Disruptive Innovation Primer

The Need for Disruptive Innovation

Only 25% of all new products that established companies introduce in their markets succeed. Seventy-five percent fail. Only 10 percent of companies can maintain a level of growth that satisfies their shareholders over the long term. Ninety percent cannot. Most of those companies seem to be doing all the right things – listening to their best customers, keeping a close eye on competitors, and investing heavily in technological advancements. Longterm success requires more. It requires that companies develop strategies around disruptive innovations.

Disruptive innovations either create new markets or reshape existing markets by delivering relatively simple, convenient, lowcost innovations to a set of customers who are ignored by industry leaders. Historically, companies that dominate an industry have had little interest in pursuing these types of innovations because profit margins are often lower and the innovations don’t address the needs of those companies’ best customers. However, companies that have recognized the value in pursuing disruptive growth — such as Intel, Procter and Gamble, Cisco, Johnson & Johnson, Dow Corning and IBM — have all profited from this type of innovation at various points in their histories.

The Disruptive Innovation Theory

 There is a simple, important principle at the core of the disruptive innovation theory: companies innovate faster than customers’ lives change. Because of this, most organizations end up producing products that are too good, too expensive, and too inconvenient for many customers. By only pursuing these “sustaining innovations,” companies unwittingly open the door to entrants that can offer simpler, more convenient and lower-cost products to those customers who have no need to keep up with the accelerated pace of innovative change.

This phenomenon happens for a good reason: good managers are trained to seek higher profits by bringing better products to the most demanding customers in the marketplace. But in that pursuit of profits, companies end up “overshooting” less-demanding customers who are perfectly willing to take the basics at reasonable prices. And they ignore “nonconsumers” who may have a desire to get a job done, but who lack the skills, wealth or ability to consume existing solutions in order to satisfy that desire.

Discount retailers such as Wal-Mart exemplify a type of disruptive approach that targets consumers overshot with existing offerings, in this case, department stores. Procter & Gamble’s Crest® Whitestrips® product provides an example of a disruptive approach that has created an entirely new market by targeting nonconsumers: those who find it too inconvenient or too expensive to go to the dentist to get their teeth whitened. By making it simple and affordable for people to do it themselves, P&G has created a booming new growth business.

It is important to note that although disruption is the key to new growth, companies should never ignore their core offerings and should always continue to pursue sustaining innovation to maintain that growth. But devoting some percentage of resources to disruptive strategies will enable those companies to profit additionally from disruptive innovation before someone else inevitably does, and to build a foundation of growth for the future.

Identifying Areas of New Growth: Targeting jobs-to-be-done

To identify customers who will welcome disruptive innovations, companies should use a “jobsto- be-done” approach. The jobs-to-be-done theory holds that products are successful when they connect with a circumstance—with a job that customers find themselves needing to get done. Products that successfully match a job or circumstance end up being the real “killer applications.” They make it easier for consumers to do something they were already trying to accomplish.

By identifying what jobs people really care about and developing products that make it easier to achieve these jobs, companies can identify new markets that they were previously unaware of and that could not be uncovered via traditional market segmentation schemes. Understanding those jobs that are not adequately satisfied by current products provides deep insight into what are and what will be the truly innovative products that delight existing customers and attract new customers from the sidelines of nonconsumption.

The Steel Industry

Steel minimills are a classic example of a disruption that transformed an existing industry with a cheaper solution. In the 1970s, a set of steel makers such as Nucor used minimill technology – a smaller, simpler way to manufacture steel than the prevailing integrated mill technology – to enter the steel market. At first, minimills could only sell to the least demanding customers at the very bottom of the market.

These customers were looking for bars of steel to bury in cement to reinforce the strength of that concrete (known as “rebar”). These customers didn’t need the higherquality and more expensive options provided by leading integrated mills such as U.S. Steel and Bethlehem Steel. The integrated mills were happy to get rid of these customers since they produced very little profit. Over the next two decades, minimills moved progressively up-market until they pinned integrated steel mills to the very highest market tiers, driving many historical market leaders to bankruptcy. 

