Friday, December 16, 2016

Why innovation portfolios matter

At this point in business evolution, every CEO understands the need for more innovation.  After a decade of reading about it, getting pounded over the head with the Jobs/Apple story and watching new innovations disrupt entire industries, businesses are starting to react.  More and more of them are doing innovation, with drastically different outcomes.  Some are successful.  Many are making significant investments and have had little success.  Some are frankly abject failures.  What I constantly fail to understand is why innovation is treated so cavalierly, with so little regard for planning and integration to strategy.  In many cases it's as if executives throw up their hands and succumb to the idea that innovation is black magic.

Innovation does require creativity and expansive thinking.  It requires divergent thinking and exploration, the willingness to explore customer needs and market trends.  It can require creating new products or services or business models that don't align and may even cannibalize existing products and services.  It requires a new way of thinking, new expectations and often, new skills and tools.  But none of this is even remotely new, or poorly documented, or beyond the reach of many of the people you already employ.  Nothing about innovation is black magic, although many executives and decision makers continue to act as if it is - mostly from a lack of understanding or limited time to fully grasp the approach.

Language, as an example

Take for example the idea of creating a simple, consistent language for innovation.  Defining the terms you'll use to ask for and measure innovation activities.  For example, are the ideas you want "incremental" signalling small change to existing products and services, "breakthrough" or "disruptive" to signal increasing difficulty and impact.  These terms are reasonably well known and defined in the innovation canon, and using them consistently sends signals that help innovations do new and interesting things.

The definitions I've just provided also align to what many of us know as the "three horizons" model - the idea that innovations can have different impacts.  Incremental innovation is sustaining, extending the life and value of existing products and driving revenues, while disruptive innovation is transformative, seeking to create entirely new markets or segments or fill valuable but unmet needs.  The former is less risky and much easier to do with existing, conventional tools, while disruptive innovation takes far more research, takes longer to prove, is more likely to fail but when successful has outsized implications.

All of that should be relatively obvious so far.  If so, why don't more companies define an innovation portfolio and set intentional goals for the amount of innovation investment in a specific year, and how to divide that investment across the three horizons?  Certainly companies are good at product portfolio and roadmaps, making decisions on how much to invest in older technologies, how much to invest in newer products and the roadmaps and versions that should be developed.  Good product management requires that we consider the maintenance and investment to sustain older products and contrast that with the effort to develop and launch new products.  Product portfolios help rationalize opportunities and investments.  Product roadmaps help us think through how a product will morph and add value over time, to remain valuable for customers by adding new capabilities or features.  Most product management teams assign resources and plan projects based on the product portfolio, company objectives and roadmaps.  The question is:  why don't innovation teams do the same thing?  Where are the strategies, portfolios, investment plans for innovation?

Linking innovation to strategy

This last question raises several issues or objections.  The first has to do with linking innovation to strategy.  Often innovation becomes viable when companies decide that they need a compelling new product or service, to respond to customer needs or competitive threats.  Too often this is not in response to strategic planning but a reaction to something from the external market.    These reactions mean that innovation often isn't planned or budgeted, but reactions to market forces.

A number of reactions to market forces doesn't create a cohesive strategy, and usually isn't even good tactics.  Lacking a comprehensive plan or portfolio, and with few upfront financial resources, innovation is done haphazardly on a shoe string.  Without a holistic, comprehensive plan, innovation is done in fits and starts across the organization with wildly different outcomes.

Further, since there is often little definition or clear expectations of outcomes, most innovation outcomes are incremental, since that type of innovation relies most heavily on how things are done today.  This is why so much innovation work seems to fail to achieve expectations and ends up as modest changes to existing products.

Innovation Portfolio

Now, compare and contrast the haphazard approach with a company that defines an innovation portfolio plan.  In this it may determine that some portion of its innovation efforts will be incremental, some breakthrough and some disruptive.  These allocations are made based on expect competitive maneuvers, customer demands, the age and viability of existing products and so on.  Many companies use a "rule of thumb" to divide the portfolio into 70% incremental, 20% breakthrough and10% disruptive.  This ensures the majority of the innovation activity is focused on near term products that have a high probability of success but lower potential, but also ensures that the company is taking some significant risks and focusing on longer term and potentially more valuable opportunities.

