The Innovator’s Blind Spot

The path to innovation may be right under your nose.


“Babe?”

“Yeah?”

“Should we get rid of the car?”

Eyes locked in the bathroom mirror. Everything seemed to pause while NPR droned on. At stake was a beloved, vintage-ish wagon and our only set of wheels. We’d be carless. Were we even American?

My husband and I had been hurtling towards this moment for years — BART’ing, bussing, biking, walking, casual-carpooling, ferrying. We dreamed of adding skateboards and Vespas, but along with San Francisco, we had settled on extensive Ubering. Zipcar’s appearance in the lot across from our downtown-Oakland home was the final straw.

Were we being disrupted?

Innovation Hiding in Plain Sight

What is innovation? How do you know it when you see it? How do you know whether it’s garden variety or, well, bonkers variety?

Designer Don Norman describes innovation as a process of hill-climbing. Organizations work, dream, think, and struggle their way to the top of local peaks, leaving incremental and evolutionary changes in their wake. Occasionally they cross valleys, leaping onto wholly new hills, whereupon they work, dream, think, struggle their way to the top again, revolutionizing themselves in the process. In Norman’s words, “Incremental innovation attempts to reach the highest point on the current hill. Radical innovation seeks the highest hill.”

“Incremental innovation attempts to reach the highest point on the current hill. Radical innovation seeks the highest hill.” — Don Norman

The Innovation Outcomes Matrix

Developed eight years ago at IDEO, the “Innovation Outcomes” matrix showed that it’s the mix of hill-climbing and valley-crossing that makes for exceptional innovation within an organization. It pushes managers to capture value made possible by prior advances — to ascend the current hill — while recognizing that no hill goes on forever.

The Innovation Outcomes Matrix.

Classic examples include new toothpaste flavors (incremental), the Toyota Prius (evolutionary via new offering), the Tata Nano (evolutionary via new users), and the Apple iPod (revolutionary). The framework is usually quite clarifying, but some examples don’t have a clear place on the matrix:

New York Times Paywall: The online version of the venerated newspaper had been free for years before instituting a metered paywall, which pushed subscriber revenue past digital-ad revenue within 36 months, proving that general news could in fact charge subscriptions online. The same readers were consuming the same news, yet the underlying business model had drastically changed.

Hilti Tool Fleet Management: When the manufacturer famously switched from selling construction tools to leasing them, it fundamentally changed the way the firm met contractor needs. Although new service features improved the offering, at the end of the day the same contractors were using the same tools; yet the underlying business model had drastically changed.

In these instances, neither the offerings nor users changed, but surely these innovations were more than just new toothpaste flavors, no?

Of course they were. As corporate evolutions go, these were pretty big. New York Times and Hilti each charted new territory when they decided to try these economic arrangements on for size. In lieu of offering or user, they innovated on business model, finding higher footing and no dearth of user delight along the way. But if these were more than just new toothpaste flavors, where did they land on the matrix?

Another Dimension

It’s important to note the original model was designed to deal with innovation within a single firm. There may be an opportunity to adapt the framework to take a market view. Even so, it seems the flatness of the matrix conflates offering and business model. These are not the same, nor are they mutually required. Firms can have the former without the latter (Toyota Prius) or the latter without the former (New York Times, Hilti).

Business model innovation, or “BMI”, is a real thing, written about frequently by consultants and other innovation thought leaders. It certainly feels like something distinct from pure offering plays, particularly because it can mean the difference between an adequate user experience versus a phenomenal one. What if there was a third axis for BMI?

3-D Innovation Outcomes Matrix.

If BMI has its own z-axis, then it seems like New York Times and Hilti could slide backward in space, behind that lower-left box. If this is true — if there is a whole other plane behind — then what’s going on back there?

A Huge Thought Experiment

Where would various innovations land on this new 3-D model? Ignoring momentarily those that did not entail new business models, here’s an analysis for a few that did:

Sample cases for the back plane of the 3-D Innovation Outcomes Matrix.

This is an inexact science. Any given innovation might land in different places for different people. It’s a matter of interpretation, and grey areas abound.

But even if you only half-believe this list, it’s clear there are a million routes into business model innovation. What’s important is less the method of BMI and more its separateness from offering. The common conflation tends to undersell risk/reward in some opportunities while completely masking it in others.

iPod, iTunes, and the Case for the Third Axis

In the early 2000s, mp3 players weren’t new, but they were new for Apple, which deftly applied its design dexterity to good and fresh effect. With the iPod, the firm brought a bevy of new users into the fold of digital music, but not for nothing, it was iTunes that changed everything for everybody, not the iPod.

iTunes was the cornerstone of a new business model — the “reverse razor/razor blades” model — whereby the firm sells the blades for practically nothing (99¢ songs) so that people buy the razor (iPod). Of course, to do this, Apple had to become a low-margin blades distributor, something no previous maker of mp3 players had been able or willing to do.

