Place Your Bets: How to Play the Innovation Game and Win

“no problem can be solved from the same level of consciousness that created it”

Albert Einstein

Each month we are developing a B I G Insight with the Business Bunker Radio show on the characteristics that define those organisations that are achieving continued high levels of performance and growth. Informed by the Promoting Sustainable Performance programme of research identifying what drives the growth of Small and Medium-sized Enterprises (SMEs), these characteristics act as lenses through which those leading and running businesses can use to consider, challenge and change the way they work.

This month we are exploring ‘The Innovator’. To us, The Innovator is best summed up by those organisations that develop new products/services and processes and successfully take them to market. There are many benefits of achieving this, from improve efficiencies, capturing new market share and generating new revenue streams, however many organisations struggle with innovation. We were keen to understand the reasons for this, and what can be done to increase your chances of success. We were joined by Dr Tendayi Viki, a strategy and innovation consultant [1]. Much of Tendayi’s work is focused on helping larger organisations to innovate like start-ups; so he had much to share with the audience about this topic.

What the research says

Through our work with business owner-managers and SMEs we have found a number of common challenges that they experience when it comes to innovation, and here are three that stand out:

  1. Diversification: There can often be a tendency for SMEs to rely on a few (larger) customers and/or market thereby ‘placing all of their eggs in one basket’. Diversifying your customers and markets is important, and we will explore this further later.
  2. Checking assumptions: Business owners and entrepreneurs are creative animals and frequently have new ideas of what could be done. Few however, have a defined process to assess how good one idea is relative to another.  Views and opinions can be left unchecked and assumptions can be made as to what consumers and customers need and want (or not as the case may be).
  3. Process AND culture: Overall, innovation is seen as extremely important by the majority of businesses we speak to. A resounding 9 out of 10 businesses believe innovation is central to the success of their organisation. In stark contrast, less than 1 in 10 businesses manage to generate revenue from new product/service innovations. Much of this can be traced to the fact that SMEs often do not have a defined process for innovation, or develop their culture in a way that facilitates an innovative approach to doing business, beyond having a good idea.

What is central to this debate is the ability for SMEs, and their business owners, to make informed choices and decisions in the way they allocate resources to the innovation process. Resources are precious, and so it makes sense to be really clear on those innovations that are going to add value to your customers and consumers, and ultimately your business.

So, what is ‘innovation’?

Before we dive into the topic of innovation, it makes sense to define what the label really means. Tendayi explained how the term ‘innovation’ can often be used interchangeably (and confused) with ‘creativity’, and that this comparison is a useful way to better understand these terms.

If creativity is having a great idea, then innovation is about the journey to finding a fit between your product/service and the market.

“Product/market fit means being in a good market with a product that can satisfy that market.” [2]

To Marc Anderson, ‘people’ are important (the old adage ‘people are you competitive advantage’), ‘product/service’ is also key (without them, people would not have anything to do), but most important in determining success is the ‘market’. Or to be more precise, how your product/service is perceived and received by the ‘market’. You can have a highly capable team, and a product you believe is the bees knees, however if the market doesn’t want it you’ll fail. In the successful cases, the market ‘pulls’ the product/service from you (a concept that we explore previously through value chain thinking) and you have a sustainable business model to deliver it.

Why should we worry about this anyway?

Gone are the days when businesses could survive by producing the same product or service year after year because they were one of a select few in a market. Even for those lucky organisations with longer product lifecycles, or where they might be written into customer specifications, global trends and the shifting of markets are leading organisations to deliver efficiencies and productivity improvements to their current business models, and rethink the way they deliver their product and services to the markets they supply (for a case study on organisational transformation that explains the importance of remaining relevant, see a recent blog on ‘The Transformer’).

Today’s customers are more demanding. They have more choice and, as a consequence, have less time to weigh up options (for an interesting take on choice see Barry Schwartz ‘The Paradox of Choice’). Customers know that if they cannot find the solution they want from you; a few clicks on Google will provide them with numerous alternatives elsewhere in the market. Beyond differentiating the way you bundle your existing products or services, price them, make them (i.e. quality), profile them (i.e. brand) or deliver them, you need innovative ways of satisfying customer and consumer demand.

And being innovative doesn’t necessarily mean being new into a marketplace. Does anyone remember SixDegrees.com, Napster or Chux? How’s about Facebook, ITunes and Pampers? Many businesses can prosper by adapting the innovation of others. And, remember, they could equally do this to you!

How can we innovate?

In discussing this on the show with Tendayi, it became apparent that SMEs need to develop a ‘balanced portfolio’ of products/services; but what does this really mean?

Tendayi spoke of the need for leaders to imagine their company as an ecosystem of products and services, all at different stages of development and market penetration. Some are relatively new, and others a little long in the tooth.

As Tendayi sates: “separate your traditional products/services (the ‘bread and butter’) from your innovative products/services (the new, shiny stuff), and then put in a strategy to manage this portfolio”.

A couple of points shone through in this conversation:

  1. Prioritise your investments in those innovations that have the best chance of paying out. Define your own criteria for this process of prioritisation, and consider how best to achieve product/market fit.
  2. Place your bets! invest in innovation like you are placing a bet at the races; it’s a gamble. You have to be in it to win it, and Tendayi’s advice is to make many small bets in contrast to few large bets.  You won’t necessarily have the resources to attend Royal Ascot every year, but you will have the resources to visit the local Greyhound track.

Click here for further information on the collaboration between the Kent Business School and the Business Bunker Radio Show. Should you have any questions in regard to this piece of the wider work please do not hesitate to get in touch with Dr Simon Raby S.O.Raby@kent.ac.uk or Paul Andrews businessbunker@yahoo.co.uk

References

[1] To find out more about Tendayi visit his personal website

[2] Anderson, Marc. 2007. Product/Market Fit. Stanford University. Accessed 13 August 2015.

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