With an portfolio in hand executives can ask about the importance and value of each innovation activity, and make determinations to increase the risk and uncertainty by pushing for more disruption when necessary, or identifying needs or gaps in the portfolio.  It's also helpful to use the portfolio as a way to manage product groups and teams.  First to understand if the team has done some successful innovation and if not, walk them through the steps from incremental to disruptive.  Second to measure the innovation goals they had at the beginning of the year and compare to actual outcomes at the end of the year.  Did the team achieve its expected allocation of incremental, breakthrough and disruptive innovation?  If not, why not?

Formalizing Innovation

If you are thinking that an innovation portfolio, budgeting process and roadmap seems like we are formalizing innovation, you are correct.  Innovation needs to become a recurring competency that we plan for.  We have tools like a portfolio to help frame the goals and discussion.  There's no reason to leave a valuable opportunity like innovation up to chance.  There's an important balance between locking innovation down with too much bureaucracy and overhead, and leaving it with little or no guidance at all.  The happy medium that provides guidance but leaves room for exploration is the portfolio.
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posted by Jeffrey Phillips at 6:21 AM 0 comments

Wednesday, December 14, 2016

Understanding innovation's past leads to incredible insight

We tend to be very short sighted, we corporate executives.  Our lifespans are relatively brief, all things considered.  There are over 240 years since the founding of the United States, and using a 20 year cycle for generations that suggests approximately 12 generations of people during that brief window.  Most of us work for approximately 40 years, but we rarely consider the events or recent history before we started working.  In fact there's very little rationale to think about history in many cases, except for some hoary old stories about the founding of a company and its emergent culture.  Most of our waking, productive time is focused on the now, the current quarter, the next quarter, because that's what we are evaluated on, compensated for.  There's little time to worry about what might happen in the future, and even less time to worry about what happened in the recent past.

It's this lack of context and historical appreciation that makes innovation so interesting, because our short term focus convinces us that the way things are right now is a permanent condition, when in reality it's a fleeting experience that will change again shortly.

A brief innovation history lesson of the US

From its founding in the early 17th century until well after the US Civil War, the vast majority of people lived in small, rural settlements.  Many of the people who lived in that period grew the food they ate, raised the beef or chicken they consumed and had little financial resources.  Very few companies existed and most "innovation" was in the realm of transportation - primarily moving goods and/or people on waterways (canals, steamships) or rail.  Other than the military and the emerging railroad business, there were few large organizations and even fewer models for how to build and manage a business.

After the Civil War and up to the Great Depression there was a significant flowering of major industries, building on the transportation infrastructure built earlier and on the idea of mass production.  Oil, steel, railroads and other monopolies emerged, and banking and financial services grew alongside these emerging industries.  Yet still the vast majority of people lived hand to mouth in rural settings.  Innovation in these days was often focused on communication - Marconi, the "wireless", radio and other devices reduced the distances and built common stories for the American public.

World War Two changed everything.  Washington DC, formerly a very small, sleepy city, grew dramatically during the war, and the federal government grew in importance.  As we entered the Cold War, the growth that the World War created was sustained by fears of Russia and a new emerging Cold war.  Innovation during this time was focused on technology - especially weaponry.  The nuclear bomb, the ability to deliver weapons at a distance, the space race. 

The 1960s through the 1990s were boom years (discounting the Oil embargo) mostly due to dividends we reaped from the investments in technology and the space race.  The US emerged as the sole large economy undamaged by the Second World War and grew to dominate its allies.  The space race with Russia and military investments created a range of new technologies that were quickly converted into consumer technologies.

The 2000s and onward are less about product innovation and more about business model innovation and financial engineering.  Increasingly the US is becoming a high cost country in terms of labor and manufacturing, and outsourcing jobs to less costly locations.  We are focused on changing the terms of compensation and payment for services (Google funded by ads rather than licenses) and financial engineering in banking, financial services and other industries.  GM for a long time was profitable not because it built cars but because it financed them. 

