Managers today are told that improving their business incrementally each year is no longer good enough. Rather, to succeed they must disrupt themselves — revolutionize their company and their industry — before a competitor beats them to it.
In a May 16 webinar for MIT Sloan Alumni Online, senior lecturer David Robertson discussed a third way that businesses can grow, taken from his 2017 book, “The Power of Little Ideas: A Low-Risk, High-Reward Approach to Innovation.” Rather than disrupt a business, companies can grow by finding ways to innovate around existing products.
“When you have an existing product, and have an existing market, you shouldn’t be quick to jump away from it and explore disruptive, new innovations,” Robertson said. “That’s prone to failure and is often very expensive and risky. Look to see if you can innovate around it.”
In the webinar, Robertson explains:
· What is the third way?
· How is this different than other approaches to innovation?
· Which approaches are the most important for managers to know?
What is the third way?
Robertson said too often he hears stories about mature companies feeling forced to choose between incremental change and disruption when a third way exists: Innovate around existing products and services. Lego chose this path after facing near disaster.
In the late 1990s, Lego got caught up in the disruptive innovation frenzy that gripped corporate thought. After 15 straight years of 14 percent average annual growth, sales plateaued. Lego became convinced that the brick, whose patents had expired in the 1980s, was becoming a commodity.
The company’s executives convinced themselves they had to overhaul their business, move away from their iconic brick, and reinvent the future of play before a competitor did. The result was four years of expensive failures. The company almost went bankrupt.
But Lego learned a lesson: when it went away from the brick, customers had no reason to purchase Lego toys. While it wasn’t sufficient to offer only a box of bricks, it was necessary.
When Lego went back to the brick and innovated around it, customers returned to the brand and sales rebounded. (Robertson was the Lego Professor of Innovation and Technology Management at the International Institute for Management Development and wrote “Brick by Brick,” a book about Lego’s success in innovation.)
To pursue this third way, a company must start by defining the product or service it wants to innovate around, then decide its business promise to its customers, then design and deliver those complementary innovations to market.
Lego checked all of those boxes when it introduced Lego Batman in 2006. A major movie followed in 2017. Along with Lego Batman, there were a series of complementary products designed to increase kids’ involvement with the story. There was a comic book, Happy Meal toys, a video game, and an iPhone tie-in. (Open Siri, say “Hey computer,” and see what happens.)
How is this different than other approaches to innovation?
An incremental improvement to current products is a necessary activity for any company, but usually only keeps you abreast of the competition. Disruptive innovations like Uber can change an entire industry. But in between the two is the third way, which any company can pursue. The secret: Build a deep relationship with your customer. Date your customer, and don’t fight your competitor, Robertson said.
Between 2010 to 2015, GoPro practiced this third-way approach and achieved five years of 90 percent average annual sales growth. The company developed not only a rugged, waterproof action camera, but also a smartphone app, a variety of camera mounts, desktop software to turn raw footage into polished movies, and a social media site for customers to share their adventures. By “dating their customer” GoPro was able to understand what they wanted to achieve with their cameras, and provide the complementary products and services to help them.
Sony thought it could knock GoPro off its perch, and developed a better and less expensive rival camera. Yet, it barely dented GoPro’s market share. Why? Sony fought the competition while GoPro was dating the customer. Sony had a better and cheaper camera, but GoPro had a portfolio of complementary products and services that together helped customers capture their adventures.
Which innovation approaches are the most important for managers to know?
There are several types of innovation, Robertson said: incremental improvements, lean-startup, blue-ocean, disruptive, and Robertson’s third-way. Successful companies cycle through these different types of innovation over the years. They may start as blue-ocean innovators, like GoPro, but end up innovating around a product to hold onto their core markets. “Managers need to know all these different types of innovations and practice them,” Robertson said.
But knowing how to innovate around a product or service is especially important, Robertson said, because it can lead to new opportunities. Consider the company behind the Spin Pop electric lollipops.
The Spin Pop has a tiny motor that spins a lollipop, adding a new feature to an existing product. The company then developed the SpinBrush, which had a similar motor-and-battery combination to power an inexpensive electric toothbrush (a “blue ocean” innovation).
The SpinBrush was acquired by Procter & Gamble for $475 million. Procter & Gamble then used the SpinBrush to innovate around its Crest brand and expand it from a toothpaste brand to an oral care brand. Crest now has an electric toothbrush, floss, white strips, mouthwash, and other products. By innovating around the core toothpaste product, Crest was able to revive sales for the toothpaste, as well as gain revenues from the complementary products.
“Too often we jump away from our existing customers and existing products,” Robertson said. “Innovating around those can be incredibly valuable and open up new opportunities for growth.”
Robertson teaches the MIT Sloan Executive Education course “Innovating in Existing Markets: Reviving Mature Products and Services.”