Thursday, August 30, 2012

Signals for innovation speed and frequency

How often / how fast should we innovate?  This is a question our clients ask us quite frequently.  What I like about the question is the realization that the firm must innovate more than once.  What I dislike about the question is the often (implied) whining that suggests that repeated innovation is difficult, time consuming and distracting.  So herewith, a short rubric for how "fast" or how often you should innovate.

Driver shifts

The first analysis should contemplate what I call the driver shift.  That's simply a way to describe the factors in your industry that are changing most rapidly.  In many industries the driver is technology.  For example, if your business has anything to do with technology, especially semiconductors, you'll be aware of Moore's Law.  Moore's law basically states that the power of computing will double every two years.  Of course, given the nature of competition, you'll need to be innovating on a far more frequent basis in that industry.

Other firms may face slower "driver" shifts.  For example, many regulated firms may not see regulations change as quickly as technology firms see technologies change.  But when regulations change, they often change in very dramatic ways, so the ability to respond as the regulations change, and repurpose or restructure an organization to respond to rapid, disruptive regulation change is also important.

Business Models, Channels

A look at NetFlix should tell you something about the nature of innovation and the required frequency and speed.  Netflix was busy disrupting Blockbuster with its movies by mail offering.  Suddenly the leader in the space, it was immediately threatened by streaming movies delivered on a variety of platforms.  Netflix stumbled in its business model transition from mail to streaming, but did not allow itself to become complacent as the channels changed.  Note that the end result - consuming movie content - did not change.  What changed are the distribution channels.

Business models and channels, which once seemed relatively fixed, will undergo tremendous change due to the pervasive internet.  We are on the cusp of a completely new delivery mechanism for a wide variety of products and services.  You'll need to innovate as rapidly as the internet introduces new business models, channels and customer interactions.  And that will be fast - the rise, and rapid fall - of Facebook should attest to that.

Replacements, Substitutes

Yes, this is a classic Porter "Five Forces" assessment.  Why?  Because it works well.  Even in industries that don't see significant driver shifts, that are immune to technology advancements or rapid changes in business models or channels, innovation is happening.  It's happening from new entrants or disrupters who offer excellent services or features that replace or substitute for the existing offering.  Banks will be displaced by many smaller offerings and features from firms like Paypal, Mint, peer to peer lending and virtual wallets.  Being isolated from change doesn't inoculate your firm from innovation, it simply creates blinders to innovation right under your nose.

Further, disruption never happens from within an industry - the key players have too much at stake to disrupt their own businesses.  Every major industry acts like an oligopoly.  Incremental innovation is all that should be expected internally.  Disruption will occur when a new entrant forces the entrenched participants to change.  Thus, a slow, incremental innovation program within the industry will be overthrown by rapid, disruptive innovation from an external actor, a new entrant or someone offering a substitute.  If you are resting quietly in your safe cocoon, isolated from the disruptions and speed of innovation that is prevalent in many industries, don't get lulled to sleep.  Innovation, and the accompanying disruption and speed will spill over into your little niche.

Customer Expectations

Let's say you are lucky enough to be isolated from rapid technology shifts, there are no new business models or channels and few new entrants or substitutes.  You'll be congratulating yourself about the minimum level of innovation and the slow place of change required in your space.  And you'll be whistling past the graveyard.  While you may like to assume you are isolated from the need for innovation speed, your customers have higher expectations because they are aware of what's going on in other industries or markets.  Just as the citizens of the Soviet Union weren't fooled by Potemkin villages and wanted the benefits of advancement that western citizens had, customers in your market or industry are aware of rapid change and innovation in other markets and will demand it in your industry as well. 

Which is the driver?

The question isn't "how fast or how frequently should we innovate" but "which of these drivers has the most impact to our business, and how do we align our innovation speed and frequency to that factor"?  You'll need to innovate at least as rapidly as the major driver in your business, and if your business is impacted by several of these factors (and few aren't), these factors have a multiplier effect when they are imposed simultaneously. 

Stop thinking about how frequently or how rapidly you should innovate.  Your internal signals and decisions are too risk averse to give you good advice.  There are plenty of external signals you can learn to read and interpret.  You know this already, it's just the information available is hard to believe.
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posted by Jeffrey Phillips at 5:40 AM


Blogger Unknown said...

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9:29 AM  
Blogger Unknown said...

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9:30 AM  
Blogger Dashing said...

Jeffrey, what do you think about innovation policies in the scale of a state? Such as in USA, or innovative development in Russia, with events like this: ?

12:45 PM  

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