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Drop Innovation from Your Vocabulary
September 21, 2011 Editor 0
From publisher: A very thought provoking piece. I would still use the word innovation though. In developing countries, innovation is more than increasing customer value. Its also about increasing society’s value. When we come up with new solutions to save lives, we increase value to our society. That one life translate to an immense value to society.
Type “innovation” into hbr.org and you will get nearly 4,700 results. For many ills, innovation is seen as the panacea — management’s equivalent of motherhood and apple pie — and few would challenge its significance. Indeed, one recent news article described it as today’s equivalent of the Holy Grail, so to suggest dropping it from your company’s vocabulary may come as a shock. Many of you will see it as deeply heretical, particularly riding on the coattails of the recent posts extolling Steve Jobs’s innovative genius.
Most innovation efforts, however, are doomed to fail; they direct focus away from what is required to succeed. The word “innovation” comes from the Latin word “novus” meaning new. Creating something new is the goal of most innovation initiatives, but new does not mean valuable. Increasing the value created for customers should be the focus of initiatives intended to generate business growth.
Once you start thinking in terms of increasing value to customers, numerous potential enhancements reveal themselves, creating a range of options that extend far beyond adding new features or extending performance on existing dimensions. At a high level, there are eight ways to create value for customers:
1. Productivity. Customers obtain indirect savings (e.g. in staff, raw materials, property, etc.) from the superior quality, accuracy, and reliability of the products or services you provide.
2. Convenience. Products and services that are simple, easy to use, and available when and where customers wish to use them.
3. Speed. Related to convenience is the saving in elapsed time delivered by the responsiveness of the service provided. Delivery, response times, order turnaround, and issue resolution should be fast and proactive.
4. Choice. Customers are offered a wider range of products and service levels which increase variety and flexibility. For important customers, this may be extended to customization.
The above can all be described as functional benefits, but emotional benefits are also highly valuable.
5. Feel-good factor. Customers feel better for making the purchase because of enhanced prestige, perceived excellence, or uniqueness; the product is enjoyable or entertaining to use, or is made for ethical reasons (e.g. offering is environmentally friendly).
6. Security. The other side of the emotional coin is security, reducing the risk of feeling bad. Customers have the confidence that comes from trust and enjoy peace of mind because the promised performance is backed by industry leadership, evidence about past performance, references, service-level agreements, even guarantees with financial penalties attached.
Finally, there are the financial levers of value.
7. Low Price. Customers enjoy direct savings as the up-front or ongoing costs are low.
8. Gross Margin Uplift. For intermediary customers — such as manufacturers, retailers, distributors, and repair shops — a further benefit is gross margin uplift. Premium positioning, a great reputation, and high-end user recognition enables customers to sell additional services and obtain higher volumes and prices.
Thinking in terms of creating value for customers rather than innovation ensures the focus is on customers rather than the company. Success requires starting with the desired end in mind, not the means of achieving it. Focusing on the process encourages introspection — innovation being what the company does — rather than an external perspective: how it will better serve customers and society.
Innovation experts will argue that when done rationally and properly such traps are avoided. But as pointed out in my previous post, we have learned from behavioral economics that assuming rationality is irrational. The way we frame challenges has a profound impact on the way we approach them. Framing the challenge so that the focus is both external (on customers) and on the desired end (the creation of value for them) dramatically increases the chances of success.
Over the past ten years, innovation has become an industry in itself. Innovation experts are the first to encourage businesses to be heretical and challenge the widespread assumptions of their industry. Perhaps it is now time to do the same with innovation? Companies that achieve high-growth rates do so because they create increasing value for an increasing number of customers. Focusing on that rather than innovation will increase the likelihood of success.
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