Over the years, some outstanding innovations have failed. Many wonder why. It’s really simple. Innovation is holistic. You can’t innovate in one corner of your enterprise, and let the rest of it wallow in old-fashioned mediocrity.
Successful innovations encompass three aligned propositions:
• A new value proposition to customers;
• A new profit (or business model) proposition for the business; and
• A new people (or engagement model) proposition to drive adoption and execution.
You could succeed for a while if you got one part of this puzzle right. But sooner, rather than later, competition will catch up. Remember, innovation is not exclusive to you. Unless you simultaneously innovate across all three areas, and sustain them, you are likely to lose ground.
Take vacuum cleaners as an example. You’ve probably seen an upright cordless vacuum cleaner with a built-in dust buster. No cords, no hoses, no bags. You don’t have to wrestle it out of the cupboard or from under the bed; you don’t have to crawl around the skirting board to plug it in; no dragging it round the house and shoving it back where you got it from. This was fabulous innovation.
But it had too little.
Very soon, all vacuum manufacturers jumped on to this bandwagon, simply mimicking the design. What was once a great innovation quickly became a commodity. The upright model never defined differentiation in the industry.
We see this happen all the time; designs being rapidly, ruthlessly and sometimes illegally copied, wiping out a nascent Blue Ocean opportunity. Why was the original manufacturer of this upright model unable to “clean up” the market, so to speak?
The reason: It never harnessed the three killer propositions of value, profit and people. Even though the all-in-one vacuum cleaner provided an excellent (if not radical) lift in value to customers, there was no unique and defendable new profit or people proposition. It was easy for competitors to replicate the innovation and move into the new market space.
There are plenty of examples where the second mover, or follower, managed to corner a market by getting the three-move alignment right, outperforming a lazy originator. A classic example of how a great innovation failed, only to be picked up and perfected by a rival, is Napster vs. iTunes.
Napster innovated with an online platform for peer-to-peer file sharing. It was a great innovation for its customers – free music! But where was the business model innovation? Where was their profit proposition? And even though the people proposition was great for customer adoption, it seriously alienated music producers and distributors, who could potentially have been Napster’s greatest allies. It was a completely unaligned people proposition.
Most people don’t know it, but the music distributors actually approached Napster with an income-sharing proposal. The startup refused to talk with the music distributors, and eventually Napster was shut down for copyright infringement.
Apple created a more sophisticated answer to Napster. iTunes is not only a great value proposition but also it’s not free!
Unlike Napster, Apple realised it needed the music distributors on board for its business model to work, and realized that customers were prepared to pay a price that was close to free – $0.99 a song.
Apple aligned value, profit and people. That is why it reaps the rewards even today.
Smartpen got it right, too
An example from Australia is Smartpen. Working with a regional distributor, Mark Parker was one of the first to introduce the Livescribe Smartpen to Australia. But, soon, so did Officeworks, and Mark found himself competing with a 1,000-pound gorilla operating a bricks and mortar megastore in every second suburb.
Parker quickly realised that he could innovate with the business model and offer a strong people proposition in ways that Officeworks could not. He embraced the online sales channel, reducing costs. He used social media to provide service and support, creating an unmatched people proposition. Where Officeworks simply sold the pen, Parker focused on helping customers understand how to use its range of functionalities and put them in touch with other users in various industries to understand how to use it to greatest personal benefit.
As you can see, Parker innovated around all three propositions – product, profit and people – to turn around what was a small and flat business threatened with loss of market share. His success with Smartpen inspired Livescribe to entrust him with overall management of the Australia-New Zealand market.
So if you want to create an unassailable position in your market – get your innovation act right across all three areas.
Andrew Nelson is the managing director of UCSI Blue Ocean Strategy Australia, a management consultant. He has previously worked for Deloitte besides holding senior management, business development, marketing and consulting roles at BDO, Mellon and Mercer.