 Case example: Go-GURT

 An example that illustrates the jobs-to-be-done approach comes from the packaged foods industry. About five years ago, yogurt appeared to be a stagnating, uninteresting product category. Leading manufacturers such as General Mills and Danone continually introduced new varieties that tasted better and had more attractive—but still conventional—packaging. Yet those innovations barely created a ripple of growth. Then, in 1999, General Mills introduced “Go-GURT,” a product targeted at kids. Instead of innovating to change product characteristics, General Mills took a different approach: it innovated to change product delivery. Go-GURT is packaged in a tube, which allows onehanded consumption. Rather than sitting down with a spoon, children can grab Go-GURT and, as the name implies, eat it on the run. From the company’s viewpoint, Go-GURT was not a trivial innovation. General Mills had to create a package that kids could put in their mouths without injuring themselves or leaking dye. And the package had to be easy to open but not so easy that it would accidentally burst or tear when carried inside a backpack. General Mills’ efforts were worth it. Go-GURT took off, with first-year sales of more than $100 million, rejuvenating the yogurt category and helping General Mills capture market leadership from Danone. Driven by other innovations related to drinkable yogurt, U.S. yogurt sales overall have increased by nearly 60% from 1998 to 2003. What General Mills recognized was that improving on the attributes of yogurt itself would not generate new growth since products throughout that market were more than good enough along dimensions such as flavor. The improvements that would create new growth were those that increased convenience by bringing yogurt consumption to new contexts, thereby reaching previously unreachable customers, who had a specific job to do. By expanding the situations and occasions in which yogurt consumption was feasible, General Mills helped revitalize the category.

Pursuing New Growth Opportunities

 When pursuing new growth opportunities, companies have two different ways to set strategy. They can follow a deliberate strategy, where they set a goal, define a set of steps to reach that goal, and then methodically act on each step. This process is very conscious and typically quite analytical. It involves assessment of market structure, competitive analysis, and detailed market research to determine customer needs.

Companies that take the other approach—following an emergent strategy—try to retain flexibility and gather feedback from the marketplace on what works and what doesn’t. They try to change their strategies on the fly to adapt to new information that emerges from the marketplace.

Emergent strategies work in highly uncertain situations, such as those that surround the pursuit of disruptive innovations. In these situations, operating managers tend to encounter problems that business planners didn’t anticipate. Actions lead to unanticipated results. In such circumstances, following a rigorous deliberate strategy can lead companies to ignore market signals and not adapt their strategies. In other words, they can continue to stick to a strategy that clearly isn’t working. Emergent strategies encourage managers to respond to problems in the most appropriate way, even if it results in deviating significantly from the deliberate course.

When pursuing disruptive strategies, several key principles should be followed:

 • Pursue the opportunity with an emergent strategy plan that incorporates learning and rapid adjustment

 • Focus on immediate action. Determine and pursue information you can gather quickly that will increase your confidence that you are going in the right direction.

 • Focus on assumptions. Explicitly testing key assumptions will help you reduce the venture’s risk by finding the right strategy more efficiently and with more targeted investment.

 • Remember two principles: 1) Be impatient for profit, patient for growth; 2) Scarcity is the entrepreneur’s advantage. To live by those principles, spend as little as possible to test key assumptions and don’t prematurely lock in to an approach that is probably wrong.

 • Iterate back and revisit your strategy as you learn more. Some assumptions that seemed to be important will become less important; new assumptions will emerge that need to be tested.

• Don’t keep the strategy static. If you learn that your strategy appears less attractive than you thought, consider how to shape it in directions that will increase your chances of success. Don’t be afraid to kill a fundamentally flawed strategy.

• Have defined milestones and check in points to facilitate this iterative process

Disruption in Progress Today

Consumer electronics: Cellular phones and home gaming systems are continuing their assault on other industries. Cameras on cellular phones have gotten so good so quickly that they will soon affect the sales of standalone digital cameras. Home gaming systems such as Sony’s PlayStation 2 and Microsoft’s Xbox are adding additional features that move computing from the office to the living room.

