The Innovation Wheel
It’s the keystone needed to secure a future of growth and profitability for any company.
A little more than ten years ago the product that now brings in two-thirds of Apple’s total revenue was just an idea, but then the creation of the iPhone revolutionized the cell phone industry as well as launched a new era in mobile communication. Now, Apple runs the industry, and its late founder, Steve Jobs, attributed the company’s financial success to its dedication to innovation. That word gets tossed around a lot when talking about product development, but what does it really mean? Simply put, innovation is creating something new. However, through our work, we’ve observed that there are different levels of innovation that determine just how “new” a product really is, so we’ve created the Innovation Wheel to demonstrate the differences between these levels.
Replicating the success of another company’s innovation by creating your own version of the product
There is a section on the McDonald’s menu that provides an example of Reactive Innovation. In its “McCafé Frappé,” which is really just a cheaper, quicker imitation of the enormously popular Starbucks Frappuccino, McDonald’s practices Reactive Innovation by essentially mimicking the success of another product on the market. McDonald’s didn’t invent the drink, but now the fast-food company has a stake in the iced coffee market that will entice more customers. If your product is an example of Reactive Innovation, then it isn’t new or unique, but it does grab a piece of that market for your company.
If your product is an example of Reactive Innovation, then it isn’t new or unique, but it does grab a piece of that market for your company.
Updating or improving a product that already exists to meet customer expectations
New cars in 2017 almost always come with capabilities like a backup camera or push button start as standard features. However, these features that are more than common now were rare ten years ago. This is Incremental Innovation, making updates to a product that already exists to keep your customers’ attention. The product isn’t really new, but customers feel like it is because the updates have elevated the product to a newer level.
Focusing on Incremental Innovation is great if you’re just looking to sustain your company, but too much of it will hinder any true progress your company might have the potential to make.
Introducing a breakthrough product that forces the competition into Reactive Innovation
When the iPhone was first released, it completely disrupted the market by reinventing how we engage with our cell phones. It was a Transformative Innovation in the industry that forced the competition to react, and the iPhone now accounts for two-thirds of Apple’s total revenue.
Having a solid focus on Transformative Innovation is what will ultimately keep your company ahead of the competition and continue its growth. This focus may not be a majority of your company output, but determining just how much emphasis your specific company needs to put on Transformative Innovation is key in fostering profitability.
Producing something never seen before which creates both a new market and an ecosystem to support it
The airplane was a Pioneering Innovation that completely changed the way people worked and traveled. Cities, states, and countries were all connected like they never had been before, and a completely new market was created. In addition to the planes, the need for jet fuel to fill them, mechanics to work on them, and pilots to fly them formed the ecosystem that now supports the market.
It’s not every day that we see a Pioneering Innovation take off, so dedicating too much focus to developing such innovations probably isn’t conducive to maximizing growth.
The Innovation Life-Cycle
The Commodity Fall:
So you’ve released a product of Transformative Innovation. You’ve disrupted the market and forced your competition into Reactive Innovation as the competitors try to create something that can rival your product. Over time, as these rival products are released, your product’s value is going to lessen from dollars to cents. This is what we call the Commodity Fall — the depreciation of your product over time as competitors release similar products.
Knowing that other companies will be releasing comparable products, how do you maintain the high value of your product? How do you fight the Commodity Fall? Well, first, it’s important to recognize that the Commodity Fall happens at different rates for different industries. For example, a consumer product’s value will fall much more quickly than the value of a product in the industrial or medical fields, so knowing the typical length of the Commodity Fall relative to your industry is a big step toward fighting the depreciation of your product.
We expect new products to make $_______ revenue each year until ____ [year].
We expect $_______ revenue by ____ [year] from products that don’t exist today.
For innovative companies to stay relevant, something unique needs to be delivered to the market by creating a product pipeline that obsoletes existing products and creates new value. As we mentioned in the beginning, the iPhone, a product that didn’t exist ten years ago, now brings in two-thirds of Apple’s total revenue. So in order to reach the goals you’ve set for your company, you have to figure out what percentage of your business needs to be products that you didn’t have five years ago and use that formula to measure your progress.
INNOVATION CONVERSATION STARTERS
Questions to ask yourself and others:
- Have we as an organization defined what innovation means to us?
- How would you describe the startup that could put us out of business?
- Will your current R & D activities fulfill your revenue goals for the next 5 years?
- How much of your time, resources, or budget is focused on the different parts of the Innovation Wheel?
- How capable are we of delivering Transformative ideas and products to the market?
- How much revenue is expected from Transformative projects and how soon can you realize that revenue?
- How quickly will your product’s value be reduced based on the Commodity Fall?
- What new products are we positioned to deliver that our competition can’t?