Up until the 1880s the vast majority of people were farmers, mechanics, craftsmen.  They worked with their hands, with deep, innate knowledge about their services and skills.  This model changed as Henry Ford and others created the mass production line, which has in many cases reached its logical conclusion, at least as far as human workers on the line are concerned.  We retain many of the measures and metrics of an agrarian economy - taking vacations in the summer, planning and budgeting around an annual cycle, reporting on a quarterly basis - that have no real meaning in today's knowledge based economy that competes on a global basis.

What emerges about innovation from this review of history?
  1. In the past, a lot of innovation was driven by the most important impediment or challenge in a specific timeframe:  transportation of goods and people in the colonial era, banking and communications during the dawn of larger enterprises, communication technologies as the country grew, defense and technology as the country fought and was threatened with a cold war, business models and financial engineering as the technology investment petered out.
  2. Innovation comes in waves and as one wave is peaking, another wave is just starting to emerge.Innovations take time to proliferate but almost always proliferate faster than we might expect.
  3. There is a cyclical, repetitive nature to innovation, which we ignore at our peril.  Take for example the nature of retail.  Sears grew because it had a huge selection and could deliver goods anywhere.  The Sears catalogue is an analogue to today's Amazon website.  Sears modified its business model to move toward a physical retailing model as the US expanded and as people moved to the suburbs and seems to have forgotten its mass, virtual retailer roots.  Today, Amazon and other virtual retailers dominate, but we can imagine a future where hyperlocal retailers blending virtual and physical stores and delivery emerge.
  4. Business models and business conditions are temporary.  The concept of mass production is an idea that may be relevant to exactly one century - the 20th century - for the US.  The fact that mass production worked then, in those conditions, does not mean that it should and must continue to work as an operative model now, because many conditions have changed.  The internet and ecommerce make it much more possible for individuals to be craftsmen (Etsy for example) or self-employed (Uber, AirBnB), which is simply a return to an earlier model, with much more technology underpinning.
  5. Technology introduces change, customers and innovators change technologies into solutions that change the market.  Technologies change but unless they can be harnessed and adapted to create benefits and solutions that customers need and want, they aren't meaningful.  The transistor by itself is interesting, a smaller, cheaper portable radio provides a huge benefit to consumers.  We innovators fall in love with technology but fail to understand that it is the customer need and benefit that is paramount.
  6. Much innovation in one era is built on the investments of a previous era.  Mass production isn't all that useful unless there is a good transportation infrastructure, as an example.  The dot com boom was based on research and technologies that were sparked during the Cold War.  Currently those technologies are reaching end of life, and we see far more innovation in services, business models and customer experiences than in technologies, and far more financial engineering than is probably good for the economy.  This is because we haven't had a real flourishing of either new technologies, new infrastructure or a real competitive threat like the Soviet space race.  In other words, we've coasted for the past 20 years, harvesting previous investments without laying a foundation that future generations can build on, unless they want to bet on sub-prime mortgages.
  7. A lot of innovation was created by those outside the status quo - new immigrants (Andrew Carnegie as an example) or those outside the establishment, typically on the frontiers, who sought to solve problems faced by the emerging population, while the establishment was relatively comfortable.  The median age of the US was relatively low, and few people lived into old age.
What can we predict about innovation in the near future based on the past?

