We have been trained to see innovation in two ways. The first is incremental improvement, when small tweaks are made to a product in the hopes of expanding its appeal. The other, drawing most of the attention, is disruptive innovation, revolutionary improvements that change markets and industries, as when Nucor introduced the mini-mill to make steel significantly cheaper, Amazon pioneered an online bookstore or Steve Jobs unveiled the iPhone.
David Robertson, a professor of practice at the University of Pennsylvania's Wharton School, says there's a third, important approach that executives need to consider. It has been successfully applied at various companies but has drawn little attention.
It consists of multiple, diverse innovations around a central product or service that makes the product more appealing and competitive. An example is Gatorade, which had tried incremental change through different flavours and redesigning its logo to become simply G, but was losing traction to other types of drinks in a shaky economy. The company instead focused on its core customers – serious athletes – and started offering an array of what it called "sports fuel," such as gels and bars for before a race, and protein smoothies for post-exercise recovery. None of that was revolutionary. But it wasn't just product tweaks, either. It was a new direction that supplemented the original product.
The complementary innovations operate together and with the key product as a system to carry out a single strategy or purpose – the promise to users. They are not random or opportunistic, based on what is convenient, but carefully brought together to satisfy a compelling user need. Prof. Robertson points to Novo Nordisk, which introduced a human growth hormone to the U.S. market in 1997, 10 years after Genentech. But it offered convenient prefilled injection pens that contained multiple doses, eliminating problems about dosage, and was supplemented by NordiCare, a support program that went far beyond anything else in supporting the user. These elements added up to a better system for users.
The third distinguishing characteristic of the approach is the complementary innovations – even when delivered by outside partners – are closely and centrally managed by the company. Prof. Robertson contrasts that in an interview with IBM PCs, where the company failed to control crucial elements such as the operating system and power chips, losing out on critical financial opportunities. Instead, CarMax has introduced a host of changes to make buying a used car stress-free, including controlling ancillary elements of the deal lsuch as the trade-in, warranty and financing.
"The binary view of innovation – that the only alternative to incremental improvement is radical disruption – is dangerously simplistic," he writes in The Power of Little Ideas.
"The Third Way is not a replacement for incremental improvements or disruptive innovations; rather, it's another option that every business leader should understand and consider when faced with an innovation challenge."
In his research, Prof. Robertson developed a different view of Mr. Jobs, who is celebrated for his disruptive innovations. Yes, the iPhone fits that description. But not iTunes and the iPod. Prof. Robertson found that, originally, Mr. Jobs did not want these innovations to be available to non-Mac users and had to be pushed into reversing himself. They were intended to bolster the appeal of his computer, a third-way constellation of offerings around Apple's main product. "This may seem like academic hairsplitting, but it's important for managers to realize he was trying to complement the Mac rather than disrupt the music industry," Prof. Robertson says in the interview.
In heading down this road, he warns you to expect to grapple with four decisions:
- What is your key product?
- What is your business promise?
- How will you innovate?
- How will you deliver your innovations to consumers?
The key product should be what Prof. Robertson calls one of your "crown jewels." For Lego, that was the bricks. But when the company moved into diverse new products that weren't brick-based, such as theme parks and after-school education, it suffered. When it introduced Bionicle, which used plastic pieces to create action figures, and surrounded it with a video game, direct-to-video movies, and licensed merchandise such as Nike shoes, the company had a winner. For Guinness, the crown jewel is its beer. But its Irish Pub Concept helps people outside Ireland to establish pubs with authentic Irish items bought from estate sales in that country and, of course, a chance to enjoy the dry stout.
"Sometimes the best way to innovate is not outside the box, but around the box," he says.