Report 103
Your newsletter on applied creativity, imagination, ideas and innovation in business.
Tuesday, 3 June 2008
Issue 129
Hello and welcome to another issue of Report 103, your fortnightly newsletter on creativity, imagination, ideas and innovation in business.
As always, if you have news about creativity, imagination, ideas, or innovation please feel free to forward it to me for potential inclusion in Report103. Your comments and feedback are also always welcome.
Information on unsubscribing, archives, reprinting articles, etc can be found at the end of this newsletter.
DEALING WITH DISRUPTIVE INNOVATION
Disruptive innovation is a term coined by Clayton Christensen that describes a new product or service that is so innovative, it disrupts the market and forces businesses in that market to radically change their business or suffer serious consequences.
A good example of a disruptive innovation is digital imagery. Until a very few years ago, virtual all photography was film-based. An instant photographic image was often called a “Polaroid” - after the world's leading manufacturer of instant film and camera products. And instant meant waiting a minute or two.
My children (7 and 10) years have no concept of a film camera and expect to be able to look at every picture I take immediately after it's been taken.
Digital Imagery Versus Film
When the first digital cameras were introduced, camera and film manufacturers should have realised that the sector was about to undergo profound change. Admittedly, those early cameras produced low resolution, poor quality images. But, in view of the rate of improvement in computer technology, it was clearly only a matter of time before digital cameras became the norm and film cameras became obsolete. Which, of course, is precisely what has happened.
Film manufacturers have seen their incomes disintegrate. Polaroid filed for bankruptcy in 2001. And its assets were sold to Bank One which attempted to maintain the business. They were not successful (at least with film) and Polaroid recently announced it would cease making instant film products. Ironically, Polaroid was an early developer of digital imagery products. But they failed to envision the market potential.
Many other famous names in the industry also nearly went bankrupt. Leica, makers of arguably the world's finest quality 35mm film cameras, were slow to jump on the bandwagon and introduce a comparatively high quality digital camera, forcing their dedicated customers to look elsewhere for top end digital cameras.
Kodak, a name synonymous with film photography in the early to mid 1900s in the USA, suffered financially in the early years of this millennium, having to lay off over 12,000 employees and close many factories in order to stay in business. Only by changing focus from film based photography to digital photography has Kodak managed to survive. Today, the company makes and markets a number of digital cameras and other complementary products.
The Options When Disruptive Innovation Hits Your Markets
When a disruptive innovation threatens your market there are two productive approaches you can take and one non-productive approach. Sadly, all too many organisations opt for the non productive approach, which is to deny that the disruptive innovation will affect you market at all and continue business as usual. And that usually does not work.
Option 1: Chase the Market
Far-sighted companies, upon realising that their market is likely to change radically as a result of disruptive innovation, most typically change their products in order to continue selling to the same marketplace. Consider Kodak and Leica, above, as well as Canon, Nikon, Hasselblad and many other well established names from the world of photography. They have all developed and now market digital cameras and related products. Most of these companies, however, suffered during the transition.
Option 2: Find New Markets Based on Your Expertise
In the days when photography meant film, Kodak's number one competitor was Fuji, a Japanese manufacturer of films, cameras and other products. When it became clear that digital imagery would forever change the photography market, Fuji did two things. Firstly, like Kodak and others, they began producing digital imagery products.
The other thing that they did was probably more innovative. Their far-thinking CEO, Shigetaka Komori, effectively asked his employees: “In what other ways and to what other industries might we apply our photographic chemicals knowledge?” As a result of this innovation challenge, Fuji identified numerous opportunities. And through innovation they have diversified into a number of profitable activities. Moreover, this diversity will better protect them against future disruptive innovations in any one of those industries.
As an example of using their expertise to develop new products, Fuji realised that the cellulose triacetate which forms the basis for film can also be used as a protective coating on flat panel displays – a growing business based on another disruptive innovation. It was a small operational step to modify their production to manufacture this protective coating.
As a result, Fuji generated an operating income of nearly US$1 billion for the fiscal year ending in March 2007, a 60.5% increase over the previous year.
