Instead, we have to view innovation as invention + monetization and broaden our perspective to include other factors that contribute to business success.
Few words in industry have such an overloaded meaning as the term “innovation.” Innovation and all its derivatives, like being innovative, in many contexts simply mean “good.” The underlying idea is that we like new and different, and an innovation will provide that.
In product development, innovation almost always refers to introducing a new technology in the product. This might be the next generation of a SoC (system on chip), a new material, a different user interface, and so on. The general belief is that if we simply keep our products up to the latest that our suppliers can provide and we can afford to develop, they’ll be competitive and consequently profitable.
The challenge with the focus on adding the latest technology to our products is threefold. First, in virtually all industries, everyone gets access to new technology at about the same time. All companies get going on adopting this new technology at the same time and proudly present the next generation of their offerings using this new technology at the same time. There’s no differentiation provided by doing this. Of course, it might be necessary to bring up our offering to use the latest technology, but it simply is sustaining innovation.
Second, the focus on including the latest technology causes organizations to ignore all other types of innovation. In addition to improving the product, we can also focus on the entire product system, the way we bring the product to market, our position in the ecosystem, the business model we use, and so on. In fact, research shows that non-product-centric innovations have a much higher impact than product-centric ones. The big breakthrough businesses of the last decades weren’t technology driven. For instance, Uber and Lyft still use cars but fundamentally change the way people get mobility. Spotify and Netflix didn’t come up with fundamental technologies but reinvented the way we consume music and movies.
Third, the product technology focus causes us to typically veer away from solving the customer’s problem and instead focus on improving the product for the product’s sake. For many in product development, it’s hard to believe that customers really don’t care about the product and might even consider it a burden to have to buy it. The reason they do so anyway is that the product solves a problem or “does a job” they need done. The moment, however, that a better way to get the job done comes along, they’ll prefer that. So, we need to keep our eyes on what’s important, ie the job for which our product “is hired” to talk – in Clayton Christensen’s words.
It seems that many people in product development, typically being technology focused, tend to mix up the notions of invention and innovation. In my view, innovation is best described as invention + monetization. Not getting paid for adding new technology that’s added to the product isn’t innovation but “just development” and maybe an invention.
As all companies have only a limited budget for product development and innovation, the goal has to be to maximize the return on investment. In my experience, the best way to accomplish this is by developing empathy with customers and ensuring we have a deep understanding of their needs. Not just the role of our products in their operations but rather in their entire workflow, their support functions and their customer interactions.
Customer empathy and domain understanding can then be used to develop hypotheses about innovations of any type, including business, process, product system, channel and brand, that might deliver value to customers and that we can capture part of the value of. The resulting hypotheses should be tested in experiments that iteratively provide more and more positive evidence. Those that don’t pan out should be excluded. The hypothesis generation and experiment-driven hypothesis validation process thus gives a constant flow of proven innovations that can be prioritized for new product development and scaling.
To many, this seems inefficient as we’re testing many hypotheses that won’t result in any new products or innovations. But what’s the alternative? Putting all our energy into one or a small number of big bets that may or may not work? To use the terminology of Jim Collins: you first shoot bullets before you shoot cannon balls.
In product development, innovation is almost always equated with new technology to be incorporated into the product. Although perhaps necessary from a sustaining innovation perspective, it won’t provide differentiation that moves the needle for the company from a business perspective. Instead, we have to view innovation as invention + monetization and broaden our perspective on what constitutes innovation to include the product system, the channel and brand, the user experience, our position in the business ecosystem as well as other factors that contribute to business success. That requires deep customer understanding, hypotheses and experimentation before scaling any promising innovations. As management guru Peter Drucker said: “If you want something new, you have to stop doing something old.”