How To Fix Innovation And Regain Your Competitive Advantage
Innovation has become the corporate Holy Grail. The pressure to create new, better, different is fierce and unrelenting. But for most companies, it remains as elusive as the grail, always just out of reach. Innovation is, as Adam Richardson argues, "broken." Businesses face challenges - X-problems - that are unprecedented in scope and complexity. The question is, how do they solve for X?
Innovation's Seventh Inning Stretch
Let's talk baseball. At the turn of the 20th century, it wasn't unusual to see batting averages that soared past .400. Today's best hitters don't come close, even though they're technically better. Why? Evolutionary biologist Steven J. Gould concluded that "there has been an overall improvement in play that has narrowed the gap between the very best and the average players." In other words, the best are just barely better than everyone else.
The Best and the Rest
Businesses are in the same ballpark, so to speak. Previously, innately innovative companies - like natural athletes - had a clear competitive advantage. They could hit .400. But as Richardson writes, "the superiority of innovation-gifted companies forces the competition to work harder." Therefore, the gap between the best and the average is closing.
At the same time that the playing field is levelling, "the scope and complexity of problems businesses must solve have changed." As a result, up to 60% of new product initiatives are cancelled before they come to market; of the 40% that make it, 40% (or more) fail. Richardson created the Innovation X framework "to tackle this complexity head-on" and to help companies ensure that their innovation efforts are more consistently successful.
To regain the competitive advantage, companies have to get a grip on the innovation challenges they're now facing. X-problems arise from the collision of the following factors:
- Disruptive competition and the blurring of industry boundaries. Companies "leap into each other's spaces" and diversify beyond their "core categories."
- Customers who demand experiences. Instead of price and quality, more customers place a premium on the experience of a product: how it fits into their lives, what it says about them to others, how it makes them feel.
- The need to create integrated systems (physical products, software, online experiences, services).Companies increasingly have to be all things for their customers, who demand a "system" that works as a single whole.
Richardson purposely uses X to describe these problems because X is extreme, as is the risk and complexity businesses face. X is mysterious; it represents a crossroads - and most importantly, it signifies opportunity. To realize this opportunity, businesses first must contend with X-problems, which share the following characteristics.
- The boundaries of the business are not clear. As companies are forced to expand into new areas, they face complexity, uncertainty, and cutthroat competition.
- Understanding customer needs is more important than ever. Organizations need to figure out which products/services will customers find compelling and which needs are currently going unmet so they can find a foothold in new markets.
- Multiple products and services must be integrated. Again, customers want an integrated experience, not just a product. The challenge is creating an "ecosystem" that delivers on their expectations.
- There is no clear right or wrong answer. This is perhaps the hardest one to deal with, especially since the business world doesn't do "wait and see."
The Innovation X Framework
What should businesses do when confronted with X-problems? Clarify the problem and develop constructive ways to solve it. Easy as that! Well, it's not, but using the Innovation X framework can help organizations uncover a wealth of information and develop core insights that can point the way towards effective solutions.
Toyota's core insight, for example, led the automaker to create the hybrid Prius. It wasn't overly comfortable. It wasn't a high-performance machine. And it had a relatively hefty price tag. So why would customers pay more for a car like that? Because it was environmentally responsible; it was a symbol of awareness, and of status. This core insight gave Toyota a significant head start in this emerging market. To arrive at a core insight, Richardson suggests four methods:
Immersion. Attack the X-problem from all angles. Richardson calls this "multi-vector research," and it incorporates customers, competitors, complementors, comparatives, brand, organizational toolbox, technology, retail, and trends. Use a diverse team to ensure fresh perspectives, and research all vectors simultaneously.
Richardson provides clear direction for research. For the organizational toolbox vector, for instance, he recommends examining culture, intellectual property, values, goals, and tolerance for risk and change. Companies with a clear vision and self of identity tend to fare better when confronting X-problems.
Convergence. After fully immersing themselves in the problem, companies can turn towards convergence, or the integration of "multiple products and customer touch points in order to provide functionality, benefits, and a customer experience that would be impossible in a standalone product." Amazon's Kindle (which integrates the normal Amazon web experience, the ability to purchase books anywhere with the device, and subscription-less ease of use) is a prime example.
The goal of convergence is to create a unique offering in the market - one that delivers a complete customer experience. To do this, brands need to understand and control the ecosystem (collection of products and technologies that create the offering's functionality) and the touch points (where they and their customers intersect). And if done well, convergence allows companies to respond more agilely to customer needs and integrate multiple components into a coherent whole.
Divergence. This is where expansion comes into play. Divergence is:
- Seeking new customers in the existing market and appealing to them in new ways.
- Finding new markets to expand into.
- Expanding to deliver products in new ways.
Adaption. How will companies continue to evolve and thrive in a dynamic environment? They need the ability to:
- Perceive the environment (how it is currently, how it may change, and what opportunities and threats lay ahead).
- Be flexible in responding to changes.
- Create a feedback loop to see if changes have been positive or negative and to inform course-corrections.
Richardson provides clear step-by-step instruction and insight into each of these areas. For companies that want - and need - to fix innovation, Innovation X is a useful guide. X-problems underscore the complex nature of the business world; leaders must develop dynamic solutions to regain a competitive edge. Picking up Richardson's book is a good place to start.
To diverge, companies need to know where they're coming from (this is where research on organization toolboxes, products, ecosystem and complementors, and customer needs comes in handy).