The Innovation Paradox

Pete, author of Share Tactics, sent me an article from the NYT suggesting that “The Magic is in the Tweaking” when it comes to developing new products and services. The premise of the article is that “companies reach success by discovering different uses for their original technology, changing their sales philosophy or repositioning a product, among other tacks”. According to the cited expert, “many entrepreneurs learn as they go along. With each lesson, they find out a little more about what new direction to take.”

In a separate article in today’s WSJ, a different expert asserts that:

In any business, innovation is at least as critical for old companies as for start-ups, and more complex. It requires two steps: “upgrading, leveraging and extending old and still-popular brands while also looking for new ideas,”

However, he goes on to suggest that “the biggest roadblock is risk-aversion.”

As companies become more and more comfortable in delivering incremental innovation, diverting funds and resources to risky new product development efforts becomes increasingly difficult. At a start-up, the product designers generally have a blank sheet of paper when starting out; that is, they are not constrained by the expectations and demands of an established customer-base looking for (often long-promised) features and product enhancements. Over time, as the company focuses on delivering incremental innovation to satisfy its customers (and deliver on modest, but achievable, budget goals), its new product development capabilities may begin to atrophy. Their customer-base gets what it wants, but the products begin to appeal to a narrower target audience as they become more and more tailored to the needs and demands of long-standing customers. Before long, the company is stuck with a maturing product set or a high market-share in a narrowly defined market. To sustain (or even achieve) growth targets, the company will will compelled to introduce new products. However, by now, they may no longer have the skills or competencies to develop a new product from scratch. As a result, they are generally left with a choice — source innovations externally (through either a partnership or acquisition) or to develop in-house new product development capabilities. Either way, there are usually some tough cultural battles that have to be fought and won before any of these approaches can work — overcoming “NIH” (not invented here), revamping compensation and reward structures and addressing the inevitable skills gap to name a few.

So, how does a company break this cycle? A few weeks ago, I suggested that you would need to put four things in place to Identify and Exploit Alternative Uses of Technology, including:

1. A “sensing” mechanism that is attuned to the customer’s wants, needs and challenges.
2. A way to capture and organize information so that it can be shared and re-used throughout the organization.
3. An adaptable product platform.
4. Robust business development capabilities that augment your development, production and marketing capabilities to rapidly pursue new opportunities

In the past few months, there has been a lot of discussion about how CRM needs to change to reflect the collaborative nature of customer relationships. Although there are a few companies out there that are building “CRM 2.0″ tools already (e.g. Communispace and Feedback 2.0), a CRM “1.0″ system can be modified to address the first two of the above requirements. Coupled with a robust business development function, this customer sensing mechanism will help the company spot and respond to new ideas and opportunities quickly. And, as discussed over the past few days, adaptable platforms gives the company (and its partners) the means to upgrade, leverage and extend those “old and still-popular brands” to satisfy the existing customer base.