One of the great myths of innovation is that it is about breakthrough products or services, often developed by technology entrepreneurs like Steve Jobs of Apple Computer, Marc Andreessen of Netscape and Jim Clark of Silicon Graphics.
It’s true that most great companies were founded with some fundamental innovation and built through the drive and determination of an entrepreneur, or a team of entrepreneurs. Even those rare leading companies constructed through other means such as private equity roll-ups or spin-outs typically trace their roots to entrepreneurs who followed their passions.
But sometimes these entrepreneurs don’t invent anything. Starbucks convinced Americans to pay $4.00 for coffee, yet they didn’t invent anything per se. They did create a unique, consistent customer experience that has since influenced American and even world culture. By the same token, Wal-mart did not invent low-cost retail – they innovated first in location (rural big box stores) and then supply chain.
In our six years of research, we have focused on large corporations, not just start-ups, that are generating billions of dollars in new revenues beyond just new products and services. Here are some key examples:IBM’s Emerging Business Opportunities (EBO) group reported to Alan Deutschman of Fast Company in 2007 that, as of 2005, they had achieved fifteen billion dollars of annual new revenues from twenty-two of twenty-five EBOs. They figured out how to find and develop the most promising ideas in markets where they could differentiate themselves.
Companies like IBM, that persist for decades and even centuries all undergo transformative change at times in their history. David Yaun, vice president of corporate communications at IBM and a founder of the company’s Global Innovation Outlook (GIO) program, explained in a 2006 interview that “IBM transformed itself fundamentally at least three times in history… In the 1920s, we sold meat scales, cheese slicers… Then we became a punch card company, and then we became the monolithic mainframe manufacturer… Actually, more than half of our population now is in services and consulting.”
How do they do this? Through thinking of innovation as new business design versus products and services. Consider the case of Danone-Grameen, which is manufacturing and distributing high-nutrition yoghurt in Bangladesh using an entirely new business system. Vitamin-fortified yogurt was not a significant product innovation. Figuring out how to bring a super-nutritious food to market in an impoverished nation using local producers and distributors was the innovation. But this was not just charity. Companies like Danone are learning powerful lessons about serving vast swaths of the human population, knowledge that will serve these companies well as global markets expand and consumer requirements diversify and evolve.
In this case, and many others, the world does not need a new and improved product. It needs an innovative business system.
Chapter 2 of Grow From Within covers the problem of new business design in detail, based in part on our article on the Innovation Radar for MIT/Sloan Management Review on the 12 different dimensions on which companies can innovate to create new business systems. See also how we use the Innovation Radar in practice.
