Marketers are concerned about where to look for the next wave of innovations. Understandably, the quest often focuses on the content of an innovation, such as an idea for a new product or business process. If companies could only find the best innovations to develop, then business success would follow.
But there’s another way to look at the opportunities and barriers to innovations taking off. Companies make many decisions that involve specific tradeoffs between the pursuit of a particular innovation and holding off on investment and support, and continuing “business as usual.” Companies are not ignorant about the potential of future innovations. However, in many cases, there are compelling reasons not to pursue innovation. Anticipated business performance under the current business model may be far superior to a case built on future revenue and profit.
How can companies avoid being the “prisoners of their own success” that limits willingness to innovate, such as by staying with what has worked in the past versus going with something unproven? How can they mitigate the risks of innovation and make better decisions about which ones to bet on? Specific steps can be undertaken that both acknowledge the real tradeoffs that have to be made and build momentum for innovations that will pay back.
Innovation often is associated with some form of brainstorming. The notion is that when the right groups of outside experts, company insiders or consumers are convened, the best ideas will emerge. And, indeed, there are numerous and documented ways to design and facilitate group processes that will generate the best content. Careful application of the tools can increase the odds that highly innovative and differentiated ideas are developed, such as “new to the world” products and services that could reshape the company and the market. Systematic exploration of incremental improvements also can be considered to increase potential short-term benefits.
Parallel to idea generation are research and evaluation processes that can quantify the likely interest level in innovative concepts. They range from voice of the customer studies to concept and product testing to conjoint analysis. Using the best techniques can help determine the best concept for the relevant segment of customers, and provide input on pricing, features and packaging to take to market.
One of the harder tradeoffs to make is to decide whether to cannibalize one’s own current products with innovations that emerge from the idea generation process and are not purely incremental to what is already in the market. Next-generation technology may make the prior generations obsolete, forcing companies to rethink future marketing support. The smartphone, for example, is replacing simpler cell phones that just made voice calls and text messages. Decisions had to be made by manufacturers, app developers and service providers to support the smartphone as the future of the market, and to essentially bet against current businesses.
It may seem obvious today that the smartphone is the wave of the future, but this was not so five or 10 years ago. It was not precisely known if or when the takeoff would occur, but companies made decisions with lasting impact. And decisions like this continue to be made every day as new types of devices—such as tablets of various sizes and functionality—spar for future leadership.
Looking back over long periods of time, it’s possible to see how some companies have systematically and repeatedly made cannibalization decisions that enabled them to sustain and grow business performance. Gillette often is cited as a company that has successfully replaced products with new ones with more blades and more flexibility in how they work. In Unrelenting Innovation: How to Create a Culture for Market Dominance, Gerard Tellis examines how this pattern has spanned a half century.
Other companies have consistently exhibited an unwillingness to cannibalize. Tellis recounts the history of Kodak, which avoided pushing into digital photography, a phenomenon that took off industry-wide starting in the late 1990s. Kodak focused on sales of traditional camera film, and its performance and stock value suffered during recent decades as digital eroded demand for film.
Look to the Future
Decisions to cannibalize are made in the present, with imperfect information about industry trends and the company’s ability to realize the potential. Tellis argues that successful innovators exhibit the ability to focus on the future and overcome the inertia, resistance and uncertainty.
The inherent difficulty of thinking and acting as if the future has arrived can be illustrated by industries that have long development cycles, such as the automotive, pharmaceutical and hotel industries. How will drivers evaluate auto design and fuel efficiency five years out? What medical conditions will be prevalent and require treatment 10 years out?
To decide what types of hotels to build, a marketer needs to understand the needs of travelers in five to 10 years. Business travelers who will be in peak spending years, such as those in their 30s and 40s, are now in their 20s and 30s. Can these millennials reveal their future intentions to marketers now, based on their attitudes, behaviors and topics of conversation? Does anyone or any data have the ability to predict how the job requirements will change for heavy travelers, such as consultants, investment specialists, technology developers and entrepreneurs? Will technology improvements in video conferencing continue to reduce or transform the need for business travel?
The challenges of planning for the future shouldn’t lead to pessimism about making the right decisions. It’s natural for companies to have some resistance to change. A strong focus on creating value with today’s products and services—along with the associated policies, procedures and cultural biases—almost has to conflict with calls for aggressive changes to a new direction. Isn’t a focus on short-term success necessary to sustain a business? My intent is to encourage serious acknowledgement of the real challenges, and suggest equally serious thinking and investment in tools and capabilities to overcome the barriers.
Bridging From Present to Future
Considerable research supports specific steps to increase innovation success, such as the empowerment of innovators within companies, employee incentives for innovation, and the stimulation of some internal competition for new idea development, as Tellis notes. Substantial financial resources and managerial encouragement are needed to realize the benefits.
A useful framework that helps tie today’s investments into future success is portfolio analysis. Ideally, a company would have a portfolio of innovation concepts and projects in various stages of development. Each would be characterized by its size, risks and timing, and its role in the company’s future performance.
Not all investments need to be for blockbuster opportunities. A series of smaller opportunities may provide a cumulative return that exceeds a single big bet, with less risk. Some innovations have greater risk of cannibalizing the current business than others that are more complementary. If cannibalization fails, will there be enough incremental business to sustain the enterprise?
There’s an important difference between innovations designed to react to current competition and stave off immediate losses of customers compared with innovations designed for the marketplace of the future, where the competitors may be new, the customers may be new and the vision for what it will look like is still blurry. Portfolio analysis organizes thinking about the future as a basis for action.
Occasionally, the vision for the future and the leadership ability to make it happen come together in one or a few individuals—for example, those chronicled in best-selling biographies. More often, companies need to build specific organizational capabilities that give credence to the sustainers of the current business and to the creators of the next generation of opportunity, and answer hard questions about financial returns of various innovation options.
This article was originally published in the January 2015 issue of Marketing News.
Gordon Wyner, vice president of client solutions at Millward Brown, is the contributing editor for Marketing News’ Marketing Management thought leadership content.