Seven Roads of Innovation–Based Growth
Most businesses are in need of finding new ways to grow. It might be a matter of finding new markets, even creating new markets, or just finding new space in your current markets through new technology and products. It doesn’t matter which of these it is, the pressure is always the same. And it’s unrelenting.
Given a business environment characterized by rapid change and global economies, the best ways to find growth at a scale that has strategic significance is through innovation.
There are seven ways your business can pursue growth that is rooted in innovation. We refer to these as “roads” because they connect your business from where it is today (“point A”) to where it wants to be tomorrow (“Point B”). The first five of these represent forms of organic growth; the latter two represent forms of inorganic growth. These are each explained briefly below.
It should be noted that none of these roads are mutually exclusive. Your business can pursue as many of them concurrently as it desires to, so long as its ability to manage them is kept in consideration.
ROAD #1 — PRODUCT INNOVATION & BUSINESS MODEL INNOVATION
Your company launches innovative new offerings within its current markets.
This is generally a case of either product innovation or business model innovation. In both cases you are leveraging the fundamental elements of innovation — empathy, creativity, and delivery — to deliver new value and experiences to your markets. You may brand these under existing brands if there is a good fit, or you may launch entirely new brands to best capture and convey the essence of these offerings.
In the case of product innovation, this is done simply with a new configuration of your existing technologies and products. The new products will typically have a different set of attributes and performance characteristics when compared to your existing products. The innovations they represent are typically incremental or moderate. A product innovation requires product development work. The technological risk tends to be low and the commercial risk moderate.
In the case of business model innovation, this is done by establishing new ways of delivering value and experiences, such as rental, lease, and service models in lieu of ownership models. Often these types of innovation work because they redistribute the time, effort, and/or costs associated with product consumption or service receipt. These types of innovation are often moderate to disruptive. A business model innovation requires business model design work. The technological risk tends to be low, but the commercial risk may be moderate to high.
Also buried deeper into this space are methods like process innovation, design innovation, brand innovation, and packaging innovation. All of these tend to serve the same purpose of bringing innovative new offerings to your existing markets.
ROAD #2 — TECHNOLOGY INNOVATION
Your company incorporates innovative new technologies into its products for sale within its current markets.
This is a case of technology innovation, where you find new technologies — developed either by internal R&D resources or sourced externally for the sake of expedience and expense (aka open innovation) — to deliver new value and experiences to your markets. Typically, the resulting products will have new functionality, new attributes, and markedly different performance characteristics. Sometimes they are simpler and lower-performing than your prototypical products, but cost substantially less, allowing you to sell significantly more of them and potentially into new channels that you previously had no access to (bordering on market innovation). These innovations may be incremental, moderate, or in some cases disruptive. A technology innovation requires technology development and/or technology scouting work.
While the commercial risk tends to be low to moderate, the technological risk can be high. The commercial risk can elevate if the technology does not deliver on the market’s core needs, or does more harm than good, as immature technologies sometimes do.
ROAD #3 — MARKET INNOVATION
Your company enters entirely new markets with its current products (perhaps slightly reconfigured).
We call this market innovation. In this case, you are delivering new value and experiences to a particular market that are better than what that market previously had access to. Thus, your offering is not new to the world, or even new to your company, but it is new to this particular market. As a result, the technological risk tends to be low so long as your technology meets this market’s needs. The commercial risk may be quite high however given the unknowns from both sides and the need to actuate your brand in this new market.
A market innovation requires market development work, which often begins with market scouting to identify the best potential markets to enter into. The market development work can either be straightforward or very complex, depending upon how different the new market is from your existing markets, and how many new market channels must be cultivated. Market innovations tend to be incremental or moderate, but in some cases do prove disruptive when the value proposition they bring is substantially better than that of the existing offerings.
ROAD #4 — CATEGORY INNOVATION
Your company creates an entirely new market by creating an entirely new product category.
We call this category innovation. It involves the development and commercialization of entirely new categories of products that do entirely new and/or different things. It always involves a new synthesis of pre-existing technologies, and in some cases involves the development of new technology or the adoption and rescaling of technology from a different application.
