by: Idris Mootee
The headline "Don’t Mistake Innovation For Strategy" posted by my friend Bruce Temkin (Forrester) on his blog Customer Experience Matters caught my attention. He was quoting Al Reis' article in Advertising Age with the title: Innovation Should Be Seen as a Tactic, Not a Business Strategy. Here are some excerpts from Ries:
- What makes a powerful automobile brand today is not innovation, but a narrow focus on an attribute or a segment of the market… - Innovations outside of a brand’s core position can undermine a brand…
- Most brands don't need innovations; they need focus. They need to figure out what they stand for and then what they need to sacrifice to get there.
I was surprised to read this and almost jump off my chair. What is he talking about? With a generation of marketing folks trained similarly as Al Ries, that's why we have the problems we have in marketing. I know a lot of old school ad agencies people like Al Ries. That's also the reason why marketing remains to be tactical in many organizations and have less and less influence on a board level. Because they chose to live-in-a-box (see may post last week on radical innovation). Mr. Ries is so wrong on this one. Let me explain why:
- What the automobile industry needs today is NOT a narrow focus or an attribute or another brand. They have been doing that for decades and look at Detroit today. They need radical innovation, not brand focus. They need to get away from this brand bullshit and look at using innovation to reinvent the industry. If we look back 30-40 years, Detroit gained its preeminence in the 20th century by being very good at the prevailing industrial business model. America used to be productive in making things to and Mr. Ford was a latterday Charles Foster Kane when it came to artifacts of innovation.
Detroit's future is about innovation and transformation. For example, how to re-leverage capabilities that go into making the contemporary car, competencies that have been honed to a razor's edge such as the engineering of the propulsion system, the materials that go into its construction, the digital network and software that now reside in current prototypes, to say nothing of manufacturing efficiencies and logistics, supply chains and marketing prowess. That this concentration of talent, technology and know-how is considered valuable is validated by non other than the competition. Toyota — the world's biggest corporate R&D spender — has a large research laboratory right in the middle of Detroit. A powerful automobile brand needs innovation, not brand focus. There's only so much brand can do at this stage.
- Innovation should NEVER be limited by a brand's core position. A brand's core position also needed to change to adapt to this highly disruptive world. One of the best examples is Samsung. In the mid 90’s, Samsung Electronics’ chairman made an important decision that Samsung would not longer stands for "electronic components" and would no longer provide commodity electronics products to the world’s retailers. Instead they would focus on the development of innovative product design and stake out its own claim to become a global brand. The company focused on product innovation that was not limited by their brand, and saw a meteoric rise in sales and brand value in just a few years and is not a serious threat to big boys like Sony. The transformation of Samsung's from manufacturer of commodity electronics to a product innovator was successful because they were not limited by their brand's vision. The company’s current brand value was estimated to worth between $15-16 billion. - Brands need innovation, NOT focus. You can knock yourselves out figuring what your brand stands for and all those brand bullshits while your competitors are eating your lunch. Without innovation, your brand ages. Innovation rejuvenates your brand and makes them relevant again. Brand strategy and marketing can only give them a Botox, innovation brings new life ..at least temporarily like Viagra. When was the last innovation that came from Detroit? Saturn? That was a long while back. Look at what Honda is doing, they understand why innovation is strategic. Read the article in Fortune Magazine called “Inside Honda’s brain“ that talks about Honda’s R&D/innovation efforts. Here’s an excerpt:
Honda researchers were curious about how the human brain reacts to images. They found that people recognize faces, especially angry faces, more quickly than other images. Honda has incorporated this research into its motorcycle designs (like that of the DN-01). By designing the front of the bike to evoke the features of the human face, Honda believes that other drivers will recognize the presence of a motorcycle more quickly and therefore lead to less accidents.....
Finally, INNOVATION is STRATEGIC, unarguably the most strategic of all. Treating innovation as a tactic is an ill advise and I hope no one is taking that seriously. Let me quote my friend Gary Hamel where he explained why innovation matters most: "Innovation is Topic A in companies around the world. This shouldn’t be surprising. After all, innovation is the only way to create wealth over the medium-term. In the short-run, companies can cut costs through off-shoring and outsourcing, they can capture the efficiency gains from industry consolidation and plump up the share price via stock buy backs. But in the longer-term, there are no substitutes to innovation.
Importantly, though, some forms of innovation deliver more in the way of competitive advantage than others. My research, and that of my colleagues at the London Business School, suggests that management research—fundamental advances in the way companies allocate capital, motivate employees, organize activities, create strategies, and set priorities—has the most potential to create long-lasting competitive advantage. Indeed, if one looks back over the last 100 years of industrial competition."
Original Post: http://mootee.typepad.com/innovation_playground/2008/03/innovation-shou.html
@MarketingMuses, you said:
"Even early personal computer innovations credited to Apple, such as the graphical user interface (GUI) and mouse, were developed by Xerox at its Palo Alto Research Center (PARC). Apple’s achievement was to understand how these innovations could significantly improve user experience."
I think this is a bit off - there's a difference between invention and innovation. Xerox might have invented the GUI and mouse, but the true innovation was to take it to market in a way that excited and delighted.
But to the bigger issue of whether "innovation" is a "tactic", that's a silly discussion. Innovation is (or should be) part of the DNA of an organization. It should be a foundational element. Calling it a "tactic" puts it into a context that is flat incorrect.
