It seems like everyone wants to be an innovator nowadays. Being “digital” is in – never mind what it means, you’ve just got to be “digital”. Being innovative, however, is more than being buzzword-compliant. Being innovative, particularly in a digital sense, means solving problems (for customers, not yourself) in a new way with technology. Being innovative means meeting a need in a sustainable way (eventually you have to make money). Being innovative means understanding your strategy, not just following the latest thing.
Casimir Artmann published a post this week, “Digital is not enough”, outlining Kodak’s failures in the digital photography space. As digital cameras entered the market, Kodak introduced ways to turn film into digital images. Kodak’s move into digital photography (which, ironically, they invented in 1975), coincided with the rise of camera phones. By concentrating more on perpetuating their film product line than their customers’ needs, Kodak wound up chasing the trend and losing out.
Customers’ cash follow products that meet customer needs (even needs that they didn’t know they had).
Sometimes a product or service can meet a need and still fail. A Business Insider article yesterday morning discussed the weakness of the peer-to-peer foreign exchange business model, saying it only works in “fair weather”. In the article, Richard Kimber, CEO of the foreign exchange company OFX Group, observes:
When you’ve got currency moving dramatically one way or the other, what you can have happen is it encourages asymmetric activity. As we saw in Brexit, you had lots and lots of sellers and very few buyers. That can lead to an inability to transact because you simply have all these sellers lined up and no buyers. That’s one of the reasons why the peer-to-peer players opted out of their model during this period of volatility because it wouldn’t have been sustainable.
While Brexit might be the latest event to expose the weakness of the peer-to-peer model, it’s not the first. The Business Insider article referenced another article from January on The Memo that made the same point. Small wonder, the concept of a market maker is a well established component of financial markets.
Disintermediation, cutting out the “middleman”, is only innovative when the “middleman” is, or can be made, superfluous.
Blindly following a trend can be another innovation anti-pattern. In an article for the Wharton Business School, “Rethinking Retail: When Location Is a Liability”, the authors discussed the pressures on brick and mortar retailers and the need to be “Digital-first”. The following was recommended:
- Identify some of your common habits and perspectives about how the retail sector should function, including guiding principles, time and capital allocation patterns, primary skills and capabilities, and the key metrics and outcomes that you track.
- Uncover the core beliefs about retailing that motivate your behaviors, and are the priorities of your firm and board. This step usually takes some ongoing reflection and added perspective from your peers. Industry best practices likely influence your thinking greatly.
- Invert your core beliefs about retailing and consider the implications for your firm and board. There are many possible inversions in each instance. For example, all retailers should ask themselves, ‘Is digital our first priority? How about our customer network — do we put them in front of merchandise and do we have an entire department dedicated to mobilizing them?’
- Extrapolate what implications these new core beliefs, and the various ripple effects, would have for your organization and board. Observe what is happening in your industry and, more broadly, how different core beliefs might help you get ahead of digital disruption by companies like Amazon.
- Act on your new retail core beliefs (preferably with digital as the center) by sharing them broadly with your customers, employees, suppliers and investors. Purposely changing your business actions, particularly when it comes to time and capital allocation, is an important part of the process and helps reinforce the changes in mental models you are trying to achieve.
Note the generous usage of “your” (retailer) instead of “their” (customer). Sharing “…your new retail core beliefs (preferably with digital as the center)…” with your customers will only be fruitful if those new beliefs align with those the customer has or can be convinced to adopt. Retail is a very broad segment and a very large part of it needs to be digital. That being said, over-focusing on it carries risk as well. Convenience stores, for example, catering to a “we’re out and need it now” market, is unlikely to benefit from a digital-first strategy in the same way big-box retailers might. Not having a one-size-fits-all strategy is why Amazon is opening physical stores.
We don’t drive customer behavior. We provide opportunities that hopefully makes it more like for them to choose us.
Innovation doesn’t come from a recipe. Digital isn’t the magic secret sauce for everything. Change occurs, but at different speeds in different areas. The future is not evenly distributed. As Joanna Young observed in “Obsolescence: Take With Grain Of Salt”:
I recall clearly in the mid-1990s hearing an executive say “by the year 2000, we will be paperless.” I signed, with a pen, four approval forms just today. Has technology failed us? No. The technology exists to make mailboxes obsolete and signatures purely ceremonial. However the willingness to change behavior and ergo retire old methods is up to humans, not technology.
Innovation is significant positive change, an improvement in our customers’ lives, not a recipe.