Importance of product innovation is well documented. It leads to delivery of better value to customers, helps gain market share and increase top-line or the bottom-line.
A casual look at several new product failures suggests that firms struggle to understand what should the Primary Innovation Area (PIA) be. And more struggle is evident in new feature failures – demonstrating perhaps even Allied Innovation Areas (AIA) are unclear. Such lack of clarity drives firms towards inevitable bad innovation. Why would that be? Before we delve into it, let us understand how PIA and AIA in a product drive core and augmented value to customers respectively.
For example, in India, the Core value of an automated two-wheeler is cost-effective and yet personal transportation (when compared with car). The relevant PIA may be fuel efficiency, especially combustion (e.g. MPFI). A two-wheeler manufacturer’s sustained innovations in combustion technologies will help attract more and consumers, gain market share and grow the business. Similarly, an Augmented value may be secure feeling about available fuel. AIA may be in gadgets that shows “kilometers left to empty” instead of a simple fuel indicator.
A few more examples of PIA and Core value of product innovation:
- PIA: Google’s Page Rank Algorithm -> Core value: delivering relevant search results.
- PIA: Reliance Jio’s optical fibre network -> Core value: faster connectivity.
- PIA: Samsung’s handset (e.g. a 5G phone) -> Core value: faster connectivity and better display.
A few more examples of AIA and Augmented value of product innovation:
- AIA: GM car’s interiors – OnStar FMV that replaces one’s rear-view mirror
- AIA: Google’s search results page – Easier navigation and layout.
Performance and continuous improvements in Core value (driven by PIA) is critical for even consideration of product; otherwise a product would be rejected. Post consideration of a product, performance and continuous improvements in Augmented value (driven by AIA) will pip the decision in favour among the alternatives. Unless a firm clearly understands the linkage between PIA and Core Value and similarly between AIA and Augmented Value, it will either fail to innovate or do so badly. Bad innovations will lead to losing market share to good innovators.
So why would firms have poor understanding of areas to innovate (whether Primary or Allied)?
- Innovation area is not tightly linked to customer needs. Innovating teams often believe they know what consumers want when in fact they are innovating what they could and not what they should (I have several hilarious ones as e.g. – iPotty for toddlers for one!). One of the most striking in the list of failures is QR Code in advertising. Even the tech savvy who produced it and understand how to use it (Hint: scan it using an app in your smart phone), would not use it since very few of them like the intrusive in-the-face advertising.
- Idea is not aligned with the core brand. Why would LG the electronics giant dabble in personal care, Cosmopolitan magazine dabble in yoghurt (yes..yoghurt!), Colgate dabble in Kitchen Entrees,etc.?
- Innovation in one area lowers value in another. Consider a new property portal. The value of the site goes up when several people search for properties and when there are several properties listed. Primary revenue come from builders who list their properties. So should a firm innovate in delivering new properties that match search queries or innovate in delivering leads to paying property developers? Finding that balance may not be easy.
- Part monetization of a value chain. Consider LinkedIn. Three steps – profile creation, search and contact – create value to members. But only the last one is fully monetized. One runs the risk of innovation agenda being lopsided – concentrating more in areas that generate value. In this example, a firm may innovate more in how to contact better, e.g. through better chats, ensuring contacts numbers / email IDs are valid etc. It may run the risk of innovating less in areas such as delivering the right search results or getting relevant profile information. There is one another risk when revenues and innovation areas are not directly connected. The causal links are less evident and hence innovation may not be not fruitful.
- Not within the core competencies. We realize today what Whatsapp did to SMS revenues of telecom firms and also now to audio calling. Development of Apps may not be their core competency.
- Complex competencies have to come together. For firms such as hospital, core innovation may mean something like this: “reduce death rates in operating theaters and procedures”. While this may be relevant and meaningful to patients, it may call for teams from medical, technological and other disciplines come together. Typically quality of innovation suffers when several disciplines are called for.
The solutions to above issues are not simple. Having a Product Innovation Charter (PIC) helps. It is a critical strategic document. It is the heart of any organized effort to commercialize a new product. It contains the reasons why an innovation project has been started, the goals, objectives, guidelines, and boundaries of the project. It is the “who, what, where, when, and why” of the product development project.
Having a Product Innovation Charter helps identifying (1) target areas for innovation (2) strategic objectives that will be met with measures of success, (3) programs of activities to be selected for achieving the goals, (4) areas of competencies that will be leveraged (5) special conditions, restrictions or mandates. Researches suggest that firms that have PICs have much higher chances of avoiding the above referred issues that lead to bad innovation.
Probably the simplest questions are these: (1) have we the proof that customer need it and will buy from us (2) have the capabilities to build and sustain it and (3) will it make real difference to the top-line or the bottom-line?