Time to Ignore the Competition

One of the first questions businesses ask- especially when sales are down, when the markets are tough, when customers are lost - is, "what is the competition doing?"  Many innovation projects start with researchers and consultants probing the market to understand what competitors are up to. Marketing is analyzed, products are investigated and former employees are often questioned - all in an effort to understand what the competition is up to, and what should be done to compete with them.

It's almost as if companies are trying to innovate by asking what was done in the past.

Unfortunately, this kind of research never leads to innovation.  When the focus is on what a competitor is doing, one is condemned to follow what a competitor does. Even if one improves on something that a competitor is doing, only small increments of change are possible. Innovation that changes markets, creates new customers, and delivers high margins and profitability does not come from the competition.

Would Edison have created a business around electic lights and electric distribution if he had paid too much attention to the gas light competition?  Could telegraphs have been developed by trying to innovate a better horse and rider?  The personal computer was developed - not as a competing super computer to the mainframes - but as a completely new path, use and user for a smaller, cheaper, more flexible computer.

Instead of listening too much to competition, perhaps it's time to listen more to customers. Customers may not always know what they want, but they can tell you what bugs them, what they want to do with their lives, with their businesses, with their families.  Customers can give you opportunities, challenges, and new ideas - but only if you are willing to listen to them.

And by listening, I don't mean researching them...that's what the competition is doing right now. Instead, try sitting down and talking with them.  Throw out some ideas and see how they react. Ask them why they disagree with you. Try to find out what makes them laugh.  

The competition always has the same old ideas.  Customers have all sorts of new ones - if you sit down and talk with them. 

If you want to innovate, try ignoring the competition for a little while.

Can you afford to innovate now?

During difficult economic times,  many ask, "can't innovation wait?" It seems a reasonable question - companies are facing catastrophic losses, reduction in demand for their products and services, and uncertainty in debt markets, legislation, and fuel prices.  Why engage in the risky practice of innovation - or change what you are doing - when there is so much danger, uncertainty and change in the world around you?

Isn't it better just to hold on and wait for this storm to pass?

No.

Consider the following list of companies:

General Electric

Hewlett-Packard

Jim Henson Company (the Muppets)

Hyatt Corporation

Fed Ex

Microsoft

Apple

CNN

What do they have in common?  

When they began they all challenged the accepted business model of their time.  They were all innovators. 

They also all started during recessions. 

General Electric created entire industries that didn't exist before - even though it started during the financial panic of 1873.  Hewlett-Packard started during the great depression, but created technology that helped to win wars and build entire industries.  During a recession in the late fifties, Jim Henson transformed puppetry and in the process created a massive global entertainment platform while Hyatt Hotels  began to build a global portfolio of hotels.  Microsoft and Apple were started during a time (the 1970's) when multiple recessions had convinced most experts that American business was no longer able to grow. Fortunately, those experts were wrong - in great part, thanks to the innovations of personal computers and the Internet.

How is that possible?

There are many reasons for a recession to happen, but whenever an economy is in one, the rules for success change dramatically.  Capital becomes scarce, raw materials unreliable, customers reluctant to buy.  What was easy before suddenly becomes more complicated.  Products that everyone had to have at any price before, suddenly lose their value.  But as long as there are still people living their lives, there are ways to create something they need, want and will pay for - it just might be a little different than it was before.

As an example, during the year-long recession in 2008, innovative on-line retailer Amazon had a 28% increase in net income. At the same time, retailers that did not innovate such as Circuit City are facing diminished market share, lost sales and even bankruptcy.

Companies that perceive and understand the new rules in a recession are able to innovate and thrive, while those that continue as they did before risk losing everything.  

Most people's natural inclination is to continue doing what they did before - even when it doesn't work as well as it used to.  Innovators change what they are doing, how they are doing it and even why they are doing it in order to succeed in a new environment.

Strangely then, the most dangerous strategy is to avoid innovation during a downturn.

It's times like these that the imperative for every company, every leader, every manager must be to challenge all assumptions based on a rising market.  Every process, every service, every product must be looked at from a fresh perspective - and changed to fit the new reality of a down market.

In a recession, can you afford not to innovate?

Innovation is a subersive act

Innovation often happens in companies despite their best efforts, not because of it.