Of course this was not entirely without pain. Fuji suffered financially from the introduction of digital imagery and was force to lay off some 5,000 employees. And part of the reason that their 2007 increase was so high was because 2006 was not a particularly strong year (as a result of disruptive innovation). Nevertheless, it is clear that Fuji's two-prong approach to surviving disruptive innovation was better than that of most of their competitors'
Two Lessons to Learn Here
There are two lessons to learn here. Firstly, you should always be prepared for disruptive innovations coming from outside your organisation. Indeed, some of my favourite innovation challenges for ideas campaigns, brainstorming and thought exercises are:
"What actions might our competitors take tomorrow that would keep me awake at night (in fear)?"
"What new technology could potentially destroy our business model?"
"What new legislation could potentially destroy our business model?"
Once ideas are generated, you should follow up with additional campaigns to generate ideas for reactions to the worst case scenarios identified in the first campaigns. Not only this exercise prepare you for the worst, but it may offer you ideas for a disruptive innovation which your firm could launch!
The second lesson is: when you learn of a radical new invention that threatens to disrupt your market, do not ignore it. Horse buggy makers made this mistake when cars came on the market; telegraph service providers made this mistake when the telephone was invented and photography suppliers made this mistake at the advent of the digital camera.
For advice on running ideas campaigns to identify disruptive innovation threats in your industry, contact me or your nearest Jenni representative (http://www.creativejeffrey.com/jenni/contact.php).
Sources:
Wikipedia: http://www.wikipedia.org (various
articles)
HBS: "Getting Down to the
Business of Creativity" : http://hbswk.hbs.edu/item/5902.html
"Fujifilm: A Second Foundation", by Giovanni Gavetti and Yaichi Aoshima
Fuji Film Holdings Annual Report, March 2007
GUEST WRITER
John Cornish, a regular innovation collaborator and project management expert, has kindly contributed to Report 103 the following article which began as a collaboration between him and me.
Note: if you would like to contribute an article to Report 103, please e-mail me a short explanation of your idea.
INNOVATION FOR BUSINESS SURVIVAL
By John Cornish
My previous employer (a global company that sold automated test equipment (ATE) to the semiconductor industry) recently introduced a business objective whereby 50% of all revenued income was to come from products and services that were less than three years old.
This objective meant that our Sales, Marketing and Service people were encouraged to 'actively listen' to our customers for their ideas on innovation for existing products as well as ideas for new products.
As our customers were developing new technologies in electronic equipment, so too and in 'concurrent design', did our new ATE have to be installed in the Foundries and Test Houses where the new semiconductors were made and then tested. Look at the innovations in Cell Phones, DVD Players, Set Top Boxes, Telecomms, Wireless, to get a feel for the pace of change and the need for continuous innovation as a way of business life. In these sectors, an 18 month old product is often an antique.
Another example is innovation as a core activity in 'Strategic Marketing'. This is 'front-end' marketing with regular scanning for changes and trends on the horizon.
PESTEL
Marketers scan for changes and trends in specific areas using the anachronism called 'PESTEL'. Simply put Marketers scan for changes in six areas labelled, Political, Economic, Social, Technological, Environmental and Legal. Changes and trends are researched and collated under these headings and periodically reported.
Marketing research was used to discover two or possibly three trends developing and where, through analysis and projections, you could forecast the 'Tipping Point' at which time the change would occur. You can visualise the tipping point as walking up one side of a playground see-saw. You make progress up part of the length and you know that at a specific point you will walk over the fulcrum and the see-saw will tip over. This fulcrum is the 'tipping point'. Using the PESTEL method and forecasting when that tipping point will occur, now gives you a time-line for innovation and time to market for new products and services. All excellent strategic marketing.
Innovation in a Planned Environment.
Another example for innovation comes not so much from existing products, services or processes, but from looking at changes in the second-order, or even third order and then determining how these far out changes affect your current business.
An Example
Take the huge rise in the cost of fuel: from $11/barrel 10 years ago to $110/barrel we suffer today. In time, it might negatively affect airline travel costs and reduce the number of flying passengers. This, in turn, might lead to an increase in demand for 'distance learning' or 'distance working'. It might also increase the demand for local vacational/recreational activities.
What does that mean in terms of the risk in buying shares in low cost airline companies? Can they actually survive the higher priced fuel costs, when their business model relied on relatively cheap fuel?
