Talking about Innovation
Why PMs should get Innovation right
People are talking about innovation as if it is something objective and predictable; “be innovative” or “how to build innovative products”. Many people are trying to describe frameworks and methodologies, without taking into consideration the environment.
For that reason, I decided to collect in this post some of the most useful, less and more popular, explanations about what innovation is and how it works, with emphasis on Product Management and Development.
The Basics of Innovation
As Everett M. Rogers describes in his book “Diffusion of Innovations”.
An innovation is an idea, practice, or object that is perceived as new by an individual or other unit of adoption. It matters little, so far as human behavior is concerned, whether or not an idea is "objectively" new as measured by the lapse of time since its first use or discovery. The perceived newness of the idea for the individual determines his or her reaction to it. If the idea seems new to the individual, it is an innovation.
Newness in an innovation need not just involve new knowledge. Someone may have known about an innovation for some time but not yet developed a favorable or unfavorable attitude toward it, nor have adopted or rejected it. The "newness" aspect of an innovation may be expressed in terms of knowledge, persuasion, or a decision to adopt.
This is the reason that many people believe that innovation has diminished in meaning and importance lately, as many things have been labeled as innovations, while many people believe that old ideas are not innovative and they are looking for new shining ideas and technologies. Globalization has brought a bigger balance among nations, making it easier to spread ideas and products, thus it is considered that if something is an “old idea”, it is not innovative.
To better understand innovation, we have to understand the concept of “Diffusion of Innovation”. A nice example explained in the book is a campaign for boiling water in Peruvian Villages to battle infectious diseases; for people not being aware of it, this would be an innovative practice, as the definition of innovation explains. In a certain village, the concept was dropped because culturally only sick people were drinking boiled water, and only some outcasts adopted this innovation. Thus, we have to take into consideration another dimension.
Diffusion is the process by which (1) an innovation (2) is communicated through certain channels (3) over time (4) among the members of a social system.
As you may have noticed, we have introduced the idea of early adopters, and the concept of “the Chasm”; a channel of diffusion that may fail within a specific social system for a certain time period. Thus, we shouldn’t forget that timing and channel diffusion are important factors that we don’t control, and there are other factors we may control in our go-to-market strategy.
If you want to understand the dimensions of timing for new ideas and startups, you should watch the following TEDx talk.
If you are still wondering why a Product Manager should be aware of the innovation lifecycle, you should have noticed that the way your product captures a market is the way an innovation penetrates (or fails to) into a certain social system, for a certain period of time. Putting everything together, about how product life cycle and diffusion of innovation are interrelated, you can see the following diagram. I strongly believe that understanding the lifecycle of your product is important as a Product Manager, thus I found studying innovation very useful.
Business Dimensions of Innovation
If we add the dimensions of the market where a solution is introduced and technology that is used to address a market need, you can find 4 different types of innovation:
Incremental innovation refers to a series of improvements to a company’s products or services over an extended period of time.
Architectural innovation refers to reconfiguring components or technologies of existing products so that a company can enter a new market.
Disruptive innovation refers to challenging an existing market by delivering more value to customers. The intention is to focus on customer needs through a combination of technology, pricing, and services.
Radical innovation refers to creating a new market with a breakthrough solution.
With more focus on market characteristics, you can start unlocking useful focus areas of a product launch, like where to look for competition, what customer needs you should address primarily, and where your offering should outperform. If you want to drill down on how you can build your marketing strategy while you build a new endeavor, you will find the 4 Steps to the Epiphany very very useful.
A very thorough playbook explaining all the different areas of a business model where you can innovate is Ten Types of Innovation. I like playing around with the different configurations, and see what the outcome could be.
However, what is missing is the evolution of innovation through time and the dependencies that there are. For example, a disruptive technology needs the time to overcome the chasm and access the mainstream market, while you cannot build a service innovation if there is not a product innovation first, and then you should wait for the business model innovation.
The Phases of Innovation to capture bigger markets are:
Product Innovation - Takes established offers in established markets to the next level. The focus can be on performance increase, cost reduction, usability improvement, or any other product enhancements.
Process Innovation - Makes processes for established offers in established markets more effective or efficient.
Disruptive Innovation - It tends to have its roots in technological discontinuities.
Application Innovation. Takes existing technologies into new markets to serve new purposes.
Experiential Innovation. Makes surface modifications that improve customers’ experience of established products or processes. These can take the form of delighters (“You’ve got mail!”), satisfiers (superior line management at Disneyland), or reassurers (package tracking from FedEx).
Marketing Innovation. Improves customer-touching processes, be they marketing communications or consumer transactions.
Business Model Innovation. Reframes an established value proposition to the customer or a company’s established role in the value chain or both.
Structural Innovation. Capitalizes on disruptions to restructure industry relationships.
I like giving an example of Innovation evolution with Digital Music in mind; General Magic was one of the first portable devices without crossing the chasm, the Internet with piracy disrupted the market, iPod came as a Product Innovation for portable digital music, iTunes launched as a service on top of this product to sell music, iPhone with mobile Internet boosted consumption, and Spotify innovated on the business model level with its subscription model where Apple switched as well with Apple Music. And now that the market is close to a cap, the main discussion is about regulating the markets of China and India, and fixing the problems in the whole supply chain of copyright management with all its deficiencies. All these events were not always serialized, but they had a logical dependency.
Innovation & decision making
I have pointed out how difficult it is to be creative in previous posts, meaning putting into effect new ideas on existing systems or organizations. Thus, if we consider that we have configured our product properly to increase the chances of a successful product launch, taking into consideration the context of our launch, we have to convince our organization (or external institutions) to fund our initiative and build a business around it. To better understand how it works, you should understand the concept of Counter-Positioning.
Counter Positioning - A newcomer adopts a new, superior business model which the incumbent does not mimic due to anticipated damage to their existing business.
If we could measure the Net Present Value (NPV) of a new endeavor, there would still be reasons for an organization to drop or for a competitor to ignore an innovation:
Milking: Negative Combined NPV. In that case, the organization prefers to “milk” the fat cow that generates money until the market fades out because it doesn’t make financial sense to enter the new market.
History’s Slave: Cognitive Bias. NPV is positive. The decision maker based on history is biased and makes a subjective decision.
Job Security: Agency Issues. The decision maker’s interests are not aligned with the organization’s, e.g. bonus mechanisms, or career growth incentives.
With all this struggle to make Innovation attractive for an internal or external investor, you can understand why it is so difficult for managers to bet on Innovations - as I stated before -, and we are waiting for outcasts to bring in new gameplay and innovations in the market.
While putting all this material together, to create a meaningful scraping over innovation management and history, I tried to create a thorough but incomplete list of takeaways for PMs, at least the way I interpreted the useful learnings from studying innovation.
Timing - Timing is one of the most important factors for launching an innovation.
The Product comes first - You can’t build a strong process innovation without a strong product, if not yours a product you can build on it like a platform.
Dominant Design - In a premature market, you may risk building a service over a non-dominant design.
Innovation within a new channel - If you launch in an underserved and underdeveloped market, you may need to look to simple, existing, and low-cost ideas that you do not consider as innovative.
Politics and resistance to change - whether you like it or not, that’s the world. You have to manage it or leave.
Know that there are playbooks - You can bring innovations from other markets and businesses. Don’t think that innovation should be something completely new.
To Innovate, go out of a system - Sometimes you have to create an independent initiative within your organization, or drop your current role, to be in a position to Innovate. As a friend told me once, “it’s easier to ask for funding from your organization than asking for certain people to join your new initiative”.