Health care: Companies are introducing quick and convenient health care delivered by nurse practitioners in kiosks located in retail stores. The leading example of this emerging model is Minnesota-based MinuteClinic.

Telecommunications: A technology known as Voice over Internet Protocol now allows companies to offer cheap, customizable telephony service over the Internet. Vonage and Skype are the leading standalone providers, but market incumbents such as Verizon are also trying to introduce similar models.

Education: On-the-job training and online adult education providers are delivering extremely relevant, low-cost education in more convenient ways. Obvious examples of this trend include General Electric’s Crotonville training center and the University of Phoenix.


Disruptive Innovation in India

I have often wondered why Indians in India have traditionally been laggards in terms of their contributions to globally disruptive technologies. Talent is definitely available and there is no scarcity of ideas. Also entrepreneurs and related VC funding are in no shortage. And many of the disruptive technologies that evolved in the West most likely had an Indian flavour – either in their founding team; or in their technical leads; or their mentors.

This is not to say that innovation is not thriving in India. In fact, India has in a relatively short span of time since Independence created an impact on a global scale; all this on the back of a democratically-elected government and a wildly multi-cultural secular society. But we have not been able to create disruptive innovation – The likes of Apple or Amazon or Google.

So where is the missing link?

I think, it boils down to economics. More specifically the incentive systems that exist across the talent value chain in India.

-Right from schooling – to higher education – to their first job – to a seasoned team lead – to a business head, incentive structures in India are largely misplaced and mispriced.

– Family, schools and evaluation systems that award perfection. Getting a perfect 10 is rewarded more than getting a firm grasp of fundamentals and being creative in approach. And disruptive innovation is often the result of lateral – not linear – thinking.

– Lack of a ‘creative ecosystem’ at Universities and Institutes of higher learning. There is very little monetary incentive for bright Undergraduate students to pursue a career in Research and Teaching within India.

As a result there is no substantial ecosystem of innovation that has built up over the years. Components of such ecosystems have been built in piece-meal approaches, but without the glue that can bind it all together and give it the impetus to become a sustainable living entity. Businesses that reward breadth vs. depth of knowledge. The youth-led demographics of India and the high growth rate of the Indian economy mean that managers that display a breadth of expertise are more valued than their counterparts that have a deep understanding of a particular area. I wouldn’t be surprised to learn that India is producing a disproportionally higher number of MBA’s vs technical Masters/Doctorate graduates. Business leaders that are execution-focused. High growth rates and process inefficiencies means that business leaders spend a disproportionate amount of their time on operational matters. With less bandwidth remaining for strategic thinking and for nurturing centers of innovation and excellence.  A largely dysfunctional Government. A necessary but not sufficient condition. As a result of the above, India thrives in mediocrity and in the relentless pursuit of the middle class dream. Which has resulted in a vibrant economy; but not the kind that can challenge the best, and produce disruptive innovation.

At least not yet!

 Guest Article : By Anunay Gupta PhD, Co-founder & COO Marketelligent

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For Intuit Co-Founder, the Numbers Add Up

Nobody likes to pay bills, according to Intuit Inc. co-founder Scott Cook

That’s why, in 1983, Mr. Cook says he saw an opportunity in creating software programs that could help consumers more easily manage their finances. It’s also why he later recognized a need for tools that could allow small and midsize businesses to do the same. Intuit, maker of TurboTax and Quickbooks, is now a publicly traded company with 7,700 employees and $3.5 billion in annual sales.

The Wall Street Journal spoke with Mr. Cook about the Mountain View, Calif., company’s early struggles with financing and marketing, and how a good ad with a 1-800 number changed everything.

Edited interview excerpts:

WSJ: Before building Intuit, you worked at large firms like Procter & Gamble Co. and Bain & Co. What prompted you to leave Corporate America and start your own business?