So in quite a systematic way, we who have an interest in change and innovation can use a framework and a process that drives innovation. And often innovation can be found on the outer edges of two or more quite separate disciplines, or industries and then having the great reward of being 'first to market'.
As Innovators we now have the tools to change mere data into information for effective 'evidence-based' decisions for change.
So now, the objective that at least 50% of revenues are derived from products less than three-years old seems tenable, indeed essential for all businesses to survive in the chaotic world in which live.
The secret is to seek out the indicators of future change rather than spot the change itself. This gives you time to plan your innovation, bring new ideas to the market and get there first. The really nice thing about not planning is that failure and missed opportunities come as a complete surprise. Hence my delight in leading the marketing and sales of our project planning software for Innovators. After all, a project by its own definition has never been done before.
About the Author
John Cornish is currently the managing director of Micro Planning International Ltd, a company of project managers delivering services and software to Project Managers and others involved in realising projects. His previous work includes 29 years in global high-tech electronic engineering companies where he worked variously in strategic marketing, sales, project management and engineering. He is a fellow of the Chartered Institute of Marketing (CIM) and a member of the Association for Project Managers (APM).
INNOVATE AND SAVE THE PLANET
You doubtless know that the world is warming up and it is not a good thing. You also surely know that we as individuals, families and representatives of our communities and places of employment must act to prevent global warming by producing less carbon waste.
There are, broadly speaking, two approaches to achieving carbon neutrality -- that is a state in which you are not adding additional carbon waste into the atmosphere: productive and reductive.
Productive Environmental Actions
Productive actions to save the environment include building devices that are more environmentally friendly such as: solar panels and wind turbines for generating electricity; heat pumps for heating buildings; cleaner, more efficient engines for cars and so on. Developing such devices typically takes a great deal of expertise, as does improving their efficiency over time.
Reductive Environmental Actions
The other approach is to reduce wastage, recycle where possible and other actions that reduce the amount of carbon we put into the atmosphere through reductive actions.
This latter approach requires far less expertise and benefits from observation of operations. Moreover, it is typically a win-win situation. Reducing wastage not only helps the environment, it almost inevitably reduces your operational costs as well.
As a result, identifying and implementing reductive environmental actions is an ideal focus for your innovation programmes, such as brainstorming, ideas campaigns, idea management and the like.
Save the Environment with Idea Management
For example, if your firm uses Jenni idea management (http://www.creativejeffrey.com/jenni/) or a similar tool, you can run regular ideas campaigns on such topics as:
"In what ways might we reduce wastage in our operations?"
"How might we better manage our waste?"
"In what ways might we reduce the need to travel (locally as well as long distance)?"
"What actions might we all take to reduce our carbon footprint?"
Such ideas campaigns will doubtless generate many effective suggestions for reducing wastage, operating more efficiently and managing waste more effectively. The result: smaller carbon footprint, lower operational costs and the feel good factor you and your colleagues will experience by you environmentally friendly innovation.. You can't beat that!
For more information about using Jenni idea management to reduce your firm's negative environmental impact, contact me or your nearest Jenni representative (http://www.creativejeffrey.com/jenni/contact.php).
LATEST IN BUSINESS INNOVATION
If you want to keep up with the latest news in business innovation, I recommend Chuck Frey's INNOVATIONweek (http://www.innovationtools.com/News/subscribe.asp). It's the only e-newsletter that keeps you up-to-date on all of the latest innovation news, research, trends, case histories of leading companies and more. And it's the perfect complement to Report 103!
Happy thinking!
Jeffrey Baumgartner
---------------------------------------------------
Report 103 is a complimentary weekly electronic newsletter from Bwiti bvba of Belgium (a jpb.com company: http://www.creativejeffrey.com). Archives and subscription information can be found at http://www.creativejeffrey.com/report103/
Report 103 is edited by Jeffrey Baumgartner and is published on the first and third Tuesday of every month.
You may forward this copy of Report 103 to anyone, provided you forward it in its entirety and do not edit it in any way. If you wish to reprint only a part of Report 103, please contact Jeffrey Baumgartner.
Contributions and press releases are welcome. Please contact Jeffrey in the first instance.