  1. We should be on the cusp of some significant new emerging innovation, but for the life of me I can't figure out what that is.  It could be a continuing evolution of business models and customer experiences.  We lack a real compelling burning platform like the Soviet Space race and are more distracted and less unified than in previous generations.  Also, corporations spend less on R&D than in the past and the government is spending less on a percentage basis on technology and R&D.  This means that future innovation is less likely to be technology driven and more focused on experiences, services and hopefully business models.
  2. The older command and control hierarchies and mass production thinking may give way to new organizational models, new governance and new ways of building companies.  As we move from an agrarian calendar and mass production models, new business models, relationships and organization models will emerge and may drive new innovation in organizational structures and customer relationships.
  3. The individual or small business becomes as important to the economy as large corporations.  More people can work as craftsmen or knowledge workers on their own, leveraging virtual workspace technologies and the increasing value of knowledge work.  Larger business increasingly want to outsource work to find the best value for their money, retaining only the mission critical or activities that reflect competitive advantage.  The infrastructure in terms of software and ancillary services exists to support a larger workforce of independent contractors and small businesses.
  4.  Past innovations were often launched by public works or investments by the government.  Transportation was either privately financed by large groups or by the government.  Defense, aerospace and technology were funded in response to the Cold War.  Future innovations will emerge from customer needs and those that can aggregate them quickly, and less from technologies or challenges identified by the government.  Indeed the government is becoming a consumer of commercial innovations rather than a springboard for future innovation, with the possible exception of healthcare, aging and green technologies.  This means a more distributed and diversified innovation future, less focused on one large population or government challenge and more competition over standards and protocols.
  5. Immigration, like it or not, will play an important role in future innovation.  The resident population is aging, and less likely to be as active innovating and solving problems because of the wealth transfer to older populations through retirement savings and health care transfers.  More innovation is likely to come from immigrants who refresh the population at the lower end of the age scale, who face more challenges and difficulties than some of the native born population.  Aging populations by definition are less innovative, so to refresh the innovation spirit and energy we need to recruit immigrants who can create compelling new innovations.  As the country ages, and boomers retire, there will be far more emphasis on innovation in terms of products and services for the boomers, who are used to having their own way and will demand far better products and services than their parents did when they retired.
  6. The pace and nature of innovation will accelerate as more people in more places become part of the global economy and more consumers achieve middle class status for the first time.  There are far more competitors in far more regions and geographies, which means more competition.  However, there are far more people entering the middle class who have buying power and will want new products and services. This means, though, that innovations must be conceived for global consumers, as the markets for new innovations will be in many more markets than just the US.  Our understanding of the needs and expectations of the US-based customer is poor; our understanding of needs and expectations of newly emerging customers in other countries is virtually non-existent.  We need to move faster, with greater urgency, to create innovations that meet global needs, not just US needs.
Those who don't study the past are doomed to repeat it

I started out this post commenting on the lifecycle of the average manager, and how narrow their time focus is.  While we live out our work lives over 40 years we do so in 90 day increments, often failing to appreciate how repetitive and cyclical business and innovation are.  The more we understand about how innovation has unfolded in the past, the more we are likely to be able to predict how innovation will emerge in the future.  There are two great quotes that are relevant here.

The first is Spinoza's quote:  Those who cannot remember the past are condemned to repeat it.  And we do, quite often, repeat the experience and mistakes of the past.

The second is Faulkner's:  The past is never dead.  It's not even past.

We can learn from the past about how innovation unfolds, and use that insight to determine how innovation is likely to emerge, and what the key drivers will be.  Doing so makes us smarter and more prepared to engage innovation as it occurs, and to use those innovation drivers to our benefit.
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posted by Jeffrey Phillips at 6:15 AM 0 comments

Tuesday, December 06, 2016

Innovation ain't what it used to be

I'm a big fan of Geoffrey Moore's work on Crossing the Chasm, which is the idea that every market can be divided into segments: very early technology adopters, the early majority, the late majority and laggards.   It's clear from history that there are always people who will adopt a new idea or technology even while others think it is unfinished or even risky.  The vast majority will wait until the technology becomes a "whole product" and "crosses the chasm" according to Moore.  This means that instead of just a technology, the offering is now complete, with supporting services, information and support.

As a new technology matures and people become familiar with its uses, and the technology is simplified and becomes part of a solution, more and more people adopt the technology.  Any student of history can tell you this, and we believe it is a natural order - almost a requirement:
  • first a technology or capability is discovered
  • Adventuresome people use it in experiments
  • The technology is incorporated into products
  • More and more people adopt it
  • The technology or capability becomes mainstream
  • The majority adopt it
  • The technology is eventually superseded by another technology
This is the reason many larger corporations will wait to see about emerging ideas and technologies.  They need to see that enough people will adopt it to minimize the risk of placing a new technology or capability in their products, and want enough of the unknowns to be removed in order to adopt it quickly.

