Your understanding of a term determines how you think about it and how much you can get out of it. In these days of a flat global world, increasing ‘commodization’ and extreme competition, innovation is the buzz word. You must have it in your strategy and in all your public and private communications. You would not go wrong by having it. But different people have different definitions for innovation. I shall unashamedly add my definition for innovation and claiming it that it is the better one to help you innovate and get the competitive advantage that you need.
Innovation is the Creation of Business value.
I will define Innovation as the creation of business value. Notice that I did not put in NEW. New is a relative term. New to some is old to another. The issue is not to argue with originality or newness but about the business value that you create with your innovation. If you insist on adding new, then innovation is the creation of new business value that you don’t have previously.
The key on innovation is then shifted from newness to business value. Just what is Business Value? Business value is the value, usually measured by the price paid, that some one, usually called the customer, that is willing to pay for the use of the innovation. Innovation then have 4 key parts
- the group of customers who use it.
- the value they pay for its use.
- the cost to create it must be lower than the value they are paying for, at least for the long term. (If an innovation cannot produce long term profit, then it is destroying value and it is better to quit).
- the whole thing of creating, delivering, consuming and capturing of value is called the Business Model. Innovation is about a different or better value business model and it is not just about a product, process, service or even a solution.
Where is the Value? It begins with the Purpose or Meaning.
The value begins with the heart and mind and is enjoyed or experienced with its use or consumption. Giving a purpose and a meaning to the potential customers is the thinking of ‘Design Innovation’ which in the past has concentrated on the look and feel, form rather than content of design. Giving a new meaning creates new value and hence is a key part of innovation.
Consider Steve Jobs who returned to Apple and came out with the translucent, colorful and rounded Apple computer. He was giving new meaning to Computer, from a boring computational device to an exciting, great looking, fashionable piece of arts and a a piece of beautiful furniture to decorate your room.
Consider thinking about Light Bulb not as just giving out light, measured in terms of a number of candle-lights, but as creating the different ambient and atmospheres for dining, playing, reading, chatting, romancing and sleeping. The Boeing 787 used this for its cabin light to create roughly the same ambient as the city that it was to land on and different ambient for dining, sleeping and boarding too.
With meaning, comes the language. What are the terms you should use in your new worldview ? How do you describe the good vs the bad? Terms should be defined and described with the customers’ mindset and their view point.
Values comes in the many forms of
- Rational : cheaper, faster, better, safer, easier, more lasting …
- Emotional and Social: look good feel great – sensory, social status of wealth and fine-arts of living, acceptance, trendy.
- Significance of meaningfulness, contribute to better life, health, society (justice, elimination of poverty) and environment.
Consider a product or service you are offering or intent to offer, what is the Meaning of Your Innovation? What is it saying?
The Mechanics of Innovation – The Business Model
- Value Creation
- Value Delivery
- Value Consumption
- Value Collection or Capturing.
Value Creation : From meaning, the why, to the what and the how.
We have covered the meaning, the why of value creation at the start of this post. We also described the what, the language, or the feature list of What. The key is not a long list of features but a set minimum most important features and doing it to the maximum depth (MiniMax framework. See Differentiated and High Payoff Innovations). That is the secret of success of Apple vs its competitors.
Every feature means added cost, added complexity to build and to us, added bugs, added battery consumption and so forth. Don’t just go for features. Ask, it is important to the customer? It is easy for me and hard for others? It the value greater than the cost?
Furthermore, value is seen in a collection or a set of features and not just one feature. We can compensate our weaknesses in some features with our strength in other features. The key is to have the right combination of features for a meaningful and wow-experience for our customers, whether consumer or business clients. We must differentiate business and end-consumers customers as they have different set of preferences. Nevertheless, business or end-consumers are people and shared basic characteristics of being human – mainly relationship, trust, transparency, fairness and thought leadership. No one like to be cheated. Every one wants to look smart, especially in front of their important people, like bosses, spouses and colleagues. See previous ‘Where is the value‘ paragraph again.
We then must know how to build those features that deliver the meaning we want. Current literature tell us to go for open-innovation – involving customers, suppliers, and other partners (buy or share IPRs if needed etc). It also calls for outsourcing of various forms. But remember that you need to do your own risk management and total balancing on value creation. Outsourcing may be cheaper but consider the logistics, communications, the reliability, the planning horizon needed etc. It may be more effective to do it nearer to you with similar culture to minimize misunderstanding.
Value Delivery : the channels.
Value deliver may go through the standard factory, distributor, wholesaler, retailer and then customers. But this standard rule can and is broken many times with great profits by companies like Dell, Amazon, Apples etc.
Value Consumption : the experience.
Value Consumption is the experience of using your innovation that customer go through. There are 2 keys to add:
- The consumption or experience begins with the discovering of your offering and continue with the buying, installing, using, fixing, and retiring and upgrade. It is with a lot of contact points. For you own business, you need to map out the contact points and extend beyond your offering. e.g. airline travel needs to join up with hotel and car rental and so forth.
- The emotional experience will create a lasting impact. A wise woman says that I will forget what you say but I will never forget how you make me feel!
Value Capturing or Collection – the Financial Model
We are in business for the profits. Without the profits, business can’t go on for long. In fact, for start-up, it is most important to watch cash-flows. Profit statements are subjected to manipulation. But cash flow is for real. Always go for and watch the cash flows. Google’s success tells us that there is a new business rule – the user needs not be the payer, if you can tie up the sponsors and the users! It tells us that ATTENTION is a salable and valuable thing. In your business, find out who are the users, payers and influences. Their values are different. Can you address them and influence them that they may see that your innovation provides the most values for them and will be willing to pay for it. Of course, you may need to balance your game of who get free and who get to pay!
If you read this far, you will probably guess rightly that
Innovation is about business value creation through business model changes.
Looking at innovation not just merely as product, or process, or a service or even a solution, but the total model of Business Model with utility, emotional, social and significance and experiential values will help you with coming with all kinds on innovation. Just remember one more wisdom from Apple’s success: you don’t have to let it all out in one go. It is better to phase them out slowly as competitors try to catch you. iPhone 3, 3GS, 4, 4GS?, 5? ….
If you want to know more, perhaps you can sign up in one of my courses through NUS Extension.
- The Twelve Truths of Innovation
- Understanding The Smartphone Battle – Rise of Apple & Android
- Choices could be Bad – Dummies are right!
- Differentiated and High Payoff Innovations
- Apply the BVITS thinking to help you think and discover the myriads of possibilities. See BVITS ideas generation.