Think about it this way: Is accounting a tactic? Is HR a tactic? No, they're part of the structure of doing business. When your accounting is tight, the business is healthy. When HR is tight, there are a range of fantastic hires that help drive the business.
Is branding or innovation more important? Both branding and innovation are inputs. And while each is important, neither directly determines the ultimate success of a product or service. Success is a measure of output. And output is a value proposition based on user experience and price. People will usually buy the best experience they can afford.
Mr. Ries misinterprets the basis of Apple’s success in his Advertising Age article, which says:
“Then there's Apple, which seems to be an exception to the principle that innovation cannot build a brand. Certainly Apple has been successful because of the widely held belief that all Apple products are highly innovative. That's true today, but what about tomorrow? Innovation cannot last forever. Sooner or later Apple is going to run up against a brick wall and find itself fighting a host of competitors who dominate their categories. Apple doesn't dominate any category, yet manages to compete successfully against Hewlett-Packard and Dell in personal computers. Against Nokia and Motorola in cellphones. Against Sony and Samsung in consumer electronics. Against Microsoft in personal-computer operating systems.”
To the contrary, the Apple iPod dominates the personal music player category, and Apple iTunes dominates the online music service category. This is the engine that has driven Apple’s growth over the past 5 years. Apple didn’t invent either category. And while innovation and branding have both played a part in Apple’s success, it’s real competitive advantage is a better user experience than the alternative products and services at a reasonable price.
Contrast this with the Apple Newton MessagePad, a truly innovative product that defined the personal digital assistant (PDA) category. Unfortunately, it was too expensive and did not deliver the desired user experience in terms of size, hand-writing recognition, PC synchronization, and other important user criteria. When the PalmPilot addressed these deficiencies, it restored the viability of the PDA market and became a runaway success.
Even early personal computer innovations credited to Apple, such as the graphical user interface (GUI) and mouse, were developed by Xerox at its Palo Alto Research Center (PARC). Apple’s achievement was to understand how these innovations could significantly improve user experience.
Last year Apple dropped Computer from its corporate name, in recognition that even though its share of the computer market had quadrupled, from 2% to 8%, its market position had shifted from personal computing to consumer entertainment and information. And its commercials, promotional materials and retail stores emphasize a superior user experience, not innovative technology.
The market success of a car, computer or consumer electronics device is ultimately the product of a value proposition that delivers a better user experience at a reasonable price.
In Volkswagen Phaeton there were a lot of innovations, but a lousy branding strategy (who wants to spend almost hundred thousand euros for folks car?).
The consequences you know.
Yes, you must innovate. But innovation must be only a part of your marketing strategy, not innovation in the sake of innovation, like PurpleMike said.
I agree with both perspectives. There should be no question that sustained growth and valuation come from innovation. There are few things more strategic then driving market demand and competitive differentiation with products/services that meet needs in unique ways. Betting the farm on declining products is the quickest way to destruction. A CMO’s time is limited. Shouldn’t the priority be future growth and eliminating distractions from “dogs”? At the same time, dumping products that are starting to decline prematurely can be a loss of cash that could be used to help fund new development. The key is actually very simple – decrease costs faster than demand declines. Many leading organizations do this by outsourcing. A case in point. Twenty years ago, Shell was faced with a quickly declining market for their TBA business (stations with service bays were being replaced by convenience stores). Yet, customers buying Shell-branded TBA products were buying exponentially more gasoline than the average customer. In 1992, this division was losing $8M a year on $40M in sales. They came to us to turn the business around. In less than a year, the division was profitable – operating expenses were cut in half, active accounts increased by 24%, gold accounts increased by 237%, and customer satisfaction was increased dramatically. Most surprising is we decreased face-to-face visits by field sales by 70%, yet “satisfaction with contact frequency by the field” increased by 20%. We found that customers could not remember how they were contacted seven to ten days after the contact and just remembered that they had been contacted. The nature of the contacts that were made with customers also became much more consultative. After turning profitable in the first year, this division had increasing margins on declining sales until it was dumped just last year. Harvard wrote up a case study with more detail on this turn around that I would be happy to share if interested – jclark@hunterbusiness.com
I, too, think that Al Reis might be taking more abuse than deserved here. No one could be "dinosaur" enough to ignore the importance of innovation. But in my opinion, all he is railing at is "innovation for its own sake." It should still be aimed at meeting current (or future) consumer needs. By suggesting that innovation is a "tactic" Al is not demeaning it, but rather giving it a context--which will ultimately give it greater importance to that consumer who, I'm sorry, still matters. The automobile itself --while clearly an innovation--was also a "tactic" -- on the way to better satisfying transportation needs. Of course focusing on a brand should not preclude innovation, and and could in fact reinforce the need for it. It may be fun, in a "hipper-than-thou" sort of way to call branding "bullshit." But it's not accurate.
I'm not so sure I completely disagree with Al. His point may be that we don't spend enough time wringing every last drop out of our brands and that by moving on we dramtically reduce our returns on that brand. Marketing needs to accept that they have to be MORE tactical than they are now. I beleive we would have MORE influence at the board level if we could combine innovative thinking with spreadsheet reality. CMO's focused on ROI get the boards attention, they just might not be prepared to live up to the same expectations as the CIO or COO