That was then

From a historical perspective, this "wait and see" approach is best practice.  But what's happening right now in the innovation world is going to turn this approach on its ear, because there are multiple technologies and capabilities emerging and evolving, and waiting until they sort themselves out may leave a company so far behind that it will not be able to adopt the capabilities and solutions once they become "mainstream", assuming of course that they solidify long enough for the mainstream to catch up.

The complacent "wait and see" response to new technologies or capabilities relies on three assumptions:
  1. The technology will eventually become mainstream and once it becomes mainstream has a long shelf life
  2. Any company can adopt the technology or capability once it becomes mainstream and implement it effectively
  3. Once a technology or capability becomes mainstream, there are still competitive positions available - companies aren't "crowded out" if they didn't adopt early.
But what if there are capabilities or technologies where this thinking isn't true?  What if the lifetime of a technology or capability is relatively short, or instead of reaching a "steady state" the technology or capability constantly changes?

Platforms and Ecosystems

Paul Hobcraft and I have been writing extensively about the impact that emerging platforms and ecosystems are having, and will have, on innovation.  As I wrote previously, we are in the same position with platforms that we were with "dot coms" and ecommerce in 1999.  Then there were thousands of alternatives and experiments to try to figure out what would work.  Now, much the same thing is going to happen at the platform level.  There's a reason Amazon, Facebook, Google, GE and others are trying to test out their platforms, and why other industries  like financial services want so desperately for their own platforms to prevail.

Many companies will be tempted to follow the wait and see approach I've outlined above, thinking that once the technologies and capabilities are selected and implemented, they'll adopt the chosen solutions and find ways to compete or scale.  Where innovation, ecosystems and platforms are concerned, that is a very risky proposition.

The only constant is change

Platforms are going to rework the way companies and industry partners integrate to provide seamless experiences for customers.  As they are formed, new, tighter relationships to customers are created, and companies that participate in the platform or as part of the ecosystem will solidify relationships.  Those that wait may find the opportunities to participate as part of a platform or as an ecosystem provider much more limited if they weren't involved early on.

Further, the pace of change in capability and technology, as well as integration and inter-operability is accelerating.  Companies that experiment and learn will be able to improve their pace of innovation and change.  Those that wait and see will fall further behind, unable to catch up with the speed and the increasing requirements to participate in the ecosystems that are emerging. Platforms and ecosystems will not reach a "Steady State" but will constantly morph, extend and grow.  Thinking that you can wait until the platform or ecosystem resolves is a fallacy.  By the time a platform or ecosystem slows or becomes "stable", it will be decaying.  Waiting to join is like showing up dressed for a wedding but arriving for the funeral.

As these platforms and ecosystems emerge and assert themselves, it is vital to start experimenting now and to keep experimenting.  Some platforms and ecosystems will succeed and grow organically, some will fail.  Innovators must hedge their bets across a range of platforms and ecosystems.  Waiting to see which ones win out may mean that there are no remaining slots in the ecosystem and that the platform has different protocols or standards than what the company developed.

Are you ready to innovate beyond the product?

Paul asks a similar question in his most recent post:  Are you ready to thrive in a world of innovation ecosystems?  Currently, many companies would be happy to generate a handful of discrete innovation activities leading to a few new products or services each year.  These innovation activities are still too inward looking, not really grasping the importance of engaging with emerging platforms and the ecosystems that will flourish around the platforms.  To be a successful innovator, you've got to fully engage your internal capabilities and insights, and mesh those with the emerging platforms and ecosystems that can provide a total, cohesive seamless experience.

As the fine print in many financial services firms reminds us, past performance does not guarantee future performance.  What was true in the past - the opportunity to wait for innovations or technologies to prove themselves and then adopt them - isn't as true anymore.  There are several reasons for this:  constant change, shorter product and even industry life cycles, fickle customers. The real take away is that you need to be discovering needs, experimenting with potential platforms and innovating constantly.  You can't afford to wait, because by the time a new technology or capability is proven, and customers have adopted it, the next iteration is already well on its way to commercial viability.  Meanwhile, waiting leaves you without any of the learning that companies fully engaged in experimenting with platforms and ecosystems are gaining, and in the end your company has its opportunities and profit potential dictated to it by the firms that have experience, and by the remaining opportunities in the platforms and ecosystems.  You will be robbed of strategic choice.

