Success Authority Ed Bogle advises clients on strategic renewal, which helps them to innovate for new business opportunities and sustainability. In this episode, Ed explains why innovation is important and how you can leverage change when you innovate for the future.
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Linda Ruhland
Ed, why do leaders need to become more adept at innovation?
Ed Bogle
Let’s face it. The world has changed on you. You have a compression going on in your business. Things come at you faster from sources and events that are uncontrollable to you. There are several things driving them. The Internet, the availability of information, how we get in touch with audiences and understand what their needs and requirements are.
The first thing that we need to examine when we talk about innovation is why and what’s driving the need for innovation. It used to be that…if you go back and look at the Fortune 500 companies that existed in 2000, 52 percent of them are gone now. Some 21, 22 years later.
I often ask the question when I start working with clients about their strategies and about their innovations, “Are the conditions under which your business operates today, will they be the same three years from now?” No one ever raises their hand, no one ever says, “Yeah, mine’s going to be the same three years from now.” Life would be so much easier if it was.
The second part of the question, related to innovation, is “Do you have more clutter or less clutter in your life?” Everybody says, “More clutter.” It’s a result primarily because of the advent of the Web. There are two basic conclusions from that. Innovation, beyond simple functionality, the whole brand experience, and brand emotion have to be very light. You’re going to have to cut through the clutter. So, innovation and brand are tied closely together.
Where do you get innovation? How do you develop it? It’s simple to say, but more difficult in execution. That is, you have to have processes inside your organization to reach across the entire organization to focus on innovation. Certainly, most companies are familiar with and do continuous improvement processes to improve their profitability among other things. But very few do that in the context of innovation. They do it in the context of profit improvement.
In fact, most companies run out of the basics of budgeting, and financial processes. When they look to innovate, they look at innovation as, “Will it bring us more money? Will it bring us more bottom-line profit?” I contend you have to go through a process, which I will get deeper into in a minute. But, you have to go through a process that understands where the demand levels are and how your innovation is going to be truly valuable to those customers.
Running a company is about a focus on value creation. The higher the value, the greater the margin. The key to value creation is target segmentation. Who are you targeting? Really having and developing a deep understanding of that. Then, survival, or prosperity as I like to say, is about the migration of that advantage—more importantly, creating competitive immunity in the long term. That’s a consistent process that you must have.
None of it works unless you have your teams, your leadership, and your culture engaged in those innovation processes.
Ruhland
Then, we should look at change as prompting the need for value creation. And it shouldn’t be scrutinized in terms of profitability before it goes through that process. Explain to me this approach to innovation.
Bogle
So much of innovation centers around our own perception of what our customers need. It’s okay to develop that, but we don’t ever hone that. Let me give you some examples.
In 2000, there was a phone, really the first true smartphone introduced to the world. It was called Blackberry. They were the first to have truly a smartphone where you could push emails. You could do certain tasks with that phone. I was a carrier of Blackberry. Most of the business community carried Blackberry because it is the best communication device.
It wasn’t until 2007 that Apple introduced the iPhone. In fact, in 2003, Jobs said, “We absolutely don’t want to be in the cell phone business.” What changed his mind was not a change of mind about the cell phone business. He looked at how his customers were using the various devices they were putting out. If you really studied the evolution of the iPhone from the original one, which was iPhone1 or something, they took a while to overtake Blackberry.
Blackberry in the U.S. among the business community-owned over 50 percent market share. Today, Apple, through its iPhone, owns about 50 percent of the U.S., globally which drops down in the 20s. If you look at why that switch occurred…Why did Blackberry, who now owns about zero percent, it’s a very small number. They didn’t innovate. They were in love with their product.
We get seduced by the fact we’re making great money, we’re doing well, and we don’t watch those early declines. I contend that if you watch the P&L statement, you can get yourself into trouble. You’ve got to look at other things. It’s certainly good and appropriate to look at the P&L statement. If you don’t understand the changes over time and all the external things, you’re going to get blind to them.
Another great example is what happened to two particular industries, photography and the whole industry of printing when digital came about. How’s Kodak doing these days? They didn’t innovate. They thought there was no way that digital could ever achieve the quality that 35mm film could. Guess what, it didn’t achieve that quality level, not as high of quality.
