Most managers agree that innovation is important, but what about during times of economic pressure? A company’s inclination can often be to buckle down and focus solely on operations, but in truth innovation only becomes more crucial.
CHANGING MEASURES OF COMPETITION
Times of economic pressure typically mean that the market will be experiencing changing standards of competition. Consumers will be facing changing parameters of the tasks that they are trying to get done in their lives, or ‘jobs-to-be-done’ in the parlance of Innosight. To better understand the jobs-to-be-done paradigm, let’s discuss an example that Innosight has blogged about in the past: the jobs-to-be-done of certain automotive consumers. This example is particularly relevant when considering commuter needs in Dhaka with its increasing traffic congestion that incentivize the commuters to find meaningful use of long periods of time in their vehicles.
Automakers and their market analysts typically segment their markets into product categories such as subcompacts, compacts, mid-size and full-size sedans; SUVs and minivans; light versus full-size trucks; sports cars and luxury cars; gasoline and hybrid cars. They segment their customers along sophisticated demographic and psychographic dimensions as well.
Yet what these segmentation procedures don’t do is reflect the jobs that customers ‘hire’ a car to do. Millions, for example, hire a car primarily to be a mobile office. This is particularly true in highly congested cities such as Dhaka. Most models sell fewer than 100,000 units per year, and their makers struggle to sustain premium pricing for the features that add cost to their cars. The current economic situation only strengthens this situation. And yet, no company has designed a car that is optimized to do the mobile-office job that these millions of people need it to do.
If the job were the unit of analysis for carmakers, it’s easy to see how they could differentiate a family of products in ways that mattered for those who hire a car to be their mobile office. The same customers who resist premium prices for features that are irrelevant to this job gladly would pay for electrical outlets, wireless access to the corporate customer relationship management database, a hands-free phone, a big-screen BlackBerry, docking stations, fold-out desks and organizing systems — all of which could differentiate the car on dimensions that would merit premium pricing. By finding consumers’ important yet unsatisfied jobs, companies can find those areas where premium pricing can be sustained, even in times of economic change and pressure.
BUSINESS MODEL INNOVATION
Many disruptive innovations are actualized by business model innovation. Technologies are not inherently disruptive- rather the business model allows disruption, as Innosight chairman Mark Johnson’s recent book Seizing the White Space goes into in considerable detail. To continue the automotive example, companies might consider new ways to deliver the new “mobile office” value proposition, such as new leasing models or new add-on services like automatic hardware upgrades. By innovating the revenue model, cost structure, margin model, and key resources and processes, companies can maximize the potential of a new or existing offering.
More often than not, it is business model innovation, rather than only cutting-edge technical innovation, that drives success in innovation strategies. It is taking this broader view of the many innovation levers one can call on that gives firms the ability to innovate to meet market demand and leads to disruptive business models.
Innovating in Uncertainty is Opportunity
Innovating in uncertain times opens up new possibilities within existing and new markets. Innosight Managing Director Scott Anthony calls our current era the time of “Great Disruption” in his book The Silver Lining and points out that during past times of uncertainty and economic stress, we have seen the launch of such remarkable products as the iPod, Brownie camera, disposable diaper, and fast food delivery model. What will the next wave of successful offerings be that come from the current economic era?
This article was written in 2010.
pi STRATEGY