Why are some companies consistently create breakthrough innovations while others can't innovate themselves out of a hole? Ask David Croslin. The former Chief Technologist at HP in the Communications, Media, and Entertainment division, has spent a fair time thinking about the challenges facing IT and has just written a great book on the area. Innovate the Future: A Radical New Approach to IT Innovation.
David Greenfield: Thank you so much, David, for taking the time to talk with us.
David Croslin: You bet, man-I'm looking forward to it! This is a lot of fun.
Greenfield: You've seen both sides of the house - technology and business. Are there differences in the way those technical and market-drive side of the business view product innovation?
Croslin: Oh, yeah. Absolutely. I mean, the hardest thing for inventors, entrepreneurs, and technologists to understand is that "cool" is not enough. You can have an amazing invention, but it has no market value. The management team, on the other hand, looks at things from the money point of view. So, if you can't equate the two in some way, then you end up with something that never goes anywhere. I advise inventors pretty much every day that they've got to abandon "cool" when they're trying to create a new market. Otherwise, the business side can't understand it.
Greenfield: In your book, you lay out a distinction between invention and innovation. The two aren't the same. Why don't you tell us, what are those differences?
Croslin: Innovation is probably the most overused word on the planet right now. So when I started writing the book, I realized that people pretty much brand everything that they consider to be creative to be innovative. In order for me to teach people how to actually innovate, I decided I needed to draw the line somewhere. An invention, to me, is a "cool" idea. It's something that you've come up with that you see potential for, but it's primarily "cool." Innovation, on the other hand, is money. If you don't have a target audience for it, then you're not gonna make any money, so it's not innovative. If it doesn't change a consumer's lifestyle or business style in some way to the positive, then it's not innovative.
Greenfield: The way you're framing it, it sounds like innovation is something which is outward-facing, that companies do towards [consumers] or provide to consumers with, but aren't there innovations that occur within organizations that allow them to operate more effectively, which may never directly affect the consumer?
Croslin: Oh, absolutely. Great question. In my book, I lay out six different key types of innovation, and you brought up two of them-they're external and internal. Companies shift between the two. External innovation is where you're focusing on products and revenue. Internal innovation is where you're focusing on cost reduction, and process, and maybe your infrastructure. They both have potentially a positive impact on your bottom line, but they have totally different impacts on the consumer. I might create great external innovations, but then if my product starts to stagnate, I shift back towards internal, in order to lower my costs and keep driving up my income. In the process, though, I may lower the quality of my product, and so now my customer likes my product even less. My sales had already stagnated, so that's why I shifted to internal; now, suddenly, I'm lowering my quality, I'm laying off my customer support-everything I'm doing is actually alienating my customer and dropping what I call the "transformative value" of my product to my consumer base.
Greenfield: So what happens when organizations face those moments where the market has shifted, they need to reduce costs, etc. What do they do?
Croslin: In my book, I lay out what I call the "innovation lifecycle." The innovation lifecycle is-I looked at hundreds of products, and the way that I've seen things over the last 20 years, and primarily it involves a very simple course: Somebody comes up with a disruptive innovation, let's call it an iPhone. It shifts the market, it creates a new market. Then they incrementally innovate that. So, they come out with version 2, version 3. They add new little buttons, or add a new cover, or whatever. So those are positive incremental innovations. The market is still accepting those, and may be willing to pay more money for them, but at some point the company continues to create new inventions, new features, and try to deliver a new market, but all they do is over-complicate the product, etc. They go beyond what is a "good enough" product. I call those "negative inventions," because they're actually devaluing the product in some way. If that process goes on too long, which is what almost always happens in every market, then you move into what I call "destructive inventions."
When you get to destructive inventions, it's negative invention that, you've now gone so far that your customer looks at your competitors and says, "You know, I like that product better over there, just because I don't like yours as much as I used to." And they take your transformative value of your product, and they give it to your competitor's product. So your product almost collapses overnight once you start destructively inventing. It's at that point that companies start to abandon, they say, "This market's totally commoditized; we can't innovate any more, we've tried. Let's go slash and burn." And so that's when they shift to internal, start slashing costs, slashing teams, because they think the product is dead. But, surprisingly-and I think we mentioned it a little earlier-someone will come out of the blue from below, create another "good enough" product, and will seize the market.
Greenfield: So, what, then, should companies do?
Croslin: Well, the part of the lifecycle is-that's kind of split in half, if you think about it, right? You've got disruptive innovation, which is very, very positive, creates a market.Incremental innovation, which creates positive growth, and then you get into negative and destructive invention-not innovation because they don't deliver real value to the market. And so, at the point that you start to see that shift, where you're saying, "You know, do we know what our customers want? They didn't seem to respond to this, they're complaining about us raising the cost-" Things like that. At that point, you need to figure out what your product really is and try to be disruptive again. In other words, restart the innovation lifecycle. Don't let it keep going!
The problem is that executive teams look at innovation as basically a random process, and therefore, it's very risky. Incremental innovation has a very low risk, because you can look at it, you see your product that exists today, "Oh, let's change this button from blue to green," okay? Well, that's a very simple change, it's cheaper, and you would think your market would probably like it.
But doing something brand new, like Apple did, to where you take a cell phone and you create something basically totally new, as far as how the user utilizes the device-that's risky. It's not risky if you understand what you're doing-if you understand your market, your consumer, and what their problems are. But most companies look at it as a totally random process, and I equate it quite often to gambling. That you're winning the lottery, that kind of stuff.
Most innovation consultants will come in and tell you one of three things (if not all):
1. You need to be willing to take more risk.
2. You need to let everybody in your company invent and innovate.
3. Your management teams need to be more open to accepting new products or new inventions that come up the stream.
And all of those are reflections of, "We don't understand our customer, and therefore we need to take more risk. We need to be willing to do things we don't really understand, but accept them. You know, Joe, down in Shipping, is gonna come up with a new technology to add to an iPhone that would be disruptive." So-and Joe might; I'm not picking on Joe-but I believe that these directives, if you will, are way off base. Because innovation's not random; it's just our perception of how it goes through the cycle is random.
Greenfield: So, then, what is the process for innovation?
Croslin: You've got to target your customers. If you're trying to create something cool, without a market, you've made a serious mistake. You need to start with your customers. You need to start with the potential markets. Trying to come up with disruption requires that you look at what your customer needs and wants. Not what they say.
Greenfield: It sounds like you're describing a product marketing or bus. dev. function that has to work in tandem with your inventors.
Croslin: Absolutely. If you're not looking out at the market at the beginning-I mean, think about most companies that succeed very, very well, okay? Google, etc. In some cases, like Google, they came up with a technology, and then they layered on top of it a functionality-you know, embedded advertising, etc.-that would allow them to make money off of that "cool," okay? So, in some cases, you can take "cool" and turn it into a large revenue stream. In other cases, people have looked at the market, and they've said, like, social networking, things like that-"How could I create a new website or a new app, or whatever, that targets a particular space?" In that case, they're starting at the correct end, and looking at-oh, there's 25 million people that do this...if I get 3% of the market...so then, what do I have to do in order to make me distinctive in other words, disruptive) from the other competitors in the marketplace?