The same thing happened in the printing industry. They said, “Digital can’t achieve the quality of my 16-color, $4 million Heidelberg press. Guess what, digital in both industries became acceptable. The quality was good enough because the price was so much lower. It had absolutely turned the printing industry upside down. Don’t get blind to what your products are. That’s where Apple moved away and became so inventive. They are more concerned…they don’t have a love for their product so much as they have a love for their customer. They innovate from that perspective.
That’s my one cardinal rule. If we’re going to get innovation, there are actually two big rules I want you to remember. One: Innovate with the customer in mind; not innovate the next innovation of our product, unless you have the customer in mind. The second rule is to engage your entire staff in that process. It’s incredible the things you will find.
Years and years ago, I was the manager of a rather large regional bank chain. In that particular world, I was sitting in a room, talking to a cross-section of people about where we were and the problems we had. We had a problem with the flight of people downtown into the suburbs. We couldn’t branch back then. We discovered these little things called “automated teller machines” (ATMs). I had heard of them. I read an article about them. But very few banks in the country had them. The end of the story is that we started putting out remote environments. We hooked up with grocery stores and convenience chains and located these ATMs. That bank quadrupled its retail base in about three years.
Now ATMs are a commodity. It doesn’t differentiate you anymore. Again, it’s a continuous process. If I hadn’t held those meetings with the people, and understood different perspectives, we probably never would have gone there and had the success.
Ruhland
You mentioned being watchful, and attentive to those early signals of decline. Or whatever warning signs are out there.
Bogle
That’s having your antenna up throughout the organization, looking for possibilities of where things are changing. Your people in your organization and the customers, themselves, will feel that before you do. We have a tendency to get lulled to sleep by the profitability.
There are a lot of early warnings. One of the things challenging in all of this is that it’s cloudy. There’s no predictable pattern for when this is going to occur and how it’s going to occur. So, you have to somewhat trust your gut. But develop a healthy gut, as I like to call it. Develop a healthy gut that allows you to assess all of the different things that are going on.
Reach out into all the corners of your organization. Reach out to your suppliers. Find out what’s going on with them. Reach out to customers, customers’ customers, and prospective customers.
I just attended a conference last week related to the whole industry of senior housing and where it’s going in the future. Oh my God, did I learn a lot about the early warnings and what people are concerned about.
Look at those industry conferences as great conversation starters. They won’t give you the answers to innovation, but they’ll sure help you frame that perspective. And share that with employees. Again, every corner of the organization.
You need to have four pieces of innovation.
Ruhland
And what are those four pieces of innovation?
Bogle
When you look at developing your company and your innovation, here’s where you really want to get into Competitive Immunity. What you want to aim for is not plugging into today’s trends. You plug into the trends and by the time you get there, you’re an also-ran competitor. You’re just another competitor. You’re behind the curve. What you want to aim for is what the world needs tomorrow.
What will your segment, your customers, and your future customers need? What can we innovate? I break that down basically into four quadrants:
First and foremost, don’t ignore your existing customers. At any given time, on average, the observations and statistics I’ve seen about it, 85 percent or more of your revenues will come from those customers you already have. You want to focus a little in that particular quadrant to get a healthy gut about what is the opportunity to improve our position with our existing customers by better leveraging our competencies. Those are conversations that should be going on quarter to quarter inside your company.
We encourage our companies to do a thing called “The rearview mirror and windshield.” The rearview mirror is looking backward and seeing what we’ve accomplished and how that impacts the future. The windshield is about what’s out in front of us. We look at both of those. I’ll come back to those concepts. What you want to do is focus on existing customers and your existing services. Improve that position. This is the minor stuff. This is the quick innovation stuff that improves your brand and your brand language.
Those are conversations you should have quarter to quarter that deliver into your rearview mirror and windshield meetings. You want to protect that 85 percent. If you’re really in touch with those markets, they’re going to know your brand well enough. Then, you can better seat your brand and your brand language, and continuous improvement. And maybe some minor types of improvements in products and services. Particularly in user interface and user experience.
