Innovation in Practice

Innovation through Co-opetition

How do you innovate a business model?   You can create new products and services within the current business model to drive growth.  Or you can create a new business model and open up a whole new world of possibilities for the firm.  Either innovate within the current game, or change the game.  But how?   

Several books address this, from Clayton Christensen's "The Innovator's Dilemma," to a more recent offering, "Innovation to the Core: A Blueprint for Transforming How Your Company Innovates"  by Peter Skarczynski and Rowan Gibson.  When Professor Christensen presented his disruptive innovation model to our company several years ago, I remarked that what is needed is NOT so much a disruptive product, but rather a disruptive business model.  His book is a good historical account of a few industries that suggest disrupting (innovating) the business model is what really counts.  While these books and others do a good job of exposing the issue, neither give a prescriptive "how to."  The most recent book suggests a holistic approach.  "To build a breakthrough business model that rivals cannot easily emulate, you'll need to integrate a whole series of complementary, value creating components so the effect is cumulative," the authors note.  Fine, but there are no step-by-step processes how to do it once you have unpacked the original business model.

My answer comes from combining two existing concepts (a Medici Effect as described by Frans Johansson).  Those two existing concepts are Systematic Inventive Thinking (S.I.T.) and Co-opetiton.  S.I.T. is a proven process for generating innovation on demand.  Co-opetition is an idea described by Barry Nalebuff and Adam Brandenburger in their book called, "Co-opetition."  It means cooperative competition, and it is a way to see your industry not as a zero sum game, but rather as a group of participants that can behave in a certain way that benefits all.  They coopetate rather than compete (legally, of course).  I met with Professor Nalebuff and had him "school" me on the concept.

The trick is to apply S.I.T. templates to the Value Net model of co-opetition.  Here's how.  List the activities of each Value Net participant (Company, Supplier, Customer, Complementors, Competitor).  Rotate each specific company in the Value Net model so that each takes a new role (competitors become suppliers, suppliers become complementors, etc).  Use each S.I.T. template on the new list of activities, starting with Task Unification.  Using Function Follows Form, envision how the new role and role player can benefit YOUR company.  Here is an example, using Nintendo as the company of focus:

Now imagine each player rotates clockwise one position.  Applying S.I.T. Task Unification, we ask what roles could Atari perform as a customer to Nintendo that would be beneficial to both.  (For example, could Atari and Nintendo cross license software code to each other, perhaps making some features of their games work on the other's game box?)  Apply all five templates systematically to each role and each player within the context of their new role.  This will generate many new, innovative business model components and themes.

Disruption doesn't have to be uncooperative.

Innovation Follows Strategy

Innovation that is done in the context of business strategy tends to be more focused, efficient, and business-model relevant.  Innovation should not be viewed as a way to take the organization off its strategic track and in new directions.  Rather, innovation should be applied in a way that makes the current strategic track more successful and profitable...true growth.

Yet the tendency is to view this approach as incrementalism and not disruptive enough in the Christensen sense.  Some would say that starting with your current situation is not bold and is risk adverse.  "We're not thinking outside the box" is the usual incantation at this point.  Instead, there is a preference to chasing "white space" and "open source" innovation as a source of growth.  Some executives prefer the lure of white space and opportunity spotting, and they readily acknowledge that it is "low yield by design."  The Scarcity Principle tends to make these opportunities seem more valuable than they really are.  White space chasers position themselves as fighting the heroic fight.  Resources come pouring in.

The best Fortune 100 companies pursue high yield, organic innovation efforts... not "low-yield-by-design" efforts.  High yield innovation comes from tying innovation directly to the strategic marketing context of the firm.  Ideas generated this way help the organization stretch its model in a way that is achievable and internally-sellable.

How do you tie innovation to strategy?  Professor Christie Nordhielm from the University of Michigan has developed what I consider the best single contribution to marketing thought since the 4P's.  Her Big Picture framework of the marketing management process provides the context for innovating across the entire business model.  Applying systematic innovation tools to each aspect of her Big Picture model can yield amazing insights at both the strategic and tactical levels of the business.  It is the intersection of these two ideas...Big Picture Strategy and Systematic Inventive Thinking...that will yield consistent, profitable results.  Innovation follows strategy...not the other way around.

When to Innovate

People often ask when is the best time to innovate: early in the pipeline process, middle, or late.  Teams tend to resist innovation late in the process when they are busy launching a new product.  Teams tend to resist innovating in the middle of the NPD process because they are too busy developing the next generation product.  Teams tend to resist innovating early in the process because they are too busy developing franchise strategy. 

So when is the best time to innovate?  Anytime. 

Early in the process, you need innovation to develop a large stock of potential novel product ideas.  Tie these early ideas to your franchise marketing strategy.  This makes your strategy more robust and believable.

Early in the process, you need innovation to trigger modifications or enhancements to the product now in development.  This gives you potential differentiating features that you can still build into the new product. 

Late in the process, you need new concepts just when launching a new product to show your company and your customers that you have a sustainable pipeline of ideas behind you.  This gives you credibility.

Innovating is like putting in golf.  Never leave yourself short.