The inherent problem of innovation is that it requires a low level of respect for orthodoxy, institutions, organizations and customs.  In order to imagine, develop and sell something new, one has to assume that the old way is not necessarily the only or best way to do something. The threat innovation presents to the existing order of things is irrelevance, even extinction. Innovation gets around the rules of the road and quite often creates new rules.  It subverts our understanding of what is possible. Innovation alters, manipulates and even destroys the present in order to create the future.

In 1633, when Galileo discovered that the Earth moved around the Sun - an observation that allowed for an entirely new understanding of the world, the Catholic church did everything they could to squash that innovation, and declared in their statement, "...the proposition that the sun is the center of the world and does not move from its place is absurd and...heretical, because it is expressly contrary to the Holy Scripture."  Galileo was denounced and imprisoned, while the incredibly successful Catholic Church took more than three centuries to adapt their outlook to a new reality.

The Catholic Church rejected this new idea - not because they wished to avoid progress, but because innovation potentially threatened their position as an organization that understood the true nature of the world.  If they accepted this new view of the heavens, they would have to abandon their own orthodoxy, possibly undermining their own position as the dispenser of truths and possibly encourage their constituents to leave the church.  This innovation was perceived to threaten their survival.  Interestingly, the church's reluctance to accept changes in science, custom and culture, though at times a strength, has also allowed other philosophies and religious institutions to rise and flourish in their stead.

It's logical that a successful organization will likely resist or reject innovation that challenges their success.  IBM resisted PC's as long as they could - and even undermined their own PC division.  Microsoft resisted the Internet, social networking and open source programming as long as they possibly could- for each one of these innovations threatens the success of their existing business.  The auto industry still resists innovations that challenge the internal combustion engine.  Aristocracies have resisted democratic governance for thousands of years. The list of successful organizations that have rejected, squashed or resisted innovation is endless. 

And in almost every case, the reigning orthodoxy states with absolute certainty, "this innovation is impossible."  Man will never fly.  It is impossible to go to the moon.  No one will ever want a personal computer.  Cars will never be inexpensive enough for everyone to own.  It's impossible for France and England to be allies.  An African American can never be elected president of the United States.

So why would a company want to foster innovation?  They don't.  Almost all companies talk about the need for innovation, and spend time, money and resources instituting innovation projects and programs.  They may even boast about their innovations, R&D spending, patents and new products...but underneath their official story, they don't really want to innovate. Even while discussing the importance and ideals of innovation, successful companies are uncounciously incented to keep innovation from happening.

Put in another way - if a company is successful, has a strong market share, is able to provide executives with fat paychecks, workers with reliable salaries, and investors with reliable returns, why on earth would they want to jeopardize success with a completely new way of doing something.  Doesn't it make more sense to gradually improve what they have instead of changing it?

This strategy of avoiding any real innovation seems reasonable.  It seems like a way to avoid unnecessary risk.  It seems like the right thing to do.  If we allowed unfettered innovation, how on earth would companies survive?

And yet, how can a company survive unless they can adapt to change, find new opportunities, and define the future for customers and investors?  Companies must innovate, not because it is easy, inexpensive, comfortable or risk free; but because without it, they will ultimately fail. Without innovation, one has to accept that the world is flat, that the United States of America cannot exist, that slaves are necessary for an economy to thrive, that only priests can read text or interpret reality, that illness cannot be cured, or that children cannot do better than their parents. If orthodoxies and assumptions are never challenged by an organization - another organization that is willing to do so will ultimately take their place.

Central to the task of innovating inside an established organization is to become comfortable with the notion of subverting oneself.  Organizations that can balance the need for continuity, certainty and harmony with the need for disruption, uncertainty and the dissonance of innovation are more likely to last longer, to reinvent themselves and thrive in good times and bad.

Innovation is subversive and dangerous - but it's also essential.  It is important that innovation programs are taken seriously, are given appropriate room to succeed or fail, and are listened to and acted upon even if the results threaten current orthodoxies.  

Does innovation work when it's too innovative?

Innovation is needed now more than ever and companies, governments and organizations are trying to figure out how to become more innovative, and more successful at innovating.

But can the new thrive without the old?  

Once the first adopters of an innovation have latched on to something, can the rest of the world catch on without some form of help?  Or as Geoffrey Moore in his excellent book, Crossing the Chasm might ask, "How can we move from Early Adopters of an innovation to the Early Majority?"

