Fernando Fischmann

5 Business Innovation Nightmares — And How To Avoid Them

20 October, 2015 / Articles

No matter how popular and beloved your brand may be, its survival depends on your organization’s ability to adapt. Postmortems on companies like Blockbuster Video and Borders Books have pointed to issues with organizational structure, capabilities, and technology. But at the center of those corporate demises is the failure to innovate. Through more than a decade of innovation training with the world’s top organizations, I’ve isolated five innovation nightmares that, if course-corrected early enough, don’t have to result in imminent doom.

Nightmare #1: Failure to recognize an impactful market trend.

Borders Group opened its first bookstore in 1971, when kindle referred to campfire twigs, and a nook was where people ate breakfast. Today, consumers read books on smartphones, tablets and e-readers. Amazon and Barnes & Noble foresaw this shift and launched innovations to deliver books in formats other than print. Borders failed to recognize or respond to the digital trend and in doing so, wrote the last word of its own story in 2011.

Course correction: If Borders had regularly engaged in strategic foresight exercises, it could’ve seen what the rest of did: the inevitable rise of e-books. In your own business, consider setting up a signals team to perform horizon-scanning. This fundamental activity scans for signals of forces or trends that will likely impact your industry. Signals are in the form of news stories, blog posts or product concepts that have launched in an emerging market. Data-driven business innovations and issues for aging populations are two popular fields for which many organizations currently scan.

Nightmare #2: Failure to balance your innovation portfolio.

At the height of its glory in 2009, BlackBerry (formerly RIM) was considered the fastest-growing company in the world. Despite opportunities to adapt, BlackBerry failed to recognize that consumers, not business customers, would drive the smartphone market. It stuck doggedly to its outdated strategy and failed to innovate or brand itself successfully to other demographics. It’s now clinging to less than 1% of the smartphone market.

Course correction: If RIM had regularly conducted portfolio balancing, it could’ve halted the missteps that led to its demise. No organization, large or small, can afford to risk their business on one big idea. The other extreme—taking on small, minor projects and hoping for a big bang—is similarly unfruitful. Many successful innovators use the matrix method to manage and balance their portfolio. Common matrices include Risk Vs. Reward; Markets Vs. Capabilities; Cost Vs. Benefit; and Markets Vs. Product.

Portfolio matrices like the one below help analyze your innovation portfolio—the mix of new projects along with your existing development pipeline—through project plotting on a 2×2 evaluation matrix. The matrix offers a bird’s-eye view to determine if you’re distributing your risk evenly across your pipeline.

Portfolio balancing is not merely a strategic exercise: it can help you make smarter decisions about which ideas to pursue, and which ones to kill. If, say, you plot 10 long-term and zero short-term innovations, this may indicate the need to rebalance your portfolio through several quick-win projects.

Nightmare #3: Failure to acquire a company with emerging technology.

Blockbuster Video had several opportunities to acquire Netflix when the streaming company was a mere start-up, but it didn’t. Blockbuster didn’t envision a future for streaming, and between its failure to embrace digital and its high retail overhead, the company began steadily losing ground to upstarts like Netflix. The credits rolled for Blockbuster in 2014 while Netflix had gained dominant market share, expanded into new countries and founded its own Emmy-winning TV network.

Course correction: If Blockbuster had objectively evaluated itself from the vantage point of Netflix, it would have likely reconsidered partnership or acquisition. Avoid blind spots in your own business by regularly conducting a company-wide Kill the Company exercise, which prompts teams to ask “How can the competition beat us?” instead of “How can we beat the competition?” By analyzing how to put yourself out of business, you expose your company’s weaknesses and can design a plan for correction. Once you’ve addressed each vulnerability, ask employees to brainstorm how to turn this new approach back on your competitors. Rinse and repeat as needed.

Nightmare #4: Failure to recognize a smart risk.

Nokia designed its first smartphone back in 1996, and even built a prototype for a touch-screen, Internet-enabled phone at the end of the ‘90s. Despite its foresight and huge R&D investments, it couldn’t translate either of these into products that consumers actually wanted to buy. Arguably, the death knell for Nokia was its failure to invest in the software—like smartphones apps—that has become so integral to the smartphone experience.

Course correction: If Nokia had embraced smart risk-taking, it could have expanded its focus in the development process from hardware engineers to software experts. To prevent an oversight like this within your own company, gather your senior leaders to establish boundaries for experimentation and risk. As a group, decide what constitutes a smart vs. stupid risk for your organization. What’s the maximum amount of time and resources that should be devoted to a risky idea? What performance milestones do experimental projects need to meet in order to demonstrate value? With these types of parameters in place, teams are given the freedom to experiment, fail and innovate.

Nightmare #5: Failure to meet your customers’ evolving needs.

Founded in 1930, Hostess Brands’ became synonymous with America’s favorite snack cakes. But when the healthy-eating trend turned mainstream in the ‘90s, Hostess continued to focus their efforts on highly processed foods.

Hostess had many odds stacked against it—mismanagement, labor issues, rising ingredient costs—but its failure to innovate with healthier foods at healthy profit margins were front and center. Following two bankruptcies, the company closed its doors in 2012 but was acquired in 2013 by billionaire dealmaker C. Dean Metropoulos.Sales have yet to hit the nearly $1 billion a year Hostess reached before bankruptcy, but if this happens, Hostess could become the sweetest comeback in history.

Course correction: If Hostess had followed a customer-driven model for innovation, it might have remained relevant in the age of Whole Foods. Today’s consumer is active and opinionated with increasingly complex requirements, so it’s critical to collaborate throughout product development. Execute this in your own business by establishing one or more of these models for customer innovation:

• Open Platforms: Compel customers to submit innovative ideas and participate in the development process using an online portal.
• Advisory Boards: Include a hand-picked group of collaborative consumers in feedback loops.
• Ethnographic Research: Send your managers into the homes and lives of consumers to discover unmet needs.
• Social Networks and Communities: Evolve your products with the input of passionate consumers and influencers on social media.
• Front-line Feedback:Tap the minds of your customer-facing employees for what they believe consumers desperately want—and gather internal teams to ideate how to make it happen.

Understanding your customers and anticipating market evolutions are key for successful innovation. Through communication of what a smart risk looks like for your company and review of your innovation portfolio regularly, you can prevent tunnel vision syndrome. Routinely evaluate, course-correct, and invest in new products that meet emerging needs at higher margins, and you can avoid the innovation nightmares that have rendered other market leaders obsolete.



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