That’s where a lot of companies fall down, in the whole area they call UI/UX. They don’t look at every touchpoint in their organization. They don’t understand how their brand is viewed by people that answer the phone, by people that do service requests, and people that deal with returns. These are all areas where you can improve and innovate. You’re improving at all levels of the company. But get it wrapped around the customer and the value you create.
If it’s solely an exercise in improvement for improvement’s sake, you’re going to spend a lot of excess hours looking at stuff that may not be so good for you. Again, come back to your value to the customer. The higher the value, the better the margins, the more loyal the customer. Key concepts of Competitive Immunity.
The second quadrant of the four that I like to look at: What are the innovations where we could get into some new products and services that would be valuable? Sometimes you need to shop out there for alliance partners and people that can help you joint venture, do alliance partnerships, and move out into that area where you can have new products and services that absolutely will cause you to focus on growing those people that already have brand loyalty.
Ruhland
Let’s recap for a second: The first quadrant is to improve your position with your existing customers. The second is to innovate into new products and services for your customers. What’s the third quadrant?
Bogle
Another quadrant is to look at these competencies that I’ve got. Do they apply to other markets? What kind of products and services do we need to build to extend, so to speak, our franchise into other markets? That’s a little longer, or intermediate to longer term. So, I’m getting the short-term existing customers, going out to those customers, and adding things that I can sell to them.
Then I want to look at what new markets do I need to enter? But I’m taking my existing competencies and/or modifying those to reach into other markets. And it’s the innovation inside of that. We spend a lot of time talking to these prospective markets. What is it that’s missing out there that they need? We gain that clear-cut, longer-term innovation of the future.
Then the last dialogue, or fourth quadrant, as I call it, is to really get into “Where are the mega opportunities of the future?” Go crazy a little bit. It doesn’t mean that you have to implement. But you need to have those kinds of ideas and that level of innovation where you’re innovating what people need in the future. Again, in my world you keep that pretty tightly wrapped around target segments. You can get a little looser in there, but let’s keep the conversation going.
Each one of those conversations should be going on as a periodic process inside your organization. You’re talking to people, finding coaches, and building that healthy gut, as I call it, that gives us the ability to innovate, which lowers our risk—mitigates our risk. We’re tying all that back together with the brand against target segments. That’s how you make it a little more certain, a little more productive.
Ruhland
How do you lead innovation?
Bogle
Leadership leads the dialogue about innovation. You absolutely have to have great culture because, in particular, the leadership leads innovation. They are the ones that pull together all of the conversations and look for those nuggets and share upwards with the management team where we might be going.
I will tell you categorically that usually the great innovation, because it needs so much careful implementation and careful brand presence throughout the company, that it takes all of them working collaboratively to make innovation work. That sounds a little bit time-consuming, but what’s your alternative? You can join all of those companies that no longer exist.
Even in social media, a recent company. What happened to Myspace? It’s a nonevent, now. Even if you’re a startup company, you have to go in and evaluate, “Who are the big players in this and who am I confronting?” What’s the landscape? There’s a lot of value in looking at the landscape, not only in competitors but what’s the supply chain look like? Who are the people that are really innovating? And I want to stay away from their position. I’m not going to attack them on their position of strength. I’m going to take another approach.
There are a lot of things that you have to innovate just to survive. You’re going to get poked by certain things.
Ruhland
We’ve got people in the workforce who won’t go to work anymore if they aren’t inspired, if they don’t see themselves in the future of the company, if they don’t see the future of the company. Tell me how does that relate specifically to innovation?
Bogle
You’ve got a new workforce out there. The Millennial generation grew up with a phenomenon called gaming. They also are very driven about purpose and “What’s the greater good that you exist for?” They want to show up every Monday morning and know that they’re a part of a team, that it’s meaningful, that it’s work they can be proud of, and when they sit at a cocktail party say, “I work for XYZ company!” If people ask, they can talk about how great and why they’re great. That workforce is very different. They grew up gaming. They had a button on their gaming consoles, and handheld devices called “reset.” Your culture and how they are engaged and feel a part of the organization are critical. The old-style job description coupled with annual performance reviews doesn’t work anymore. Flat don’t work. Part of innovation leads people to feel that they have very meaningful work. They take great pride in winning. They take great pride in being an organization that has a far superior set of products and services that are truly in the genre of Competitive Immunity. They love being part of that.