What got us here won't take us there
Where to invest your innovation time and money? A good starting point to define where to go, is to understand where you are
That saying "what got us here, won't take us there" has never been so true as in these times where entire industries are being disrupted and many traditionally successful companies are seeing their profits and results pouring through their fingers like sand.
Obviously some companies just realize their world have twisted after they see themselves in troubled water, but some are trying hard to reinvent themselves and, despite all their effort and investment in innovation, things just seem not to be working.
There's no single solution to such complex problem, but a good starting point to define where to go, is to understand where you are.
Every industry and business have a main value creation driver, which represents how they generate value to consumers and consequently get paid in return for that. It can be a product, a service or a mix of the two, and it is represented as an s-curve, showing that this driver may evolve in time having a sharp growth in the beginning and beginning to stall when reaching maturity.
For each stage of the S-Curve, a different innovation strategy might be used to achieve or maintain your competitive advantage, so it is crucial to understand where your company's offerings stand in the industry's s-curve today to determine the right strategy and also the right moment to jump from the current s-curve to a new one. If you jump off too early you may be leaving money on the table, if you wait too long, it may be too late to recover.
In the start up phase of a new venture, the bigger value for the company is adoption! The first to serve has the benefit of creating the market and capturing a dominant position that will create barriers to new entrants and competitors later on. That's why some companies decide to give away products and services for free in the very beginning as a dominance strategy. At this point, most solutions are quite simples e focused on the most important issue for consumers. The most important strategy here is to focus on customer acquisition and accelerating your learning curve to shorten the time to cross the survival threshold.
In the growth phase it is time to start expanding the value generated to customers by creating add-ons that might be an opportunity for the company to extract additional value as some customers will be willing to pay extra to access the new features as they become available. At this point, the solutions begin to gain complexity and scalability as the company expand the offer to new market applications, create new product lines, set up platforms, reach geographies etc. The most important strategy here is to widen the range of solutions offered and have a strong innovation pipeline to keep customers expectations high on what's going to come next.
Once the solution reaches the maturity phase, it is time to shift gears and start thinking in customer retention and balancing costs and prices. This is the most important moment for a company to get the return on the investments done on the previous phases. At this point customers are already served on the market, prices start to decline, new features don't drive additional revenue anymore. This is the moment where the value vampires (as described in the Digital Vortex book) prefer to attack. Value vampires are usually new entrants in the market that see the opportunity to steal market share of incumbents by reaching lower price points or by playing in the white spaces left the incumbents on the market. There's only two possible solutions here: focusing on offering an extraordinary customer experience that will retain your current customer base longer, as it is more likely that he will leave for a better cost/benefit solution; and clean up the house to become highly efficient. This is also the right moment to start playing with a new solution in the start up phase to prepare yourself for THE NEXT S-CURVE.
When the offerings enter in the decline phase, it is time to start finding your way-outs. Either by selling the product line while it is still valuable for someone else like IBM did when they sold their PC division to Lenovo , or by harvesting an exit as you know it will die in a few months or years like Volkswagen did with their iconic Type 2 Van — known as Bus, Camper or Kombi depending on the region. The first van was produced in 1949, lost its edge in the early 90’s but was still produced and sold until 2013 in Latin America, 64 years later. At this point, no investments should be done on the "old model". It is time to capture the most value out of it, spending as little money as possible to produce or market it, as all resources should be focusing on the new emerging solutions. It is usually a good moment to target a niche market and create a simple and cost effective way to keep serving that market.
Geoffrey Moore highlights some of these strategies in his acclaimed 2005 book called Dealing with Darwin where he refers to each of these stages as the four innovation zones.
