A Proven Approach to Creating New Sources of Growth When Times are Tough
Let me start this article by reminding you about The Innovation Paradox: The more companies try to innovate, the worse they get at it.
My partners and I researched and wrote about this contradiction in our first book, Brand New: Solving the Innovation Paradox. Not surprisingly, subsequent research by our friends at Accenture has proven what we already suspected: The innovation paradox is even more prevalent than it was when we first explored it in 2011.
Take a look at how innovation leaders at large companies responded to the same statements five years apart:
A primary driver of the Innovation Paradox is industry expertise, which becomes a razor sharp, double-edged sword for many highly functioning businesses. These businesses worked to create teams that will do what they did yesterday just a little bit better today; just a little faster, just a few less mistakes, with just a smidge more profit.
Unfortunately, these highly reliable organizations are also perfectly engineered to kill any new product, service or business idea that threatens their current way of doing things.
The upside of a recession is that, in tough economic times, bold leaders can move to defy the Innovation Paradox and literally leapfrog their competitors. But savvy leaders know that this upside is only realized when they are able to guide their teams to a specific type of innovation that takes into account both the expertise and the fear of teams under pressure. The goal is to differentiate your product or service offering in a simple way that leaves your internal teams feeling strong and your customers feeling heard and delighted. For example, for many banks, the last recession became the moment to (finally) respond to their customer’s desire for a simple, online banking solution.
Too Late to Innovate?
The best time to launch an innovation initiative was seven years ago when economic indicators were pointing up and confidence was rising. Back then, leaders were more willing to take risks and explore new ideas because they were not as worried about losing momentum, missing their numbers or losing their jobs.
Unfortunately, not many of us spent the last seven years exploring and inventing new sources of growth. Instead, we were too busy trying to capture the profits from past innovations to think about slowing down to invest in the future. After all, why plant seeds during harvest time?
Fair enough. But to borrow a quote from Game of Thrones—“winter is coming.” For most of us, this means it is too late to innovate because seeds planted in cold soil are doomed to die.
Winter is a useful metaphor for a bad economy or recession. And when it starts getting really cold, the great majority of leaders react in exactly the wrong way—again! This is because during tough economic times, operators are rewarded by investors for four short-term actions:
1) Reducing debt
2) Preserving capital
3) Sharpening their business plans by focusing on a small number of initiatives
4) Investing in opportunities that will generate revenue during a recovery
Unfortunately, most COOs and CFOs have only been trained on how to do the first two items above. This means that these operators do “the responsible thing” and cut costs. They cut marketing expenses, they cut people and they cut R&D. And by doing so, they preserve capital. But initiatives and potential opportunities will have to wait.
Savvy leaders with a Disruptor’s abundant mindset view their primary responsibility as making money, not saving money. They understand that retreating from investments is also retreating from profits. With this in mind, while they are reducing debt and preserving capital during tough economic times, they also choose to invest aggressively in the future. They do that in a very specific way: They focus on Differentiated Innovation.
Where To Invest Your Time and Money
I have written in the past that there are four types of innovation projects: evolutionary, differentiation, revolutionary and fast-fail. After I quickly tell you about the three you want to avoid during a downturn, I will explain where you want to focus.
Evolutionary Innovation is technically easy for us to do and we know our customer wants it.
This is what the experts on your team do every day. Importantly, it is the ONLY thing they will be truly comfortable doing under the pressure of a recession. This means your well-trained team is going to keep doing evolutionary innovation whether you ask them to or not.
The challenge is that there is very little margin in evolutionary innovation. Disruptors see recessions as a way to leapfrog competition, not to tread water, so this is not the place to concentrate during a downturn.
Revolutionary Innovation seems technically impossible to do, but even if we can do it, there’s no way of knowing ahead of time if anyone will buy it.
To use a baseball analogy, this quadrant is where you are swinging for the fences. During a recession, you don’t have enough time, money or social capital to invest here. It is best to wait until some Disruptor proves a new model and then, and only then, follow their (crazy) lead—or just buy them.
Fast-Fail Innovation is technically easy for us to do, but we have no idea if anyone will buy these ideas from our company.
This is where entrepreneurs play. Here you must go to market to quickly test and learn. You expect to fail fast and often before succeeding with an offering that may literally be refined by your customers’ in-market feedback.
Unfortunately, although this type of innovation can be done quickly and inexpensively, your team must be ready to experience many, many, maaaaaaany failures before they find a winning, new idea. Under the pressure of a recession, teams are afraid to fail for fear of losing their jobs, so they will actively avoid engaging in the very activity that makes this quadrant successful. This is why it is best to pass on this quadrant when the economy is slowing.
And now we move to the quadrant that the best Disruptors focus on during recessions.
Measure Twice, Cut Once
Anyone who has ever done any kind of carpentry understands the power of measurement. (Typically, this understanding comes the hard way, complete with an expletive, right after you realized you have just cut a piece of wood an inch too short.)
There is comfort in numbers. And there is only one innovation quadrant that relies heavily on numbers, is low risk AND can provide the disruption and profit we need during a recession. It is the Differentiation quadrant.
Differentiation Innovation is technically difficult for us to do, but we know our customers really want it. We know this because we can measure which problems to fix first, second and third. We can measure the size of each opportunity. We can measure the price customers will pay us if we address a specific need or problem. And importantly, we can do this with our current team, whether they are feeling safe or afraid.
Here is the rub. In order to be great at the Differentiation quadrant, you must deeply understand what your customer or consumer wants most. You must be able to identify and prioritize the challenges that, when fixed, will win you the highest margins and customer loyalty. This means that you must either be really good at research or be willing to invest in it.
The takeaway lesson here is pretty simple: If you want to win during a recession, pick a quadrant that will delight the CFO first and the CEO second. Pick the Differentiation quadrant.
read more at http://www.forbes.com/entrepreneurs/ by Mike Maddock, Contributor