Two weeks ago, I introduced to you a systematic scheme to organize modern innovation types on three levels: operational, value and leverage innovations. We discussed some of the main innovation types and their position in those three hierarchical levels. Then, we looked at the first four rules of using innovation types: #1. Play to stay in the game. #2. You won’t win with a strong defense only. #3. Create meaningful new value first. #4. Shift the value differential in your favor. Today, let’s learn more about the remaining six rules of the innovation types game.
Rule #5: Leverage meaningful value only.
Once you have created a meaningful new value proposition (a new product, service, solution, or experience), you can move to the top level of innovation types and leverage it. Why do you need to wait until you know your value differential is good? Leverage is a neutral agent. It boosts your reputation and profits if your value wows your customers, and it can sink your firm if your value proposition sucks.
In order to leverage a value offering, you can use two different strategies (and related innovation types):
- Leverage through multiplication helps you sell your creation dozens, hundreds, thousands, and even millions of times. Innovation types that leverage through multiplication are channel innovation (physical and virtual distribution), network innovation (strategic partnerships, physical and virtual networks, and digital platforms), and business model innovation (multiplying revenues through new ways to get paid for your value).
- Leverage through magnification: Make your product appear more valuable in the eyes of your customers through a strong brand, cool campaigns or sensual packaging. If you successfully magnify the value perception, you entice customers to pay more and thus increase your margin.
Rule #6: Strategy innovation to redraw the business on all levels.
Proactive corporations —or those with their backs against the wall— may pursue a strategy innovation project at least once every decade. Strategy innovation aims to create and leverage meaningful new value propositions produced in more cost-effective ways. Ideally done in an uncontested and/or newly emerging market, strategy innovation can lead to sustainable revenue and profit margin growth at a lower cost base by using all three innovation type levels (operations, value creation and leverage).
For example, Cirque du Soleil reinvented the circus by dropping all the elements perceived as antiquated (animals, clowns, etc.), and keeping and amplifying the artistic and aesthetic elements to deliver artistic, sensational show experiences under a circus tent. Cirque du Soleil enjoys higher profit margins because it created a memorable customer experience magnified through a global acknowledged brand and delivered at reduced cost.
Rule #7: Innovation leaders play on the full spectrum of innovation types.
Many companies that lead innovation in their industry have gradually built their dominance by starting with one innovation type, and then adding more and more.
For example, after Steve Jobs returned as CEO in 1997, Apple created not only super-strong products including game-changing devices (iPhone, iPad) that launched new categories (smartphones and tablets), but also expande repair and training services, opened experiential stores and hosted cult-like product launch events and developer conferences. Apple also created new channels and platforms (iTunes, App Store) to multiply revenues, and is a design-driven company with eclectic brands, sleek packaging and trendy campaigns.
Rule #8: Focus on “orphan” innovation types.
Most players in an industry focus their innovation efforts on the same “traditional” innovation types. You can stand out by identifying what your industry is ignoring.
For example, Nestle started to sell its Nespresso coffee machines and capsules in luxury shopping malls, which was a channel innovation in an industry used to selling coffee in supermarkets or coffee shops.
Likewise, Tesla Motors and SpaceX achieved prominent positions in electric cars and space transport because Elon Musk’s insistence on developing all required components in-house (a structure innovation that allows them to be faster and cheaper than their industry peers who have outsourced the production of major components to external suppliers).
Rule #9: Connect the dots on different levels.
Newcomers to an industry can create new value for customers —and shock incumbents— by combining a focused selection of innovation types on all three levels (operations, value creation and leverage).
For example, AirBnB has created a digital solution to connect people in need of affordable lodging with people who can supply it. Some guests also get to experience a city like a local and connect with the hosts on a personal level. Likewise, Uber created a meaningful new solution to connect consumers who need car transportation with drivers eager to earn income with their personal vehicles. Uber drivers also provide transportation services to users living in remote areas where most taxis don’t want to go.
Both AirBnB and Uber facilitate the match between the demand and supply via mobile apps and websites. These are network innovations that easily leverage matching solutions and can quickly multiply to different cities and countries. Best of all, unlike their competitors, neither needs to commit any physical assets. AirBnB is now considered the largest accommodation company in the world without owning any hotel room, while Uber is the biggest taxi company without owning any cars. Both have integrated this structure innovation into their business set-up.
Rule #10: Innovate for the less fortunate through social innovation.
Social innovation aims to empower the less fortunate and make the world a better place. But how can you actually innovate here? Look at a particular social issue, then pick the innovation type that best suits your challenge.
For example, micro-finance is a social service innovation of Grameen Bank to reduce poverty in Bangladesh by providing micro-loans to poor women only. In contrast, Greenpeace rights environmental wrongs by creating whopping action campaigns with local, regional or even global impact (social campaign design).
© Dr. Detlef Reis 2017. This article was published in parallel in the Bangkok Post under the same title on 22 June 2017.