Mr. Cook:

My wife complained about doing the bills. It was a hassle. I had been trained at P&G to find a problem that everybody has and that you could solve with technology. And this struck me as a classic entrepreneurial opportunity. Nobody likes to pay bills. There were about 20-plus personal-finance software products already on the market. I hired a computer-science student at Stanford, who later became Intuit’s co-founder, and we tested the leading sellers. They were slow and a waste of time. So we built our first product, Quicken, totally differently than every other competitor.

WSJ: How much start-up capital did have to work with?

Mr. Cook:

We raised between $500,000 and $600,000. It came from my savings and my retirement plan that I cashed out. I also borrowed money from my parents. Lines of credit were another big source of capital. The banks were lending to me and my wife as a couple, not the business. We tried venture capital and that failed. We talked to about two dozen venture-capital firms and they all shut us down. We did get two angels to invest, but they put in only $151,000, total.

WSJ: A lot of start-ups struggle in the beginning. What were those first few years like for Intuit?

Mr. Cook:

They were terrible. We almost went under twice. We couldn’t get software stores to carry our product because we had no money for marketing. We had to give back the computers and furniture we rented and stop paying employees’ salaries.

WSJ: How did you get over that hurdle?

Mr. Cook:

We found an alternate distribution channel. We sold the software to banks, and banks would resell it to their customers. That kept us alive for another year. Then that ran out of gas so we decided to try advertising in magazines. We had an ad agency do the first ad but that didn’t work. It didn’t generate sales to cover its costs. But then a friend taught me how to write a direct-response ad.

WSJ: In 1992, Intuit began making accounting and tax software for businesses. What led the company down this path?

Mr. Cook:

We built Quicken as a home product, but when we did a tracking study, we discovered that half of our [customers] used it in an office. Initially, we ignored the results because we didn’t believe it. Three or four years later, it bugged me that people were still answering this question [Where are you using Quicken: Home, office or both?] in an odd way. It was when we started calling those customers that we discovered what was going on. There

was a giant unsolved problem that they faced. Every small business has to keep books, but most don’t understand debit and credit accounting. That’s why they were buying and using Quicken. So then we built the first accounting software with no accounting in it and we called it QuickBooks.

WSJ: Many of Intuit’s products are now Web-based and accessible via smartphones with apps like SnapTax. Is there a lesson here about adapting to whatever new platforms consumers are using the most?

Mr. Cook:

The lesson is the power of small entrepreneurial teams. Big organizations get committed to the way things were. It’s the small team led by an entrepreneur that can invent the way things will be. So SnapTax was done by a team of initially two and then three people. Similarly, our online-payroll service was done by a small team. Each one solves a problem that nobody else has solved and that’s what keeps the company on the cutting edge of change, whether it’s on mobile phones or Web services.

WSJ: The U.S. job market has been stagnant for years. How has the weak economy affected Intuit’s hiring activities?

Mr. Cook:

We stopped hiring in 2009 just to make sure which way things were going, but then we resumed hiring fairly soon thereafter. We’ve been increasing our work force for the past two years. We’re always hiring software engineers and data analysts. We just brought in a new CIO, a returning employee, and we just hired a head of corporate strategy. We’re particularly looking for people who have entrepreneurial talent.

WSJ: Many company founders move on after their businesses go public. But you’ve stayed with Intuit and are now chairman of its executive committee. How come?

Mr. Cook:

Changing people’s lives and growing entrepreneurs is something I can do a lot more of here than elsewhere.

WSJ: What advice do you have for folks looking to follow in your footsteps?

Mr. Cook:

Find the problem that other people have ignored


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How services firms in India are using disruptive innovation

In 1995, a Harvard Business School professor named Clayton Christensenfirst wrote about what he termed disruptive innovation: “A process by which a product or service takes root initially in simple applications at the bottom of a market and relentlessly moves up the market, eventually displacing established competitors.”