These new product categories often cannibalize the sales of some other product category because they, at least in part, do the same things in a better way or at a lower price. Thus they are replacements for something else, though customers often end up owning and using both categories, at least for some period of time. Despite the potential cannibalization of one’s own existing products, category innovations tend to be accretive in the balance of things, boosting total sales revenues when compared to foregoing the category. This is particularly true over the long run, where the chances of a competitor being the first to launch the new category can be high.
A category innovation requires category development work, which is much like rolling technology development, product development, and market development work all into one endeavor. While they do not always demand a new brand, they often involve one, depending on how the business wishes to leverage its brands. With most category developments, the technological risk will be moderate to high and the commercial risk will almost always be high, though sometimes good market insight data can identify cases where the commercial risk is low.
ROAD #5 — SPIN–OUT VENTURING
Your company launches its own (fully-owned) startup company in order to deliver any one of the above innovations in rapid fashion while building a new brand.
This is a type of corporate venturing called a spin–out. It is often based on a new technology, product, or category that has been developed and is best commercialized under a new brand that fits better than existing brands. Or it is aimed at a different market than the parent organization currently operates in. What the new venture company brings is a different set of organizational gating processes for commercialization, which generally results in getting to market faster. Also, should the venture fail, it protects existing brands from the associated fall-out.
Spin–outs typically involve high risks, both technological and commercial, and they can involve large capital outlays. At the same time, they offer potentially high returns as well as a mechanism for risk management by protecting existing brands from damage should a fall-out occur. They typically represent moderate to disruptive innovations.
ROAD #6 — SPIN–IN VENTURING
Your company invests in outside new ventures in order to leverage fresh new thinking about how to best deliver value to your markets.
This is a type of corporate venturing called a spin–in. Its objective is to gain access to new business models from fresh thinkers who are not saddled with preconceived notions of how your market should work and operate. These always involve a new and different brand (at least until they prove their efficacy and stability, at which time they tend to be absorbed into the mother brand). Like a spin–out, these ventures move into and through markets faster because they are not subject to big-brand organizational gating requirements. Also like a spin–out, should they fail they protect existing brands from any associated fall-out.
Spin–ins generally present high risks, both technological and commercial, and can involve large capital investments depending on the stage of growth the venture has reached. The potential returns can be very high however. They almost always represent moderate to disruptive innovations.
ROAD #7 — INNOVATION ACQUISITION
Your company acquires another business — perhaps a competitor or a mature upstart — that brings with it new innovations.
This is the classic M&A strategy, except that in this case you are explicitly looking to acquire a mature business that brings with it certain specific innovations, whether they be product, technology, business-model, market, or category, relative to what your existing business is capable of. We call this an innovation acquisition. It represents the most rapid path to significant growth (since it includes an established sales base), but it also carries with it the largest capital investment of all the options. The M&A process itself may be straightforward or complex, depending on how well the acquired organization can merge into the acquiring organization culturally and operationally.
At the very least, the innovations gained here are those the acquired business brings to the table (including whatever IP protections it has secured). On top of this however, it is sometimes the case that by acquiring a particular business the acquirer is now able to leverage knowledge, technologies, and products to pursue new market innovations in markets neither company was previously operating in. Whenever that is the case, it adds an additional multiplier to the investment’s return, though it also increases the level of investment required.
Because the acquired business tends to be mature and stable, both the technological and the commercial risks tend to be low. The exception to this is when the business being acquired is distressed, which tends to bring with it numerous commercial risks requiring remediation. There is also the risk of operational slowdown during the merger process if the merger is not a good fit or is not well managed.
These are the seven roads of innovation–based growth. Each company will need to establish its own growth and innovation objectives in order to determine the roads that are right for it.
The final consideration to be made is that if a company is to benefit from any of these over the long haul, it must rethink its strategies, cultures, processes, and workplaces to become proficient at using innovation effectively to continue driving its growth into the future. This is particularly true if the company has any aspirations of becoming and remaining a market leader.