When I had my first exposure to television as a little boy, TV was broadcast in black and white on two channels only. Today, if you have a satellite antenna, you can choose over a hundred channels that of course all come in color. When it comes to innovation, we need to realize that the modern business world has massively changed as well in recent years.
What are areas of innovation in business for your company? Asked this question, business people typically think first – and often exclusively – about the development of new products. In addition, a few managers may recall some business process reengineering exercises that their company went through during the past two decades, thus identifying process innovation as another area for innovation. More often then not, that’s about it. This antiquated “black and white”-view of the world of innovation is outdated, as it neglects many other potential opportunities for innovation. So let’s take a broader view on the colorful compendium of the modern innovation types.
If you want to find innovation opportunities for your company, the easiest entry point is looking at the processes of your company. Process innovation through continuous improvements or business process redesign allows you to create value for your firm by making your processes more effective and save costs. Over the past decades, Michael Porter’s competivite strategic paradigm proclaimed that a company needs to make a fundamental strategic choice to either compete on low-cost or differentiation. In recent years, Kim and Mauborgne have challenged Porter’s paradigm by citing many examples of companies that in fact have created value for customers and the firm by achieving both feats at the same time. Hence, a company may also create value through process innovation by making use of modern technology and modern networking approches to be able to offer differentiating value at a much lower cost to its customers.
Thereby, a firm can create value by improving its core processes that are used to produce and distribute the value (such as Wal-Mart’s constant attempts to modernize and improve its core processes through integration of latest technology such as RFID).
A company may also focus on creating value by furthering its enabling processes that support the company’s core processes and employees (for example, Starbucks follows a higher-than-market compensation for its store barista, thus attracting well-educated, responsive and proactive part-time employees that the company needs to deliver the unique Starbucks experience).
Creating meaningful, novel value propositions is an even better way to generate value for your firm and its customers. In another article, we featured the Value Pyramid Model that distinguishes different forms of ecomonic offerings based on the perceived customer value. We learned that as one ascends to the higher levels of the value pyramid, the perceived value added in the perception of a buyer increases, and the number of competitors declines. Both effects lead to a rise in profit margins for the value-providing company that increases with each level. As such, one direction for a company to create value is to move up to higher layers of the value-pyramid through what we call Value Innovation. This can be done by focusing on any of the following areas:
- Product Innovation: Creating meaningful product innovation through developing novel, truly differentiating products (such as the iPod from Apple) or a truly outstanding product system (like Microsoft Office, which offers different work productivity software programs bundled in one package).
- Service Innovation: Introducing novel, value-adding services that are either complementing an existing product (e.g., SAP offers implementation services to set-up its SAP software products in firms) or come as exceptional stand-alone services (like Virgin Atlantic’s airline services innovations).
- Solution Designs: Providing tailor-made solutions to businesses (e.g., individualized consulting solutions that IBM and HP offer to companies).
- Customer Experience Design: Designing memorable, personalized sensations that you stage for your guests (as delivered in the spectacular artistic circus shows of Cirque du Soleil).
After you have created meaningful novel value – and only after having done this, you are then able to look for ways to leverage it. Leverage is a neutral servant who works both positively and negatively. It can boost your profits if you have created true value and may cause massive damage for your firm if your value proposition is sub-standard. That is the reason why you need to create meaningful, novel value first. Thereafter, you can boost revenues and profitability of your firm by leveraging your value either through either value multiplication or value magnification.
Let’s look first on the two basic options that you may use to multiply your value. You can establish networks and strategic partnerships by joining forces with other parties to multiply your value in a mutually beneficial way (Network Innovation). A great example of leveraging value via strategic partnerships is the success story of the iTunes Music Store. After Apple had created value through its AAC-soundfile format (that allowed for a limitation of the numbers of copies), its CEO Steve Jobs convinced four major record labels on the viability of a market for legal song downloads in the internet (if offered at a price of just below one USD per song). A few weeks ago, the iTunes shop sold its 3 billionth song, which translates into revenues of ca. USD 1.8 bn for the record companies and ca. USB 300 mn for Apple through this strategic partnership since launching the store in May 2003.
The second option to leverage through multiplication is to create a novel business model (Business Model Innovation) that allows you to multiply your value (such as Dell’s business model of direct sales of computers via the internet to eliminate wholesalers and retailers).
Brand Design and Corporate Image Design are at the heart of magnifying the value that your company has created. The aim is to be able to charge a premium for your market offerings by convincingly communicating a higher brand image or corporate image. Apple has been a master of magnifying value through its brand and corporate image of an innovative, cool and avant-garde company for nearly three decades. Its recent hype-creating PR campaign for launching the iPhone without spending a single dollar on marketing years was a master-piece of smart brand design. Other good examples of smart magnification of value can be found in the luxury goods industries (where LVMH group may serve as a prominent example).
At Thinkergy, we use the described framework that we call the Thinkergy Value-Leverage Innovation Typology to identify innovation opportunities for firms that want to do an idea project with us. Thereby, if the company wants to focus on the whole spectrum of innovation alternatives, we move to the level of Strategy Innovation that requires the participation of the senior executives of the firm in an innovation project.