The quest by manufacturing companies to reach out to poor customers by persistently dropping prices is a well-known story. It is now the turn of service companies to walk down the same path. Over the past five years, a clutch of entrepreneurial companies has emerged in India to challenge existing business assumptions and offer quality services at low prices—delivering healthy newborn babies in hygienic hospitals; employing deaf adults to deliver packages; washing, drying and ironing clothes and linen; transporting the sick and injured to private or government hospitals in ambulances.

Village Laundry Services‟ Chamak, the wash-dry-iron-deliver start-up, is Innosight Ventures‟ first incubation in India with an investment of $1.5 million in 2007

In order to win over consumers to such services offered by such enterprises, setting the price platform becomes the most important task. “If price is to be the basis of competition—as it so frequently is in emerging markets—first establish the competitive price and create a rough cost structure. Then work backwards to determine what processes and resources are needed to meet the price requirement. Careful observation of customer needs will allow you to offer unique value tailored to the local market, even at low prices,” wrote Matthew J. Eyring, president of Innosight, a consulting firm started by Christensen, in a Financial Times blog in January.

This is what was done at LifeSpring Hospitals Pvt. Ltd, which tries to bridge the yawning gap between the substandard maternity services offered by underfunded public hospitals on the one hand and expensive ones available in private hospitals on the other.

Anant Kumar, chief executive officer of the Hyderabad-headquartered company, was working at Hindustan Latex Family Planning and Promotion Trust, selling condoms and pills to stop unplanned pregnancies, when he came face to face with “the crumbling government infrastructure” where the supposedly free maternity services could be accessed only after paying “bribes to security guards and nurses”.

Kumar had the business model of low-cost airlines in mind when he sought help from audit and consulting firm KPMG to offer low-cost and high-quality maternity services. The nine LifeSpring Hospitals in Andhra Pradesh charge Rs4,000 for a normal delivery, compared with the Rs6,000 charged by small nursing homes and Rs30,000 by large corporate hospital chains, he says.

Acumen Fund, which invests in businesses that focus on their social impact, has invested $1.9 million (around Rs8 crore today) for a 50% stake in LifeSpring Hospitals. Funding from Acumen and 50% ownership by HLL Lifecare Ltd (formerly Hindustan Latex) has helped the firm grow from its opening in 2005 to nine hospitals today.

There are other more independent ventures such as Dhruv Lakra‟s Mirakle Couriers, which he quit Merrill Lynch to start and run in Mumbai in late 2008. Lakra employs 63 deaf adults and two able-bodied professionals (the reverse ratio for such employees is prevalent in a typical Indian company). Lakra says he has steered clear of investors because he did not want the fact of having to give commercial returns make him lose sight of his main objective, which was to help the six million deaf people in India.

Lakra is managing a cash break-even, self-funded venture, started with Rs10,000, which is still to turn profitable. Christensen has ascribed this problem of “too much capital” in an interview he gave to Newsweek on 18 August 2010, saying: “The more capital, the longer a company can go without testing its fundamental assumptions.”

Dedicated funds such as Acumen Fund do accept a lower return over a longer period of investment. Robert Katz, portfolio associate at Acumen Fund, says: “They (LifeSpring Hospitals) showed they could apply tools of business to high quality, low-cost maternal care for which there is a huge need. It is true that we push out the projections from time to time, but that is to ensure we have the desired unit economics such as revenues from each hospital in place before replicating the model.”

In the meantime, LifeSpring‟s first hospital at Moula-ali in the Malkajgiri locality of Hyderabad has captured 48% of the baby delivery market in FY10 or 1,300 deliveries, according to Kumar.

Innosight Ventures, which funds firms venturing into disruptive innovation, was here in India when the Tata Nano—undoubtedly a disruptive innovation—was being showcased, and was amazed at the potential that such companies had in India and also the rest of Asia.

