Innovation methods part 1

There are various innovation approaches that help create completely new high-growth opportunities. Not all of these are disruptive, but they can all be a shock to the market incumbents. Over the next few days I will publish some techniques that I have used to help create new opportunities.

1. Change the basis of competition

Changing the basis on which an industry competes is a powerful technique for taking a major share, or even control, of the industry away from the incumbents. It shifts a market from the area in which the incumbents have all of the skills needed to where the innovator has the skills and competitive advantage.

Apple has brought us great innovation again and again, from the Mac user interface through the iMac, iTunes and iPod to the iPhone, iPad and now iCloud. The common theme to all of these is that Apple has changed the basis of competition in the target market to competing through an improved user experience. These products are also designed to work well together, exploiting one of the basic principles of disruptive innovation – when there is a performance gap (in this case, the integrated user experience across all consumer devices is poor to non-existent) then an interdependent architecture developed by a single integrated company will outcompete a modular  architecture developed by many players. So Apple can be expected to maintain a competitive advantage – only Samsung, another integrated manufacturer, has a chance of competing in the near term.

As industries evolve, so the basis of competition changes. In the mobile industry the first mobile phones were very expensive and used car batteries, so the basis of competition was cost and portability. Once integrated batteries became common the basis of competition changed to coverage for the mobile operators and battery life for the handset developers. As coverage and battery life improved so the basis of competition changed to price and service bundles for the operators, with design and branding the main differentiator for the handset manufacturers. Now data coverage and throughput is becoming an issue for the mobile operators and the range of applications and user experience is the basis of competition for the handset manufacturers. What is the next basis of competition for mobile networks and handset manufacturers – maybe integrated home coverage and social collaboration?

2. Find the unserved or over-served.

Disruptive innovation is a powerful technique for creating value. Disruption is also about business models – it is quite possible to use the same technology to create both disruptive and non-disruptive businesses, as the low-cost airlines demonstrate. How can we bias our innovation efforts towards identifying more disruptive businesses?

New market disruptive innovations serve those that can’t afford to use the dominant market technology, or can’t access it. Low-end disruptive innovations target those that would be happy to have a less-featured solution at a lower price, who are usually also the less-profitable customers for the incumbent. Many innovations are a mix of both. Looking for unserved or over-served customers is a good  start in identifying new growth businesses.

For instance, many people are not served by the online travel or package holiday industry. Package holidays rely on availability data on rooms and flights, which is collected by the global distribution services like SABRE and Galileo. These run big central messaging systems for the travel industry and charge high prices to companies providing market availability information like the airlines, hotels and resorts. This means that the low-cost airlines, smaller hotels etc cannot afford to participate, which pushes up the cost of package holidays. You will not find a low-cost airline in a package holiday or on a travel website like Expedia. So is it possible to create a disruptive low-cost online travel service to put together cheaper package holidays using, for instance, social networking?

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