Every organization needs a strategy that defines how innovations are prioritized, sourced, and managed.
Virtually all organizations require some form of innovation — whether it be technology, product, business model, or operational creativity. As with other areas we’ve discussed, the field of innovation has been radically redefined in recent decades through concepts such as open innovation, crowdsourcing, and co-creation. But, as with those other areas, traditional approaches to innovation (e.g., internal research and development) still makes sense for some organizations and in some situations.
The nature and approach to innovation matters, but what matters most is to ensure that the entire organization is working in lock-step so that innovation initiatives are productive and value-creating. In other words, you need a strategy that enables hard decisions around how innovations are prioritized, sourced, and managed. There likely should be an organization-wide innovation strategy which then cascades down into aligned innovation strategies at different levels within the organization. Importantly, I strongly recommend that any innovation strategy must openly engage with external sources of innovation, including research universities and startup communities.
Scope: At any level in the organization (often cascades)
Key Stakeholders: Business Leaders, Organization Leaders, External Partners
Decisions Involved: Focus Areas, Allocation of Resources Across Innovation Areas
Example Tools/Approaches: Innovation Landscape Map
Decisions Enabled: Prioritization and Sourcing of Innovation
Innovation Landscape Map
In the Harvard Business Review article, “You Need an Innovation Strategy,”¹ Gary P. Pisano introduced the “Innovation Landscape Map,” (see below) which considers innovations along two dimensions — the degree to which it involves a change in business model, and the degree to which it involves a change in technology.
Starting with the one closest to the current business focus, Routine Innovation (bottom left) builds on the existing capabilities of the organization. While these areas are often where the greatest impact can be made, routine innovation is often undervalued because it’s not as exciting as new areas of innovation.
Radical Innovation (bottom right) leverages new technology developments within the existing business model. New technologies can dramatically improve the performance or costs within the core business.
Disruptive Innovation (top left) sometimes is enabled by technology advances, but is fundamentally about new business models that disrupt the rules of competition within an industry.
Architectural Innovation (top right) combines significant technological innovation with a disruptive level of business model innovation. This level of innovation is hard for incumbent industry players to adopt and often results in the complete restructuring of industries.
Many startups are launched to pursue a disruptive or radical innovation opportunity, and their business strategy and innovation strategy are tightly linked. For larger corporations, the question may be less about which of these innovations to pursue and more about how the different types of innovation fit with other business strategies and therefore how resources should be allocated across them.
Web Acceleration Example
In 1989, Tim Berners-Lee was working at the European Organization for Nuclear Research (CERN — from the French equivalent) in Geneva, Switzerland when he developed a proposal for what would become the World Wide Web. In 1991, he worked with other CERN researchers to set up the first web server and publish the first web page. The Web was a nearly instant success and web servers started to pop up all over the world. Innovations followed quickly and soon the Web was carrying all kinds of content: text, pictures, audio, video, virtual reality.
In 1994, Berners-Lee established the World Wide Web Consortium (W3C) at the Massachusetts Institute of Technology (MIT) to create standards and recommendations for the web to operate better. He shared with others at MIT his concerns about the performance of the web, especially with multimedia content. He asked researchers to think of solutions.
The problem, simply explained, was that when someone clicked on a link for a video, that video file might be sitting on a server halfway around the world. For the video to be displayed in the user’s web browser, the file needed to travel across many different physical network connections established and managed by different entities. Some of those connections might be blazingly fast, while others may be painfully slow. Depending on what others on the Internet were doing, one connection might be pretty fast one minute (when no one else was moving files across it) and really slow the next (when many users happened to be requesting content that was routed across the same connection). The video might start playing, and then stop for many seconds or even minutes, and then start again, but very slowly — almost frame by frame. All of this would result in a very frustrating experience for the end user.
Different companies came up with different approaches to solving this problem. Phone companies and cable companies providing Internet connections applied Routine Innovation — using existing technology to speed up the end user connection, and their existing business model of charging more for the faster connection. Browser and server software companies like Netscape and Microsoft used Radical Innovation, introducing new technologies including compression, caching, and buffering to smooth out the experience for users. Some of the companies that TeleChoice was working with at the time, like Mantra Networks, introduced Disruptive Innovation, with a new business model layered on top of existing technologies, charging more for content to travel across a faster connection.
All of these were interesting and good innovations, but the company that best addressed all of the issues within the problem was another TeleChoice client and one which applied Architectural Innovation — both new technology and a new business model. Akamai Technologies was founded by MIT professor Tom Leighton and Danny Lewin, one of his students. The core of their new technology was a series of software algorithms combined with distributed network servers. The algorithms would determine how best to make copies of content on different servers around the world so that the content would be close (very few connections away) to the end user when they requested it. Their new business model was to charge the companies serving the content so that their end users would have a great experience. What they created was the new category of Content Distribution Networks. They began commercial service in 1999, most famously by carrying the March Madness basketball tournament for ESPN and the trailer for the upcoming Star Wars movie for Entertainment Tonight. The company raised over $200 million in their initial public offering later that year and their market valuation immediately jumped to about $13 billion! Like the web itself, Akamai had become an instant success by successfully leveraging Architectural Innovation.
H.P. Jin was a consultant for McKinsey in the days when mobile phones were a luxury only enjoyed by the few. Yet, he believed that there would be tremendous opportunity when GPS technology could be integrated into the cellphone. On September 15, 1999, at Nextel’s request, the Federal Communications Commission revised their rules to allow GPS technology to be used for enhanced 911 services. H.P. seized the opportunity, forming TeleNav and in 2000 introduced their first software solution providing turn-by-turn directions through the mobile phone. By 2002, the company had matured their technology and offered their software on a subscription based model — just $9.99/month.²
Conceptually, TeleNav entered the centuries-old navigation industry, but realistically, their product competed with stand-alone GPS-based navigation devices from companies like Garmin and TomTom. However, since TeleNav could leverage the hardware and network connectivity already purchased by the end-customer, they no longer needed to charge a high upfront price (at the time, GPS units were priced around $1,000). They leveraged technology and a new business model to introduce an Architectural Innovation that disrupted the entire navigation industry.
In contrast, Rand McNally, founded in 1856, was a trusted brand in navigation, but their business was built on assets and capabilities better suited to physical mapping products. Over the past 50 years, the company has managed their innovation strategy to balance investments in Routine Innovation (new forms of paper map products) and Radical Innovation (PC-based mapping software, randmcnally.com online mapping, and mobile mapping software products); however, the Architectural Innovation required to respond to offers like TeleNav were more challenging.²
TeleNav’s pioneering work opened the door for further disruption. Google Maps provides virtually all of the capabilities of products like TeleNav, but free for the consumer. By bringing their core online advertising business model to mobile navigation (Distruptive Innovation), they again fundamentally changed the competitive landscape, significantly impacting companies like TeleNav and Rand McNally.
Bottom line — no matter industry you are in, innovation will be critical. Thinking in terms of both technology and business model innovation, combined with your existing capabilities and assets, can help you identify the innovation strategy that will help you win in your existing markets and potentially expand into new markets.
¹Pisano, Gary P. (2015–06). “You Need An Innovation Strategy”. Harvard Business Review. Retrieved from https://hbr.org/2015/06/you-need-an-innovation-strategy.
²McGuire, Russell. The Power of Mobility How Your Business Can Compete and Win in the next Technology Revolution. Hoboken, N.J: J. Wiley & Sons, 2007.