Most companies pay significant attention to innovation. However, most innovations fail in the marketplace. Other innovations provide little return to the business. Although there are many reasons why firms derive low return to innovations, the single biggest mistake that impedes your innovation success is ignoring the macro innovation cycle. The macro innovation cycle helps define which innovations will be more successful at different stages of your business evolution.
For example, the Smartwatch category emerged in the last decade or so. A critical need for the smart watch industry today is adding new health tracking functions. Some of these can be blood pressure and blood sugar monitoring functions. If an intelligent watch firm focuses on these innovations, it would be more successful than if it focuses on cute straps. This example shows that at a given point, some innovations will have a higher payout than others.
Which innovations will provide the highest return for your effort is determined by the macro innovation cycle. This cycle creates the broader innovation imperative for your business. If you ignore it, your innovation efforts will not be rewarded adequately.
Macro Innovation Cycle
What is this innovation cycle and can you identify its various stages quickly? The four stages are as follows:
Category Defining Innovations
These are new to the world innovations that help define a category. At the beginning of any industry, the change efforts focus on category defining inventions. Such efforts focus on the development of the dominant design for the industry. For example, fitness trackers went through many iterations. There were trackers that you could attach to your belt, put in your pocket, or wear on an ankle. Then there were trackers that you could wear on the arm and the wrist. Once wrist-based trackers became a standard format, some had displays while others did not.
Innovation efforts in the early stages of the tracker industry focused on defining the category. These efforts led to consumers and the market coalescing around a standard.
Step Change Innovations
Early on, sometimes, an industry faces a major hurdle in its innovation efforts. Due to this barrier the product meets acceptance problems. Unless such obstacles disappear, the industry remains a niche product offering with a limited future. At such times, the key innovations needed involve a step change which can remove this hurdle.
A step change innovation usually occurs during the inflection point in the industry. By inflection point, I refer to the S-curve for the technology. It is a curve that maps the innovation effort on the x-axis and technology output on the Y axis. Innovation effort often involves three stages in technology development. In the first stage, effort leads to little improvement in technology. In the second stage, industry efforts bring significant improvements in the technology. After a point, subsequent efforts leads to declining improvement in technology. Due to these three stages, a technology follows this S-shaped curve. The point between stage 1 and stage 2 is called the inflection point.
Let’s take the example of digital imaging. Early on, firms struggled to improve the resolution of a camera. Significant innovation inputs hit a stonewall as companies found it hard to improve the camera resolution at a reasonable cost. But after a point, the change in CMOS technology led to the inflection point for the industry. From then onwards, firms could improve the resolution with much less innovation effort. As a result, high resolutions cameras became standard, and the mass market widely accepted these cameras.
Today, self-driving cars are in this stage where they need to reach an error free driving status. Even small errors in these cars can lead to a crash. Until the errors rates come down significantly, these cars will find the market cold. As a result, firms are focused on bringing down error rates in such cars. They are focused on a step change innovation in self-driving car technology.
When is it critical?
Although step change innovation is often critical in the early stages of an industry, it can become significant in later stages too. Need for a step change innovation in later stages is often felt when a new technology emerges in the industry. When new technologies bring a step jump in performance, incumbents need to focus on bringing about a step change in their old technologies. This fight between the old technology and the new technology has occurred in many industries.
Optimization and Development Innovations
Once a category becomes well defined, and the technology goes beyond minimum acceptable performance, the innovation focus often moves towards optimization and development. These efforts either involve adding functionalities or incremental improvements of existing features.
For example, smartphones are currently in this stage of the innovation cycle. The latest iPhone 7 Plus has a dual camera with is an improvement over earlier iPhones. Similarly, other firms are also focused on optimization and development of their phones.
Most of the innovation efforts in any industry take place at this stage.
Once the improvement in products and services reach a certain level, firms find little return from innovation efforts. It seems that they are running to stay in the same place. At such points, the industry is usually ripe for a game-changing innovation. Such efforts often involve a redefinition of the market. In that sense, they are almost like the category one innovations above but with a significant difference. They do not create new categories but redefining an existing market.
Uber and fintech are two such examples. Uber is changing the way people use cabs and drivers supply taxi services. It is a market-redefining innovation. Similarly, fintech is changing the financial services industry through a redefinition of services. Robo-advisors are providing wealth management solutions using technology. By providing solutions at a fraction of the cost of traditional wealth management, it is redefining the industry.
When your innovation efforts are in line with the macro innovation cycle, you are more likely to succeed. The reason is that the market will reward you the most with the most needed innovation type. If you give the market some other innovation, your probability of success declines.
In fact, going against the macro innovation cycle may impede your market success. For example, when Apple’s iPhone threatened the Google’s search model, Google could have chosen to continue innovating in search algorithms. But that would have been a risky strategy. Instead, it invested in Android platform innovation. That stopped Apple from upending the search business.
Do you consider the macro innovation cycle when searching for innovation opportunities?