Why Potentially Game-Changing Innovations Never See the Light of Day
By David Aaker
The only way to grow, with rare exceptions, is to engage in substantial or transformational innovation that will be a game changer, that will create new categories or subcategories defined by qualities that customers deem “must haves” and protected by actively managed competitive barriers. Healthy organizations often have plenty of ideas that potentially qualify but get killed off before reaching the market. As a result, an opportunity to create a platform for real growth is lost.
It is easy—too easy—to kill an innovation initiative, but some or all of the available reasons or excuses are affected by a “gloomy-picture bias” created by decision makers that are motivated to be risk-sensitive. Because there is little professional downside to killing a project and a lot of downside in approving one that fails, executives tend to see the problems and bad outcomes more clearly than the possible success scenarios. This bias is nurtured when the innovation champion lacks political power in the face of the large, entrenched organizational units that have budgets and a perceived need to fight competitive battles in established categories. To better understand the gloomypicture bias, it is instructive to take a close look at the assumptions that underlie these rationales for killing innovation initiatives:
1. Technological advances will not happen. GM killed the EV1, a battery-operated car, in 1998 just before a breakthrough in battery technology occurred—in what the GM CEO Rick Wagner opined in 2005 was GM’s biggest strategic blunder. Synthetic detergent was under development at P&G for five years when the firm killed the project. Luckily, a P&G scientist pursued the effort without permission or funding and five years later, Tide was born. Had the firm enforced its decision, P&G would still be a soap company. In contrast, Toyota charged its product team to come up with the Prius despite the fact that at the outset, the technology was inadequate. There was a commitment to find or create the necessary technology.
2. Offering limitations are fatal. Mint.com, the personal finance service, had trouble getting funding because the judgment was made that no one would provide personal financial information. However, the website proved that judgment wrong because it was able to argue that its read-only system was not vulnerable to moving money around, its track record of data security was persuasive, and its use of third-party brands such as VeriSign and McAfee’s Hackersafe (now called Secure) ensured safe communication.
3. Different applications will not emerge. Intel, during the development of the 80286 microprocessor that began in 1978, came up with 50 possible applications. The personal computer, the ultimate application that became the basis for the Intel business for decades, did not make the list of 50. This failure was, in part, due to an understandable inability to forecast the development of a host of supporting technologies and software programs that made the PC a runaway success. A powerful technological breakthrough with the right creative effort will find an application.
4. Alternative markets will not be found. Joint Juice is a firm founded by an orthopedic surgeon who had the breakthrough idea of making glucosamine, effective in reducing joint pain, available in liquid form. The initial target market, young to middle-aged athletes, was disappointing, but a refocus on an older demographic, people who wanted lower-calorie, less-expensive products, resulted in a health business. At the early stages, a variety of markets should be on the table.
5. The experiences of existing flawed products are relevant to market size estimates. Digital readers, termed e-readers, were around for a decade but had never gotten traction—in part, because accessing books was difficult and the units were clunky. Then in November 2007, Amazon launched the Kindle with its Whispernet fast download system, its 30-hour battery life, a book-like reading experience and market buzz.
6. A niche market cannot be scaled. A niche market may welcome the new offering but will be expected to remain small. For that reason, Coca-Cola avoided the water market for decades, a decision that was a strategic disaster in retrospect. The reality is that niche markets can grow and can go mainstream. Nike, Starbucks and SoBe are examples of brands that have successfully scaled their value propositions.
7. Sales estimates need to be conservative in the face of uncertainty. Future sales estimates, especially for breakthrough offerings that are defining a new category or subcategory, will have a large variance. The prudent way to handle uncertainty, for risk adverse executives, is to use a number that will have a high probability of being realized, rather than using the more rational, expected value. The result is a huge bias against major innovation and toward the more predictable incremental innovation.
To overcome the gloomy-picture bias’ innovation-averse thinking, first make sure that the assumptions and judgments are based on data and analysis that have depth and credibility. Beware of snap decisions based on instinct, superficial metaphors and the gloomy-picture bias. Second, think in terms of an innovation portfolio in which there are projects representing a spectrum of risk-reward profiles. Third, protect innovators organizationally. Fourth, be willing to commit in the face of risk, recognizing that the upside of the creation of a new category or subcategory can be strategically important in providing a business platform for the future.
comments powered by Disqus
The fine print: All comments are reviewed before they are published, so your comment may not show up right away. We reserve the right to edit and remove comments at any time for any reason. Unprofessional language and spam will be rejected.