There's an interesting paradox here:  most marketers would agree that something completely new is a difficult sell...even though we are all in the business of selling something new.

In other words, innovation needs to be new, without being new.

Do we need a bridge from the old way of doing things to a new way of doing things?  If so, what is that bridge and how do we build it?

Let's look at one area of innovation growth:  the Internet innovation attracting the most attention these days is the explosive growth of social media networking tools such as Facebook, LinkedIn, MySpace, YouTube, Helium, del.icio.us, Craigslist and Wikipedia...new Internet environments that allow people to connect and collaborate in ways never thought possible before.  The book of the moment by Charlene Li and Josh Bernoff describes all these social technologies as a Groundswell.  This stuff is so ubiquitous, so easy-to-use and so inexpensive that more people are engaging with it at an exponential pace every day.  It has become so mainstream, that many people credit these networking tools for changing the very nature of the US political process.

But there's one more potential reason for why these innovative ideas have become mainstream so quickly.  They don't really seem that new.

Each of these tools are in some way based upon systems that already exist, that people are already comfortable with, that are entirely familiar.  Address books, bulletin boards, diaries, episodic storytelling and networking have been a part of everyone's life for generations. None of these innovations have asked users to change what they are doing - rather augmenting what they already do.  And most users do not exclusively use these tools without combining them with some for of actual connection in the real world.  A business person may keep their address book in LinkedIn, but they still call someone up to get to know them better, or share a cup of coffee with them between Twitter posts.

Another example comes from the beginning of the World Wide Web in the 1990's, when everyone extolled the power of virtual businesses.  Someday, 

everyone assumed, there would be no more "bricks and mortar" stores - everything would be virtual.  Perhaps - but it hasn't happened yet.  Instead, there has

 been a gradual redefinition of retail to a hybrid that combines both the Internet and actual visits to stores.  Old style retailers ranging from J.Crew to Sears, to Barnes & Noble and Best Buy discovered the power of the Internet to expand sales and communicate directly to their customers.    Customers of the stores became customers on the Internet, because they found everything to be just like going to a store - even a "shopping cart" was provided.

And why am I typing this blog post with a QWERTY keyboard...

designed to help slow down a typist's speed so that a mechanical typewriter wouldn't jam quite so often?

The hybrid of old and new provides a bridge for innovation. Innovation needs to be old as well as new, familiar as well as novel if it is to be adopted.

How does this work...really?

There's always at least two versions of how a relationship or process works. There is the official version; what we learn in school, hear in a political speech, put on brochures or report to investors. And then there is the real version - the version usually prefaced by, "this is how things really work."

In order to change or improve something, understanding "how things really work" should be essential. And yet, innovation efforts quite often start without anyone challenging the official version of the truth. An obvious example right now would be the US auto industry, where innovators wasted much of their time, resources and labor improving something that may not have been that important to customers...at least not important enough to pay for it when it became expensive.

In the 1990's and early 2000's, US car buyers could purchase cars with more and more power. The conventional thinking was that since consumers enjoyed powerful cars and since they continued to buy them, they must really want more powerful cars. The logical extension of this "official version" of the market was that larger, more powerful cars would always command a greater market share and price premiums. Innovation resources at GM, Chrysler and Ford focused on delivering more power every year - and they delivered admirably. Sales continued to do very well throughout that period as the roads clogged up with SUV's, muscle cars, and ever larger pick up trucks.

But...no matter how big their trucks became, the American car companies continued to lose market share to companies like Toyota and Honda...even when American cars cost less money...

Meanwhile, non-US manufactures continued to improve the efficiency of their cars. A few attempts at producing large non-US cars (usually manufactured in the US) were relatively successful, but they never stopped making efficient small cars. And every year, their market share increased. Every year, even though the conventional thinking was that US car buyers preferred to buy large and powerful engines - companies with smaller engines sold more.

Was "the way things really work" different than we thought?

After a protracted war and conflict in oil producing countries, increased awareness of environmental threats and an unprecedented volatility in gas prices, American cars and trucks stopped selling. And Toyota kept growing.

But how could that be? Americans love their muscle cars and trucks, don't they? At least, that's the official version of the truth.

