Low-Risk, High-Reward Innovation
1 August, 2017 / Articles
Wharton professor David Robertson discusses a “third way” to innovate besides disruptive and sustaining innovations. He outlines this approach through the examples of companies including LEGO, GoPro, Victoria’s Secret, USAA, and CarMax. It consists of creating a family of complementary innovations around a product or service, all of which work as a system to carry out a single strategy.
Imagine that it’s 2005, and you work at a big camera company, like Nikon or Sony. You’re in a room with a bunch of other managers trying to come up with your next blockbuster product. But your ideas seems so small and incremental. Do consumers really want more megapixels? Then there are the ideas that are disruptive, but it’s hard to imagine your company really achieving them, like some better way to share cell phone photos using the internet.
Now, fast forward a year. It’s 2006, and someone has just handed you a first generation GoPro video camera. It’s not a revolutionary product. It’s small, simple, and sturdy. And it uses existing technology. But you can immediately see that this changes the game. And it does.
Within 10 years, this company will grow to $1.6 billion in annual revenues. So now, the $1.6 billion question– why didn’t your company think of that? It wasn’t an incremental product improvement. But it wasn’t a huge disruptive innovation either.
Here to help us get better at thinking through these kinds of ideas is our guest today, David Robertson. He’s a professor of practice at the Wharton School at the University of Pennsylvania and coauthor of the new book The Power of Little Ideas. Dave, thanks for talking with us today.
DAVID ROBERTSON: Sarah, thanks for having me.
SARAH GREEN CARMICHAEL: Why are these kinds of ideas so hard to think of?
DAVID ROBERTSON: The GoPro example that you opened with, that would actually have been a pretty easy thing for somebody like a Sony to copy. But what GoPro did after the camera made them so hard for Sony to fight back against. What GoPro did was they thought through, what do people want from an action camera, what are people trying to do. They’re trying to capture their greatest adventures.
It was started, as many people know, by a surfer, who wanted to show off his great surfing experiences. Well, what GoPro did is it developed the camera. But then it also developed mounts.
I mean, now, you can put your GoPro on anything. You can put it on your surfboard, your bike, your helmet, your dog. My favorite is, there’s a user that created a GoPro mount for a hula hoop. So you could get the hoop’s view of the world.
And my favorite little accessory, they created a wrench, so that you could tighten the bolts when you were preparing for your adventure and then take off the GoPro when you’re done. But on the other end of the wrench is a bottle opener. So you can celebrate your great adventure, right? That’s a company that understands its customer.
So Sony, a couple of years later, when they realized how big this market was getting, they came out with an action camera by Sony that was a third cheaper. It had more megapixels. It had image stabilization, which GoPro didn’t match for a number of years. And they’re getting killed.
I mean, GoPro sells seven times more action cameras than Sony and 50% more video cameras. That’s the interesting part– 50% more video cameras than Sony– because they were innovating, not just in the product, but around the product.
I call it the “third way” because it’s not just incrementally improving a current product for current customers. And it’s not disrupting. It’s not revolutionary. It’s not searching for some new market. But rather, it’s a “third way,” which is taking that current product and innovating around it to make it more valuable for your customers.
SARAH GREEN CARMICHAEL: One of the things you talk about is the importance of innovating around a product without fundamentally changing it. Why can’t you change the product?
DAVID ROBERTSON: Oh, you should change the product. I mean, you still want to do continual improvement of your product. What I’m trying to get at there is that there should be some respect for what made that product great.
I go back to the LEGO story. And they’re a great example of a company that really lost faith in their core product, in the brick. Back in 1999, they were convinced that kids were leaving traditional toys– not just bricks, but Barbies and Hot Wheels and everything else, and moving to digital and virtual play experiences.
And they lost faith in the brick. And so they started to explore, how do we reinvent the future of play. And when they left the brick, that’s when people left the brand.
There’s a big difference between sufficient and necessary. And that’s what companies get mixed up in, that sometimes it’s not sufficient to just make your product anymore. But sometimes it is necessary. And LEGO learned that, almost went bankrupt learning that, that when they realized it wasn’t sufficient to just make a box of bricks, they got screwed up. And they thought it was not necessary to make a box of bricks.
Well, what they found was that it was necessary to make a box of bricks and surround that with games and stories and most recently movies. The Lego Batman Movie has done quite well and I’m sure has sold quite a lot of LEGO Batman toys. It’s not enough to just make a box of bricks, but it is necessary.
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