The more things change ... strategic innovation

I am often struck by how today’s 'insights' reflect the writing of past decades.  Here are a few recurring themes on strategic innovation[i].  They are important levers in the pursuit of strategic innovation.

1.       If you want to create real value you need to aim to deliver order of magnitude value uplift.  Peter Thiel,[ii] recently argued that in competitive markets monopolies are the reward for creating ‘great abundance’ for customers.  He argues that it is the reward of a potential ‘monopoly’ which attracts investors and entrepreneurs who pursue and deliver game-changing improvements in customer value.    

Booz Allen suggested a similar prescription nearly 20 years ago: superior long term value to shareholders results only from growth that comes from an order of magnitude increase in value to the customers.  The value came from either dramatic improvement in the entire ‘business system’ that delivered value to the customers or, alternately, dramatic innovation in the products or services. 

I agree, although I suggest it is impossible to dramatically shift the customer value without a fundamental shift in the business model.  

2.       Almost all strategic innovation occurs from the intersection of two or more things.  Well respected economist Bob Gordon is convinced the rate of innovation is slowing down: that we are at a technological plateau, having picked all the low hanging fruit.  Brynjolfsson and McAffee[iii] reject that view, arguing that the true work of innovation is not coming up with something big and new, but instead recombining things that already exist.    They tell the story of Kary Mullis who won the 1993 Nobel Prize for the development of a specific chain reaction which has become the basis for replicating DNA sequences.  In Mullis’s acceptance speech, he acknowledged that “there was not a single unknown in the scheme … every step had been done before”.  ‘All’ he did was recombine well understood techniques in biochemistry to generate a new one. 

Many ‘technology breakthroughs’ are modest adaptations of technology from one domain translated into a new application domain.  Csikszentmihalyi[iv] observed 20 years ago ‘creativity generally involves the crossing the boundaries of domains’.   Indeed, the CEO of the American Association for the Advancement of Science (publishers of Science) has argued that most of the advancements will come at the intersection of fields of knowledge[v]“Disciplinary science has died.  It’s gone.  Most major advancements involve multiple disciplines”

3.       Strategic innovators are much more likely to succeed when they initially focus on a peripheral segment.  One of the failures of the dot com boom was the mindset that basically saw the whole world as a potential market, and if we could only capture fraction of that market … simplistic, but tragically too often true.  Today Peter Thiel says “every start up should start with a very small market.  Always err on the side of starting too small.”  This is especially true for businesses that rely on network economics[vi]: Mark Zuckerberg’s initial aim was to get his classmates to sign up.  Tackling large markets first up presents several challenges.  It is much more difficult to rapidly prototype, test and adapt with large markets.  And you are much more likely to attract competitor envy and challenge if they see the potential of the major market.  WalMart began serving customers in markets which the then majors ignored because the markets lacked scale.  It was able to test and refine its business model in relative obscurity until by the time it was ready to attack the major markets: the incumbents were unable to match Walmart’s model.  NuCor is another exemplar of this mode of growth. 

What does this mean for your organisation?  Here are three practices you could introduce into your organisation today:  

1.       Adopt a deliberate practice of committing 5 minutes each day in the search for a 10-fold improvement in customer value?  Opportunities for breakthrough value are likely to be ‘weak signals’ in the market environment.  If you are consciously looking for opportunities you are more likely pick up these weak signals when you see them.  The effect is known as mental priming.  You have experienced the same effect after you bought a new car and suddenly see that car everywhere on the road. 

2.       Actively grow a network which reaches beyond your close alliances and friendships.  Research on network effects finds you are more likely to find new opportunities from distant networks than from close networks.  Why?  Because these weak ties are more likely to offer information and insights that you don’t get from your regular close ties.

3.       Ask yourself which customer groups have to make compromises when they buy your offering.  These are customers who are waiting for someone to offer them an alternative value proposition without compromise.  Or become an early mover.  Identify segments your competitors serve where customers have to make compromises.  Find a way to break through the value offer to this segment.  And evaluate how this might lead to valuable growth. 

Good luck.  And feel free to share with your friends (remember, we all benefit from weak ties)

[i] Before we became mesmerised by disruptive innovation we talked ‘strategic innovation’.

[ii] Author of Zero to One – which I regard as one of the best business book I’ve read in 10 years

[iii] Brynjolfsson, Erik, & McAfee, Andrew. (2014). The second machine age: work, progress, and prosperity in a time of brilliant technologies.

[iv] Csikszentmihalyi, Mihaly. (1996). Creativity: flow and the psychology of discovery and invention

[v] Referenced in an interesting book by Frans Johansson (2004). The Medici Effect

[vi] Network effects make a product more valuable as more people use it. Telephones/faxes are classic exemplar