The new imperative

Call it what you want, if innovation has become a pariah within your organization, but you must be discovering needs and experimenting constantly with new technologies, platforms and ecosystems.  You must understand these capabilities and integrate them in a way that provides seamless customer experience.  If your corporate strategies don't address this urgent need, tear them up and start again.  Operating models of the past are not valid in a market where the old rules no longer apply.  Lean, fast, nimble, innovative companies who understand the totality of customer need and experience and are willing to learn and experiment will win.  This is what innovators must know about the very near future of innovation in corporations.
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posted by Jeffrey Phillips at 6:21 AM 0 comments

Thursday, December 01, 2016

Why platforms and ecosystems matter for innovators

You may know that Paul Hobcraft and I are collaborating on a new blog entitled Ecosystems for Innovating where we focus on the emerging importance of platforms and ecosystems for innovation.  We've been exploring the idea that increasingly innovators must understand the ecosystems of products, services and business models that exist.  New innovations must either align to and integrate with, or must overthrow these platforms and ecosystems.  It's simply not possible to create a compelling new innovation that ignores existing platforms and ecosystems, unless that innovation also creates a completely new ecosystem.

We're making these arguments based on another idea:  seamless customer experience.  As basic product and feature needs are increasing met and in many cases exceeded, what customers want is products and services that work together effectively, cohesively and seamlessly.  New solutions or innovations must inter-operate seamlessly with the ecosystem.  Excellent features aren't enough.  Delivering a seamless customer experience requires a couple of interdependent components:
  • Having an appreciation of the existing platforms and ecosystems and filling an important gap while ensuring seamless interplay with the ecosystem contributors
  • Defining and understanding the customer experience journey, and understanding how all of the ecosystem contributors ensure a valuable and seamless experience across the journey, not just at the vital "touchpoints"
Throughout our posts we've examined a range of concepts, including the value of an ecosystem, detailed customer experiences journeys and the platforms that enable these ecosystems.

I thought it would be interesting to take a step back and place the discussion of ecosystems and innovation in context by examining the history of innovation, to demonstrate why ecosystems and platforms become important as a market or industry matures, and why innovators must engage ecosystems and platforms as they compete in a market.  Let's do that by examining a famous innovator and industry (Ford and the automobile industry) to see how ecosystems and platforms have changed.

Brief automotive history

 Ford was not necessarily an "innovator" as far as the automobile was concerned, since many other entrepreneurs were building cars at the same time.  Ford's innovation was really focused on the manufacturing process and mass production.  But for a moment let's consider the environment in which Ford introduced the Model T.

When the Model T and its other competitors entered the market, those vehicles were for the most part discrete products that could rely on very little infrastructure or supporting products and services.  Other than a few macadamized roads, most Model T's traveled on older wagon roads at best, and the drivers often had to become their own mechanics or hire a driver and a mechanic.  Further, there weren't a lot of dependable sources of fuel, and concepts like speed limits, insurance and other things that we take for granted didn't exist.  In other words, when the market was new and emerging, discrete products that met basic needs were valuable even when an ecosystem or platforms didn't exist.

Fast forward a few decades into the 1950s, as a nation wide platform (interstate highway system) and dependable ecosystem partners (gas stations, mechanics, financing for automotive purchases, government regulations and oversight) become more important.  Suddenly there are far fewer options for motive power (gasoline wins as a fuel over electricity and others), so engine innovation narrows while other innovations expand (safety, financing, and a growing motel and fast food industry built specifically around the car).  Here we can see that the ecosystem begins to dictate innovation options or choices(gasoline over electricity) and the ecosystem expands as the base product (the car) comes to some maturity by filling gaps around needs (fast food, inexpensive accommodations) that become needs as the car enables transportation.