Speaking on disruptive innovation, Scott D. Anthony, managing director of Innosight Ventures and a student of Christensen, says that services companies are “more likely to develop compelling offerings as they have no choice, but to innovate the business model”. He compares this with the “trap that product-based companies often encounter, assuming that winning in emerging markets is all about trying to meet lower price points without asking whether the target consumer will consider the resulting product any good”.

Village Laundry Service Pvt. Ltd (VLS), the full-service wash-dry-iron-deliver start-up that is much cheaper than boutique laundry services and more hygienic than the roadside dhobi services,

is Innosight Ventures‟ first incubation in India, done in 2007 with an initial investment of $1.5 million.

While VLS‟ Chamak, Mirakle Couriers and Pronto Franchising Pvt. Ltd, or Mr. Pronto, (a Chennai-based shoe repair chain) do not explicitly target the working poor, they all employ workers from this population who, in turn, can act as spokespersons to the community they represent. In India, a common problem for firms targeting the working poor is the suspicion of the target consumer. Kumar of LifeSpring Hospitals says that his patients although exploited by the government hospitals are suspicious of the LifeSpring Hospitals offering because simply put they think it is “too good to be true”.

In the case of 1298, an ambulance service founded in 2005 and funded by Acumen Fund, it was simply raising awareness that “calling for an ambulance with medical equipment and paramedic support is better than rushing unaided to the hospital”.

These problems, though, are not a deal-breaker. Applying disruptive innovation seems to be a no-brainer in an emerging market such as India, where its enormous middle class and working poor population deserve an improved quality in and access to basic amenities. Innosight Ventures‟ Anthony points out that even large organizations are adopting the disruptive innovation model such as Procter and Gamble Co., whose low-cost razor Guard was launched in India this past October as a substitute for “hundreds of millions of Indians who use double-edged razors”. Disruptive innovation is going to influence companies large and small, global and local, and going by his comments sitting on haunches is not an option.

“Many of the most powerful Indian companies grew by disrupting higher-cost Western competitors—Infosys is a great example of this. Western companies are fighting back on those companies‟ home turf. Consider General Electric‟s well publicized „reverse innovation‟ efforts, where it develops new medical devices that are attuned to the needs of lower-income customers in emerging markets. Wouldn‟t it be a twist if the emerging giants lost the battle on their own turf? If they don‟t frame their domestic markets in the right way, they just might,” he adds.

By Malvika Jain

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Recession fuels disruptive innovation

New Delhi Home Minister P. Chidambaram, after inaugurating TiEcon Delhi 2009, one of India’s largest entrepreneurship conference, said, that an entrepreneur has a difficult path to choose and a difficult path to tread. One of session titled, ‘Starting up-Is there ever a right time’, discussed about aspects that have an impact on the entrepreneurial environment and the opportunities relevant to Indian companies, particularly the Startups. Two eminent speakers at the session spoke to about entrepreneurship in brief. Bejul Somaia, Managing Director, Lightspeed Venture Partners: Q. Does an upturn or a downturn (in economy) really matter to a budding entrepreneur? One always has to be aware of it. If one has an idea, one has to strive to validate that idea, because at the end of the day, a good business is a good business. Q. What things should a budding entrepreneur keep in mind before venturing out? It is really validating the idea, by putting the entire plan together. Apart from this, one has to pay a patient ear to the views most of the people have about your upcoming venture. If the majority views go against it, one should have a relook at the entire plan. Q. Is India ripe enough for the Dot Com investments in the current times? I don’t think so (that the Indian market is ripe enough for the Dot Com investments). Q. How do you see the venture capital industry in India? It (Venture capital industry) is emerging. Q. What is one key assurance which venture capitalists look forward to, from the budding entrepreneur? Profit (Smiles). Actually, there is no one key assurance. What is more important for a budding entrepreneur, a burning passion or a sound planning (for the new enterprise)? Success comes, if have a plan with a passion. Passion alone without a sound plan is not sufficient enough. Moorthy Uppaluri, General Manager, DPE, Microsoft India Q. How easy or difficult is to start an Online business in India? It used to be difficult. Difficult, because of several factors like, lack of proper software, infrastructure and the market intelligence, which are essential for any new Online business. Microsoft in its effort to assist upcoming Online business ventures, has come up with a platform strategy- Windows Azure platform, which is all about cloud computing. With this service platform, people thinking about setting up online venture, do not need to think about the infrastructure, the server and Microsoft also gets them to the market place. What advantage, if any,

