with internal lessons on what works and what does not.  It celebrates internal innovation successes and captures lessons from innovation failures.  While the output from an innovation program may be outside the box, the process for getting there can be fairly concrete.

5.  Using the wrong metrics.  Measuring innovation is difficult.  Companies often make the mistake of judging innovation projects under the same criteria they use for the core business, causing new ventures to fail before they ever have a chance to breathe.  Many companies focus on ROI calculations that unwittingly prioritize measurable markets over high-potential (but difficult to measure) new markets.  Companies might also give excess weight to a “freshness index” that measures the percentage of sales from new products without evaluating how innovative those products are or how they might cannibalize older offerings.  Instead of trying to find the right innovation metric, companies need to create a set of criteria that match the innovation program’s overall mandate.  For example, it may be useful in the short term to track the number of ideas being gathered, how broad participation is, and how far experimentation stretches beyond core competencies.  Over time, longer-term metrics can evaluate concept development speed, portfolio plan fit, and profits from new customers.  While the right combination of metrics varies based on the company, its industry, and its aspirations, it is important to use a comprehensive set of metrics specifically designed for innovation.

Although launching a new innovation program can be both challenging and intimidating, there are plenty of companies that have done so successfully.  Even better, the companies that have made a concerted effort to launch their programs the right way have mined significant value from the resulting innovation.  Avoiding the most common pitfalls in capability building requires taking five key steps: (1) ensure that project manager performance goals are tied to innovation goals; (2) link innovation training to ongoing project work; (3) clarify how the innovation program relates to existing initiatives; (4) leverage institutional knowledge and best practices; and (5) design new metrics that fit the organization’s innovation goals.  By following these guidelines, companies lay the foundation for years of innovation.

Costovation -- delighting customers, cheaply


Costovation is innovation in pursuit of cost leadership.  Rather than seeking innovation to differentiate a product and potentially earn a price premium, managers embracing costovation are aiming for radically lower price points.  Although this quest inevitably involves trading off some features that some customers may appreciate, it is distinct from simply economizing.  This is not about removing the olive from the salad, to take American Airlines' (in)famous example, but rather about broadly re-imagining the offering to attack often hidden drivers of expense.

Importantly, costovation can delight customers even while it takes a parsimonious approach to business.  By carefully targeting customers over-served by existing alternatives, costovation provides a well-defined customer type with a handful of welcome features even while stripping away other, superfluous benefits.  Case in point:  the YOtel hotels found within European airports that provide a miniscule room, yet one which is steps from the gate, abundant in power ports, and complete with a Monsoon shower.  For more detail on approaches to pursue costovation, see my piece for Forbes.

Stephen Wunker is the Managing Director of New Markets Advisors.

Vote for Yowzit -- empowering citizens in developing countries


A few years ago, I co-founded an Internet company that has become the leading site in Africa, and one of the leaders in India, for ratings and reviews.  Yowzit is a Johannesburg-based firm akin to Yelp in North America and Europe, offering a wide range of reviews across dozens of merchant categories. Yowzit's innovation in empowerment

While my colleagues and I are proud of what we’ve accomplished commercially with Yowzit, we’re particularly excited about an opportunity to use this platform to improve governance in parts of the world where citizens may have little sway over public services that are often substandard or corrupt.  We aim to have Yowzit be a way for people to rate and review public services, down to the local branch level, providing real-time, impartial feedback for government officials to improve on problems and recognize effective institutions.  I’m happy to say that we’ve found support for the idea at the highest levels of the South African government, and we aim to bring the concept to many of the other countries where Yowzit operates.  Not only should the platform be effective, but it is also financially self-sustaining.  It will be natural for people reviewing public institutions to review private businesses, hence generating site traffic that provides the revenues to fund this initiative.

Yowzit has been nominated for a global innovation award by a consortium of international aid agencies and NGOs.  Winning such an award would provide powerful momentum for this concept and help to overcome resistance we will inevitably encounter.  The first stage of the award process is driven by public voting. 

PLEASE, TAKE A QUICK MOMENT AND VOTE FOR YOWZIT  Your support will be tremendously appreciated.

Stephen Wunker is the Managing Director of New Markets Advisors.



Will health insurance innovation focus solely on cost?


"The Innovator's Dilemma," the seminal book by my mentor Clayton Christensen, describes how companies focus tightly on their biggest, most important customers, to the extent that they ignore alternatives that would be more appropriate to the bulk of the market.  Then something happens -- new technologies, business models, or regulations -- that creates "disruptive innovation" which upends the industry, giving the ignored portion of the market a new way to consume the offering, and the old incumbents become relegated to the top tier of the market chasing customers into a dead end.

For health insurance carriers, sick and costly patients have been one set of those important customers, and large employers have been a distinct set.  The carriers haven't wanted to enroll sick patients, but once these people become subscribers the carriers have been highly incented to manage their costs.  These patients have become a major focus of innovation efforts.  On the other side of the business, the big employers who pay for insurance have been key customers to win, and carriers have sought to become closer to them.

The Affordable Care Act and its associated health insurance exchanges are the disruptive impetus -- technology, business, model, and regulation all in a simultaneous volley.  The exchanges target groups hitherto of marginal interest to the carriers, and yet they make the young and healthy subscribers among them of paramount importance to recruit.  Through "community rating" and other legal obligations, carriers must accept sick patients and charge them relatively modest sums for coverage, making it essential to balance those patients in the risk pool with healthier subscribers.

The ACA may also lead employers to either push their staff to the public exchanges or to establish private exchanges in which staff can choose from a handful of plans vetted by the HR department.  Either way, employers may become less important or lucrative customers than before.