The un-official version? Perhaps most Americans - like everyone else in the world - don't put that much priority on horse power. Something else probably drives their purchasing behavior - and it just looks like they are addicted to muscle. Otherwise, if horse power were truly a dominant reason to buy a car, buyers would make whatever sacrifices necessary to keep buying it - even as oil prices fluctuate and global warming becomes an accepted context.

This was an easy trap, and almost everyone has at some time or another fallen into it. The official version of the truth - although useful for continuing the existing order of things - is very deceptive when it comes to innovation or preparing for future change.

Good innovators rarely believe the official truth. To innovate almost requires one to be skeptical - even subversive - when considering the established order of things. That's why, when considering innovation, it can help to use a single word, "Really".

The next time you are asked to improve something, make sure you are ready to ask, "really?" early and often.

A proposed "Really" method for innovation preparation

Step One - determine how it works now...really...when a customer buys, uses, displays and disposes of your product/service/process, ask "why?" Start with the official version of reality, then ask the question, "Is that REALLY what happens?". Probe, ask questions, determine what the actual motivations, actions and functions are - not the perceived value - the real value.

Step Two - determine what isn't working...really... where is the pain, what stinks about a product, service or process? Where do people feel most frustrated? How do they work around what stinks? How are they overcoming your lousy output? What are the band-aides? What is the alternative?

Step Three - What do we want...really... start with an official version of what people want - then ask "really?" Is that what we really want? Is there something else that would be even better? What do we really hope to accomplish? What does that look like?

When you understand what really happens, what really isn't working, and what people really want, you may have a foundation for meaningful innovation.

Really.

Does innovation count if no one pays for it?

I've always liked the old existential riddle regarding a tree falling in the forest that no-one hears.  Did it really happen?  A more pragmatic or appropriate question might be, "Does it matter?"

If an innovation doesn't sell, it doesn't gain a higher price, a higher margin, or a greater share of market - I not only have to ask if it matters, I wonder if it can be called real or meaningful innovation...is it really innovation if no one values it enough to pay for it?

Innovation for the sake of exploration may very well be an important part of how we extend knowledge, understand the meaning of life, or someday discover cold fusion, but in the context of business, this question becomes simple to answer.  If no one is willing to pay for it - as far as business is concerned, it shouldn't matter.

This was illustrated quite graphically to me recently.  Amidst the imminent collapse of the U.S. auto industry, there has been quite a bit of criticism about a lack of innovative over the last few decades.  No one outside of GM and Chrysler is surprised to find that at the end of 2008, they are unable to operate without significant help from the US government - as fewer car buyers are willing to purchase their products every year.

I recently met a very smart person who has"big 3" auto companies as clients and asked him why he thought US car companies have stopped innovating.  His answer astonished me.

"US car companies have been delivering innovations at a terrific pace for more than ten years."

He wanted to talk about restructuring and the deals being made in Washington DC, but before he went deeper into the details of labor issues and unfunded pensions - I had to press him further on what those innovations are.

"Just look at the Hemi engine," he said, "the GT, the Cadillac, even the Hummer...these represent amazing technical advances that no one else can match...the amount of horsepower they are now putting under the hood is astonishing."

He was right. When you look around at modern American cars, the amount of pure power is astonishing.  The last time I drove a rental car, I was thrilled to pull out from a toll booth at a nearly criminal velocity.  It is amazing how much horsepower you get with an American car.  The engineers in Detroit have innovated many aspects of what's under the hood - and every year people have been able to accelerate just a little bit faster.

But...

I have one question...with most driving done in cities, and most city speed limits between 30 and 50 MPH, is shortening the time spent going from 0 to 60 MPH the most valuable thing to innovate?  I love being thrown back in my seat when I step on the gas - but is that worth $30,000 to me?  Are there other innovations that might create a new market, attract more customers and grow margins?  

In other words, has Detroit been innovating the wrong things all this time?

While Detroit increased their engine power,  companies elsewhere used innovation to create significant new business- Toyota produced a small hybrid car (with anemic acceleration, I might add) that has waiting lists of buyers willing to pay over $30,000 for essentially a small and slow car.  Zip Cars experienced explosive growth in major cities by challenging the concept of ownership - offering a new kind of hourly rental And there are several other promising innovations surfacing, including Better Place in Israel that is changing the entire model for fueling cars by offering swappable batteries for electric cars that consumers pay for by the mile - instead of by the gallon.