 It (the economic crisis) provides several leverages (to the upcoming enterprises). See, crisis is a rare thing that happens once in a lifetime. Last time it happened in the 1920s. Recession provides an opportunity for the disruptive innovation, which is more relevant to the market demands. You can see new players emerging during the recession, as it (the recession) pulls up the small players and puts a pressure on the big players. Disruptive innovation refers to thinking out of the box, a strategy which becomes more viable during the tough times like the global recession. To what extent is financial literacy still a challenge for the upcoming entrepreneurs in India? Financial literacy is a foundational thing for any business venture. Financial literacy is a foundational thing for any business. The entrepreneur needs to secure funds and unless you are financially savvy you cannot have leverage in negotiations. Since cash is the king, people should know how to manage the cash. Is an entrepreneurship just about taking risks or is it more about calculated risks? Business is more about calculated risks. Though you cannot be risk averse, but business is different from gambling. Despite the risks you take, at the end of the day you still need to do the business. Q. How do you see the venture capital industry in India? It (Venture Capital Industry) is cautiously optimistic. But their (Venture capitalists) strategy in India is not to put all the eggs in one basket. From the perspective of VCs, India is the best economy, because of several factors like increasing amount of spare capital, huge manpower talent and other resources which the country is naturally endowed with. Q. Does an upturn or a downturn (in economy) really matter to a budding entrepreneur? It (State of economy) should not matter (to the budding entrepreneur).

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The Top Six Innovation Ideas of 2011

That’s right. 2011. These six ideas emerged in 2010 as powerful “innovation invitations” and seem sure to intensify in power and influence. They’ll increasingly be a source of, and resource for, innovation differentiation in 2011, if not for your organization, then for the firm you most dread competing against. 1. Contestification Whether Google Demo Slam or Sprint’s App Competition, digital media has become an innovation battleground for customers, clients, prospective partners, and young talent.Frito-Lay has already made competition the cornerstone of its Super Bowl advertising, and Toyota, desperate to remind people what a wonderful corporate citizen it can be, invites aspiring innovators to suggest how the firm’s technology can be used for good in unexpected ways. Crowdsourced contestification is becoming institutionalized as a way firms can grow their own innovation nations. If you’re not running an innovative innovation contest to invite participation and build brand, then you’re reacting to your competitor’s competition. Will your contest be competitive with their contest? Who’s running it? Who’s judging it? Who’s winning it? 2. Keep Touching Me and I’ll Screen! Anyone who has an iPhone, iPad, or Kindle knows that media are no longer created merely to be viewed — content is designed to be touched, tapped, stroked, fingered, fondled, and pinched. Interfaces have gone tactile and haptic. The keyboard isn’t dead or dying, but it’s lost pride of place in defining onscreen interaction. Where professionals once wrote memos to be read, 2011 begins an era in which documents are written with touch both in mind and on fingertips. Designing documents to be a sensual physical experience and not just a visually cognitive one demands different aesthetics and sensibilities. This nascent transition will be as profoundly important for future interpersonal communications — and branding — as the transition from radio to television. Having the right touch to get the right touch will become a desirable communications competence. 3. WWWabs If you explore their websites, you’ll find American Express, Google, Intuit and scores of others have “labs” — not-quite-ready-for-prime-time alpha and beta versions of apps to explore and test. These innovation playgrounds vary wildy in quality, creativity and breadth. A few of these test-tube innovation babies are quirkily weird; others have the glimmer of interactive genius. These WWWabs will undoubtedly be reshaped by the seemingly irresistible rise of Facebook as an advertising and promotional vehicle. Indeed, Facebook’s role as a third-party innovation platform is still a work in process. However, the economics of experimentation for both customer-facing and internal WWWabs is undeniably favorable. It’s easy to marry a WWWabsite with a contest, for example. More important, WWWabs symbolize the substantial shift in one of the dying innovation anachronisms of the post-industrial era. That is, the importance of “research & development” to business innovation.