With these pressures, carriers must innovate on three fronts -- to address the cost issues among sick patients, build the loyalty of employers to the health insurer, and attract the well.  This will be hard.  If carriers cannot accomplish the second and third imperatives, then they will be stuck focusing on the first -- an important but somewhat dispiriting mission.  To go further, they will need to think in imaginative ways, going beyond traditional conceptions of their industry to build relevance and relationships that matter and that customers -- whether they are employers or consumers -- will wish to sustain.

For further analysis on this innovation challenge, see my recent piece for Forbes on the topic.

Stephen Wunker is the Managing Director of New Markets Advisors.

Healthcare kiosks -- a disruptive innovation for marketers and medicine


Healthcare kiosks have come a long way since the creaking, dust-coated blood pressure monitors that long populated drug stores.  A new wave of kiosks offers the capability to reach neglected populations, improve diagnosis rates, monitor chronic conditions, and link curious patients with integrated programs that reach them back in their home environments.  The kiosks are also creating a new industry with high barriers to entry, and they can have a substantial effect on how healthcare innovations are marketed.  To explore five ways that these kiosks may have big impacts, read my piece for Forbes.

Click for more of New Markets Advisors' thinking about healthcare.

Three ways great ideas get stopped


Ideas can be the easiest part of innovation.  With a rigorously defined problem and a structured approach to problem-solving, teams usually have no issues generating a long list of solid ideas and establishing some priorities.

The problem lies in what comes next.  Three scenarios occur time and again to defeat exciting concepts.  Recognizing their dynamics, and taking a few simple steps to avoid them, can vastly improve the odds that an intriguing concept will become a real business.  Read about these scenarios in my piece for Forbes. 

Click for more of our thinking about how to build innovation capabilities.

Lessons on speed of adoption from a hot ticket's demise


Not long ago, Better Place was a company with heady PR, $2 billion+ valuations, and a superstar CEO.  Now it's bust.  The collapse of this company had little to do with underlying dynamics in its industry, electric vehicles.  Rather, the firm violated several principles about how to gain fast market penetration for bold innovations.  The idea underlying the company was truly exciting, but its path to customer acceptance was tortuous.  My piece for Forbes tells what lessons about speed of adoption stem from this tale. 

Click for more of our thinking about the speed of adopting innovations.






Designing an incubator for effectiveness


Incubators can be critical to sustained corporate success, but they are fiendishly difficult to get right.  With a broad mandate and scant constuituency or resources, they struggle then fall victim to inevitable cost cuts.  But there is quite a silver lining to the dark cloud -- when incubators do well, success can be spectacular.

In a piece for Forbes, I explore seven dimensions of incubator design through the example of one in healthcare.  There is no single model for designing an incubator, but there is a set list of factors that need thinking through for success. 

Click for more information and a book chapter on building corporate innovation capabilities and incubators.

Finding the right questions


Occasionally, new markets spring from technological leaps that create huge improvements in tackling well-known challenges.  At least as frequently, though, the companies that push these new solutions intp the market find themselves solving for problems that customers scarcely recognize.  

When I led one of the world's first smartphone development programs, for Britain's Psion PLC in the late 1990s, we had dazzling technology.  You could send a fax from a PDA!  But we seldom paused to nail down the exact question we were trying to answer.  As a smallish, albeit cutting-edge, company in a rapidly-moving market, we had to be precise about what we would and would not try to do.  Yet we were bewitched by our cool solutions, and utterly flummoxed by how people could flock to a bare-bones PDA (Palm) or a primitive two-way pager that could send some e-mails (the Blackberry).  It was a hard lesson to learn.

In my piece for Forbes, I lay out when asking the right question matters, and how to ask it in a broad yet rigorous way.  Companies that thrive in new markets not only have good solutions, but they apply them to precisely the right problem.

Click for more information about New Markets Advisors.

How to launch a disruptive innovation


Creators of disruptive innovations are frequently seized by the power of their idea.  They envision all that it can become and the transformative effect that their innovation will have.  Unfortunately, their zeal can blind them to the need for walking customers through several stages of adopting revolutionary ideas.  Counter-intuitively, to launch a disruptive innovation you need to start small.

I came to this realization the hard way.  In 2000 I led a team creating one of the world's first smartphones.  We knew all that smartphones could potentially do, but we could not accept that customers would use only a small fraction of these functions at first.  Later, I founded one of the first mobile marketing companies and was perplexed that the idea took off so slowly.  Eventually I researched the patterns of how disruptive innovations get adopted, and I discovered useful insights I wished I had known years earlier:

1.  Focus on one example -- Rather than try to show the full potential of an idea, concentrate attention on one very obvious pain point that you solve brilliantly.  The pain point does not need to be important, but it should demonstrate quite clearly how existing solutions fall short.

2.  Concentrate on a widely-shared problem -- If your hope is to generate publicity about your disruptive innovation, focus on a problem that many people have.  People love to talk about common issues, even if they are trivial in nature.  

3.  Address low-risk situations -- The disruptive innovation may solve some critical problem, but in those situations the risk associated with a new solution may be high.  If the problem is really critical, it is likely being addressed somehow already.  Failure of a new solution could cause untold difficulties, so customers will wait on the sidelines to see if others have a good experience.  That dynamic can immensely lengthen the process of adoption.

4.  Cater to incremental adoption -- Don't make the adoption decision binary.  Give people a way to get their feet wet.

I explore these points in more depth in my piece for Forbes on how to launch a disruptive innovation.  The idea is not enough; it must be launched in a way that fits how customers embrace new ideas.

Stephen Wunker is the Managing Director of New Markets Advisors.  Read more of our thinking on innovation capabilities.

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