The term ‘innovation’ is often associated with geniuses turning startups into gold mines — the next Google, Apple, or Amazon, with products no one even knew they needed. Every company aspires to be as innovative as them, while many companies may overpay to invest or buy start-ups, others may be uncertain of the what they’ll yield from them other than the halo effect. However, worst when these investments don’t align with the company strategy or meet a market insight. The same is true of ideas: Knowing which to fund without making random bets is key. But according to a series of three surveys conducted over six years by Maddock Douglas, while 80% of executives know that their companies’ success depends on introduction of new products and services, more than half agree that their company dedicate insufficient resources to support innovation.
Innovation is a word that’s been attached to finding new ways to grow, and every corporation needs to grow year over year. But the first step for generating real growth is to understand where it comes from. Growth has been made unnecessarily complicated. It can be boiled down to six simple categories:
- New processes. Sell the same product at higher margins: Cut production and delivery costs, automate for efficiencies, cut fat in the supply chain and/or manufacturing, utilize robots.
- New experiences. Sell more of the same stuff to the same people: Increase retention and share by powerfully connecting with customers.
- New features. Sell enhanced stuff to the same people: Add improvements that drive incremental purchases. An example of this is every new phone Apple releases, with better cameras and so on.
- New customers. Sell more of the same stuff to new people: Introduce the product to new markets with needs similar to your core, or to markets where it might address a different need. For Apple, this goes back to reaching the mainstream rather than just the design community.
- New offerings. Make new stuff to sell: Develop a new product — not limited to enhancements. Find new needs to solve, within existing markets, or invest in a new category. Think HomePod or the iPod.
- New models. Sell stuff in a new way: Reimagine going into the market by creating new revenue streams, channels, and ways of creating value. This can be as simple as moving to a subscription model, or as transformative as Apple’s creation of iTunes.
Deciding which way to grow needs to be intentional and not driven by luck. Innovation budgets are finite, so allocation of scarce resources should reduce risk, while focusing on the best bets. These need to be balanced for maximum return in the same way that a retirement fund needs to be balanced among high and low risks.
The team at Actuate Business Consulting, a knowledge-based management consulting firm in India, believes that one has to test and experiment quickly. Knowing how growth happens, and the best way to focus your organization’s efforts to grow, is as critical as allocating investments, across the innovation risk-reward spectrum, for maximum returns. Doing so works better than placing random bets on a latest startup in the hope of getting lucky.