WWWaboratories are about the real future of virtual value creation. Instead of R&D, what matters is E&S — Experiment & Scale. WWWabs go mainstream worldwide next year. 4. That’s Quite A Coup, Onward Group! Google’s failed effort to acquire Groupon for a reported $6 billion (!) obscures the tectonic economic shift in global retail. Devices of all kinds have gone from advertising, branding, and marketing media to promotional platforms. The coup is in a new genre and generation of trackable couponing. Coupons have been redeemed as a “class” not just “mass” vehicle for luxury and high-status items as well as for everyday brands and staples. Digital coupons aren’t just “smart,” they can be “brilliant” — linked to recommendation engines, GPS, supply chains, etc. Once significant distinctions between coupons, coops, discounts, and promotional currencies are blurring into nothingness. Indeed, we’ll see “pick your preferred promotion options” in Android and Apple apps next year. Facebook, Foursquare, and Twitter will dramatically expand both the reach and ingenuity of their promotional partnerships. Advertising will take a backseat to promotional offers as retailers and brand managers alike collectively decide that branding a promotion matters just as much as promoting a brand. Next year will be the first year that almost half of all American and European shoppers have a digital coupon in their device almost half the times they shop. 5. From Farmville to Pharmville: We Got Game in Business I don’t like Farmville or Call of Duty but tens of millions of loyal players do. The Kinect interface has made Microsoft as culturally cool with gamers as Halo once did. The Kinect’s hackability has made that system even more appealing. Which means that, finally, social media-oriented games will finally cross the great divide from the living room and teenager’s bedroom into the workplace. There will be a Farmville counterpart or equivalent that becomes a welcome teaching and/or business simulation and learning tool in the enterprise. Unlike the Sims or SimHealth (which I once thought would be the gateway to enterprise gaming), the pervasiveness and growing acceptance of social media as an adult activity makes an adult business simulation game a probability instead of a possibility. The emergence of haptic, tactile, and gestural interfaces similarly boosts the opportunities for adult-oriented games design. Will this new game go viral first in China, Japan, Korea, or Europe before America? I haven’t a clue. Remember, it took over five years for texting to catch on in America. But the companies that succeed in gameifying their products, services, and brands will enjoy a certainZynga in their step. 6. A Beautifully Designed Lobby America remains the world’s largest economy by far. But this is a country confronting fundamental changes in the largest sector of its economy (healthcare), the most troubled sectors of its economy (housing and finance), as well as big-ticket sectors such as energy, education and telecommunications. No matter which way a CEO turns, she faces the spectre and shadow of increased government regulation and/or oversight. Europe faces comparable challenges as the EU as a monetary union confronts the limitations of the EU as a political project. China isn’t about to deregulate; India’s bureaucratic raj may be loosening its grip on the subcontinent’s marketplace but its

influence is unavoidable. In other words, a charismatically innovative lobbyist may have a bigger impact on marketplace success in 2011 than the country’s most savvy technologist or marketer. Even as the global financial crisis — and America’s housing crisis — ever so slowly dissipate, state intervention and involvement in the marketplace is arguably the single biggest gating factor in innovation. From EPA cleantech regulations to net neutrality to marginal tax rates to quantitative easing to currency wars, innovative executives have to pay attention to government behaviors as closely as they do customer behaviors. In 2011, a marginal dollar invested in a lobbying campaign may yield far greater returns than a dollar invested in a brave new technology innovation. Then again, it’s important for businesspeople to have the finest legislators that money can buy. Think of them as part of the global supply chain. This is my call for the top six ideas to watch next year. Which two of these six themes will matter most next year? What would make it on to your list of top ideas in 2011?

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