With every passing year, competitive intensity across industries seems to increase. The long-term impact of digitization, globalization and all other forms of connectivity in our hyper-networked world has shortened the half-life of innovations. Years ago, smart innovation plays could provide differentiation and lasting competitive advantage for a decade or more. Today, when we look at examples like the Flip camera, which went from dazzling to defunct in less than five years, or Blockbuster, which went from a market capitalization of $5 billion to roughly $300 million in less than a decade -- we're living in a fundamentally more dynamic (and deadly) era.
Given this pace of change, it's unsurprising then to hear company after company commit themselves publicly and loudly to innovation and transformation -- and yet most end up following the market leader and trying to outperform them in the existing arena. So how can we learn to see a new playing field more clearly than our competitors, and truly start playing a different game?
The first step is to see which game your competitors are playing. When you squint at who's doing what in your category or industry, the net innovation actions of most firms can be characterized as focusing on one of three distinct centers of gravity: business model, platform or customer experience.
1. Business Model Shift
This kind of innovation focuses first on configuring assets, capabilities and other elements of the value chain to serve customers and make money differently. For example, even firms that mostly sell hardware, like GE and Johnson Controls, are discovering that the real value comes from using pay-for-performance models that find ways to guarantee that customers use their products effectively.
Zipcar, for example, reimagined how it might tackle the rental car industry by creating a networked fleet of cars and developing a new way for customers to reserve and pay for the rides. The result: Drivers pay by the hour for cars conveniently parked in nearby neighborhoods.
2. Platform Shift
All too often industries are centered on products that have added features and functions over time, but little else. Platform-driven innovation instead focuses on reinventing, recombining or finding fresh connections across capabilities and offerings to create new value for customers.
Amazon, for example, built a strong e-commerce platform selling books to consumers. It has since leveraged its own infrastructure, experience and data to drive wave after wave of innovation from this foundation -- from providing Web services for other enterprises to catalyzing the e-book industry.
3. Customer Experience Shift
This kind of innovation initially connects, serves and engages customers in distinctive ways, influencing their interactions with your enterprise and offerings. Note: standards of customer experience have changed radically in recent decades; once customers get a taste of superior service, they tend to expect it -- regardless of category or industry.
For example, consider how Foursquare initially grew faster than its predecessor Dodgeball in part because of the addition of status-based badges and "Mayorships," and really flourished when it started using its living data set for local discovery -- offering useful, personalized results.
How To Choose The Right Shift
Now that you understand how most of the firms in your category or industry are playing, ask yourself: "What might we do differently?" Observe how the current game either fulfills or disappoints customers, and imagine how you could deliver a new promise. While, for us, the answer to this question typically takes a team of colleagues and months of hard work, below are some broad indicators that will help you see new possibilities.
When Should You Shift Toward A New Business Model?
Great business models radically alter where value is created and how it is amplified. This shift is more successful when there are fewer opportunities to win by creating better offerings or experiences, and more opportunities by changing how you create and deliver them. Focusing on a new business model can succeed in any context, but we've seen it create particular value in asset-intensive industries such as automobiles and heavy manufacturing, as well as in highly regulated industries such as healthcare.
Here are some indications that it's time to focus on a new business model:
-- Elements of the value you (or your competitors) provide are significantly under- or over-priced.
-- There is a significant group of customers that would love to use the primary offerings in a market, but can't afford them or rationalize their expense.
-- There are few variations or experiments in processes, organizational structures, supply chains and so on in an existing market -- and also few collaborations between players.