Other companies are trying to solve car user problems such as environmental impact, fuel costs, total price of ownership and convenience.

Detroit is improving acceleration.

I don't want to denigrate the astonishing engineering accomplishment of a Hemi engine.  I do, however, question it's value in a world of drivers spending hours a day in rush hour traffic moving at 20MPH.  It seems that auto buyers throughout the world are asking the same questions - and are waiting for more meaningful innovations - innovations they are willing to buy even if it costs more.

I'm surprised at how easily innovation teams can overlook this fundamental idea.

And so when I work with my clients in other industries, the lesson of Detroit sugessts a useful - and perhaps somewhat obvious - rule for everyone to use when evaluating what innovations to persue:

 

Innovation doesn't count unless someone wants to pay for it.

Is it Marketing or is it Nagging?

Communication is a central part of managing companies, of persuading markets or of leading governments. However, when people talk about communication, they often seem to be missing out on what the word actually means.

Inside organizations, when an individual or small group comes up with an idea, innovation, or plan of action, they hone it, make sure that they have worked out how best to make it work, how best to implement. Then, when the plans are all in place, they decide to "communicate" it to whomever has to live with the new idea.

Most professionals have spent time with change management and six sigma consultants. Well-trained employees talk about gaining "buy-in" for an idea - of communicating with key people and getting them to support the idea. In marketing departments, a value proposition is carefully constructed and then a series of communication strategies are used to communicate that value proposition to the target market. In politics, the message masters hone their talking points, then repeat them until the voters can recite them verbatim. Professionals are using a communications formula.

But the formula rarely works as well as it should. People hear the messages, but they don't always believe it. Audiences lose interest. Markets enjoy the commercials but don't buy the products. Voters focus more on a sigh than on a platform position. Why is that?

Perhaps there's more to communication than the current formula? Perhaps our assumptions about communication are flawed?

A central assumption is that communication is a one-way activity. The communicator talks and the audience receives the message. But look at the word "communication" itself. The first half of the word is "commun" - a root for "community" and "commune". Does this suggest that communicating is a group activity? And if it is, why do our formulas for communicating tend to only work in one direction: I talk and you listen?

As a test of that assumption, imagine your own family communications. Can a wife effectively persuade a husband telling him to put away his shoes over and over again? Can a father persuade a teen-age son to avoid smoking with a series of bullet points? Perhaps...but family counselors and other experts seem to suggest that a more effective (and more enjoyable) approach maybe to enter into a real conversation with family members, find out why they are doing what they are doing, make clear that you understand and value their point of view, discuss together how it might be possible to change - and maybe even come to a decision together that neither one thought of before.

Another way to look at it is - when you commune, you are learning. Communicating requires that you learn from the people you communicate to - what they need, what they want, what they know, how they might help solve a problem, how they can help you to do better. Too often, the assumption is that the speaker knows something and therfore needs to place that knowledge with the listener.

And why then, even though nagging family members doesn't work so well, do we insist on nagging our customers, colleagues and constituents? Why do we hire advertising and PR firms to nag the markets with greater skill and polish than we could manage? Why are we nagging?Instead of working on becoming more and more accomplished nags, perhaps we should change our assumptions and stop nagging altogether.

What would a company look like if it changed the communication assumption in order to listen and learn from the people?

A few months ago in the New York Times, I saw a company that has begun to find out. (http://www.nytimes.com/2008/03/01/business/01nocera.html?pagewanted=1) Mickey Drexler, the current CEO of the retailer J.Crew, has managed quite a turnaround for the company. As described by the NYT, key to his process is a constant and in-depth conversation with his customers and his employees.
"Visiting stores, quizzing the staff, critiquing everything in sight — and most of all, meeting customers — is at the core of how Mr. Drexler runs J. Crew. It’s also what makes him happiest. "
Mr. Drexler is known throughout the J.Crew chain for showing up in a store and talking with customers and salespeople and finding out what they like, what they don't like, what works and what doesn't. He delights in trying to persuade someone to put on a new outfit and tell him what they think of it. Instead of telling customers what they should buy, he asks customers what he should offer.

Mr. Drexler has found a way to market to his customers by constantly learning from them. He communicates the company's mission, values and strategy by listening to associates and customers - by "communing" with them.

How can other companies stop nagging their customers and commune like Mr. Drexler?