It still makes sense for the iPod (on its own) to occupy the “new offering/new user” corner of the flat matrix, but when taken collectively with iTunes, the innovation slides backward in space. Same dynamic goes for the iPhone + App Store.

How the cookie crumbles: a few business-model innovations plotted.

Simplicity in the Right Measure

Some observers find the 2-D matrix sufficient, perhaps even preferable in its simplicity — whereby offering embodies business model and vice versa. But it’s an oversimplification. Per Einstein, “Everything should be made as simple as possible, but not simpler.”

“Everything should be made as simple as possible, but not simpler.” — Albert Einstein

The 2-D view underestimates the element of risk, a critical component (and often magnitude determinant) of innovation. Did Prius fly in the face of Toyota’s entire value network? No. But did the New York Times paywall put an age-old profit formula on the line? Yes. Did Hilti’s newfound trickle of lease payments force an existential retooling? Yes. There are varying degrees of risk in business model innovation — some innocuous, some scary as hell — which is exactly what the z-axis reveals.

Disproportionate Impact

Something special seems to happen in that back upper-right corner where Apple and Uber sit; innovating on all three axes certainly must be hard, but the outcomes appear to be massive. It seems the further away an innovation gets from the origin (toothpaste flavors), the more — dare I say it — disruptive things seem to get (though it’s worth noting that disruption for disruption’s sake is not particularly interesting).

But nearly everything we do nowadays is app-enabled on life remote-controls that we fear losing more than our wallets, privacy, or minds. Meanwhile, Uber (an app!) ignited the “uberification” of the U.S. service economy, generating a sizeable 1099 gig-labor pool in the process. This goes beyond corporate innovation portfolios. We’re talking about societal innovation portfolios.

Compared to What?

Some innovations have an outsized effect on the human experience. Repeat: human experience. Newness is in the eye of the user, who is generally unknowing and uninterested in feats of corporate org change.

When it comes to scratching any particular itch, the user has a broadening array of options, which may or may not look familiar to navel-gazing managers. If innovation is a competitive game, it’s prudent to adopt the user’s panoramic lens. Through this market view, startups are not relegated to the incremental-outcomes box. After all, it feels strange to say they can’t have anything new simply because they haven’t got anything old. Again — newness is in the eye of the user.

With the maddening pace of startups and blurring of vertical lines, it’s time for innovations and their outcomes to be taken in context of the great big world out there, as opposed to just the firm or even industry from whence they came.

It Takes Two to Tango, One Step at a Time

Innovation is a journey, a path along various axes of newness — from new offering, to new user, to new business model — that takes an experience from incremental origins to potentially disruptive heights. The iterative climb often happens one axis at a time.

In the case of the original iPhone, it took Apple nine months to allow third-party developers into its walled garden, which signified the turning point for the smartphone’s ultimate business model. It also signified the moment Apple fully aligned itself with the user, acknowledging that web apps were unspectacular for content display and that there was an army of developers jonesing to create phenomenal experiences on a dedicated platform. The outcome has been a rainforest of beautiful applications that, together with the iPhone, now power an inordinate number of daily lives; oh, and a $740 billion market cap, too.

Innovations and their outcomes appear to come stepwise, so it’s important to remember the z-axis as a distinct realm of opportunity and to give it an intentional, stand-alone glance. It’s equally important to recognize the z-axis as the supercharger of user experience for the simple reason that the business model is the secret hiding place for all the firm’s motives and incentives. Superb user experience remains elusive as long as firm motives instill no hunger for it. If firm motives can be aligned with user motives, then experience and bottom line become mutually reinforcing.

It’s the equivalent of throwing all chips in with the user — of saying, “You know what? We want to blow your mind with the power of this experience. We want it so bad, we’re going to jigger this system such that we only get paid if we do it.”

The Art of Possibility

What if every system worked this way? Some are already moving towards it. Beyond profitability, there is a certain profundity in the New York Times decision to go direct-to-consumer, especially when similar institutions like The New Yorker are beginning to follow suit. Instead of the tyranny of few, they chose the tyranny of millions. The implications for media and even the notion of free press are huge. Could free press be freer?

How could extreme incentive alignment affect other public goods, like healthcare and education? What if hospitals were paid on patient health days instead of patient sick days? What if colleges were paid on employment instead of enrollment? What if the best-designed human experiences were de facto business drivers instead of de facto cost centers? Stellar design is a system fueled not by the activities people do but the outcomes people want. After all, innovation is about outcomes — isn’t it?

Back on the Wagon

For now, the vintage-ish wagon is safe, burning away $225 of our hard-earned dough in its parking garage every month.

But Uber is giving it a run for its money. The app-enabled dispatching service has done more than upset the applecart of Taxi Co. worldwide. It’s giving this all-American car enthusiast pause. Go ahead. Disrupt me.


Special thanks to IDEO colleagues @RohiniVibha, @MikiHeller, @DavidAycan, @MisaMisono, @JoeGerber, and @RosariaMannino for help creating this article.