Fast forward to the 1990s, when I worked in the semiconductor industry at Texas Instruments.  One project I led was the examination of the electric car market and whether or not TI should put more investment into semiconductor for electric vehicles.  In the early 1990s California dictated that a specific percentage of cars sold in the state were required to be zero emission vehicles.  We had to decide how quickly the electric car market would grow.  After a few months of analysis we recommended holding off, because the gasoline powered ecosystem meant the existing engine technology had an outsized advantage.  A driver could always count on finding gas stations within a few miles of almost any spot in California, while the owner of an electric, rechargeable vehicle could not predict with any certainty whether or not they could find a recharging station.  Even today, 25 years later, it can still be difficult to find charging stations.  Fortunately battery efficiency has improved.  The electric car is stymied by the lack of standards (batteries) and platforms (recharging stations).  Plus, the existing ecosystem doesn't fully embrace the technology or platform.

Fast forward a few years into the future.  While the major platforms in the past were factors like roads, bridges and fuel stations, we can see that an emerging platform and ecosystem will revolve around autonomous vehicles.  Today there is no preferred standard - different companies are exploring different versions of mapping, sensors and command systems for autonomous cars.  If this market is like every other market, there will be a shakeout, and a dominant standard will emerge for autonomous guidance.  Until that happens we can imagine a lot of innovation and investment in a new platform (autonomous systems) and the ecosystem that surrounds that platform (mapping, geolocation, sensors, smart systems, smart grids, big data, etc).  Notice however, that the core technology (the car itself) doesn't change all that much.  The platforms and ecosystems change.

Which is more important?

As a product matures, incremental product innovation becomes important because much of the real effort is in fleshing out and extending the ecosystems and platforms.  Existing supporters of the core technology or product don't want to risk their investment, and the ecosystems is dependent on integrating to a known technology.  Radical innovation on the core product puts hundreds of ecosystem partners and their investments at risk.  If Ford were to come back from the dead today, he wouldn't find the cars we are driving all that unusual.  He'd be surprised by the ecosystems that surround the acquisition, maintenance, financing and insurance around the car, and like many of us would boggle at the idea of autonomous cars.  This suggests that the platforms the core product relies on, and the ecosystems that sustain and extend the use and experience of the core product become as important, if not more important, than the core product.  And we can see this today, as major automotive manufacturers are partnering with internet, computer companies and sensor companies.  The automotive companies don't have the experience with data, sensors, mapping, geolocation and other factors that they need in order to succeed in a new, emerging platform.

Compare and Contrast

Ford didn't have to worry too much about platforms and ecosystems.  There were few platforms other than horse-drawn wagons and dirt roads.  He couldn't count on a ready supply of mechanics and fuel stations.  He created a discrete product that eventually attracted investments in ecosystems and platforms.  Today's Ford company cannot ignore the existing (and more importantly emerging) platforms and those sustaining ecosystem platforms.  To some extent their innovations are dictated by potential platform and ecosystem partners, who in some cases have far more knowledge and experience than Ford does.

Thus we can begin to formulate a way of thinking - not quite a rule - that suggests that the more mature an industry or market is, the more likely that incremental innovation is vital in the core product or technology.  Further, we can also say that much of the innovation is governed by and constrained by the platforms and existing ecosystems. In order to do really interesting innovation, therefore, an innovator must understand the core product and service capabilities, needs and opportunities, AND understand how to leverage the existing ecosystem or how to overturn it.

Why this matters

Today, most corporate innovators are happy and rewarded if they can create incremental or occasionally breakthrough product innovations.  While there is a lot of talk about innovation, it remains in its infancy in terms of capabilities and processes in many companies.  At the same time, the level of complexity and inter-relationships between products, platforms and ecosystems is growing steadily, as fast if not faster than internal innovation capabilities.  This means that many corporate innovators aren't gaining skills and insights fast enough to keep up with consumer, market and ecosystem advances.

We need to congratulate ourselves for the strides we've made, and encourage our corporate innovators to move more quickly to expand their thinking and understand where the true value lies - incorporating platforms and ecosystem thinking in their innovation efforts.
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posted by Jeffrey Phillips at 7:52 AM 0 comments