Innovation Is Not A Strategy

Al RiesSeptember 8, 20094 min

Innovation Is Not A Strategy

As most of you know, Sharper Image, home of innovative products like the Razor scooter, the robotic dog, the Ionic Breeze, the StressEraser and the R2-D2 interactive droid, filed for Chapter 11 bankruptcy. What remains is an important lesson.

Innovation is not a strategy and companies which depend on a constant flow of new, innovative products will someday find themselves in deep trouble. As Sharper Image did.

Every successful company needs a branding strategy, which may or may not include innovation. Yet many marketing gurus have elevated innovation to a point where it is widely perceived as the single, most-important function of a corporation. Witness the raft of recent articles on the subject, including an editorial in my favorite publication with the theme, Forget the recession and innovate.

There’s also the famous Peter Drucker quote, The business enterprise has two and only these two basic functions: marketing and innovation.

I would simplify that quote. A business enterprise has only one basic function: build a brand that can dominate a category. Early on, innovation can help a company build that kind of brand.

•    Instant photography and Polaroid.
•    The plain-paper copier and Xerox.
•    The microprocessor and Intel.
•    Wireless email and BlackBerry.
•    The athletic shoe and Nike.

But when a category matures, the situation changes. Take the automotive industry. The significant innovations in the auto industry took place decades ago: the V-8 engine, automatic transmission, power steering, air conditioning, seat belts, air bags, etc.

What makes a powerful automobile brand today is not innovation, but a narrow focus on an attribute or a segment of the market. Reliability and Toyota. Driving and BMW. Youth and Scion.

Innovations outside of a brand’s core position can undermine a brand. What did the PT Cruiser do for Chrysler, except to confuse customers? What did the Phaeton do for Volkswagen? What did the Viper do for Dodge?

Dodge is a big truck brand. Does the truck buyer prefer Dodge because it accelerates like a Viper?

Most brands don’t need innovations; they need focus. They need to figure out what they stand for (or what they could stand for) and then what they need to sacrifice to get there.

It’s sacrifice that builds brands, not innovation. Search was a commodity on the Internet, first pioneered by AltaVista and then GoTo.com. AltaVista later added innovations like email, directories, topic boards and comparison-shopping to its home page. GoTo.com changed its name to Overture and turned itself into an innovative syndication service.

It took Google to narrow the focus to search only and in the process build a powerful brand. So what is Google doing lately?

They’re innovating. Google is planning to extend its brand into targeted advertising for radio, television and newspapers. Also, Google software for personal computers and cellphones. The company is even spending hundreds of millions of dollars to innovate in alternative energy sources like solar, geothermal and wind power.

The March 2007 issue of Fast Company features the worlds 50 most innovative companies. No. 1, as you might expect, is Google.

As a matter of fact, the magazine devotes 18 pages to the Google story. Prospective employees are often asked, If you could change the world using Google’s resources, what would you build?

My answer would have been, I’d use the resources to build a second brand, like Toyota did with Lexus, instead of using the resources to sabotage the base brand.

Then there’s Apple, which seems to be an exception to the principle that innovation cannot build a brand. Certainly Apple has been successful because of the widely held belief that all Apple products are highly innovative.

That’s true today, but what about tomorrow? Innovation cannot last forever. Sooner or later Apple is going to run up against a brick wall and find itself fighting a host of competitors who dominate their categories.

Apple doesn’t dominate any category, yet manages to compete successfully against Hewlett-Packard and Dell in personal computers. Against Nokia and Motorola in cellphones. Against Sony and Samsung in consumer electronics. Against Microsoft in personal computer operating systems.

Like Sharper Image, that’s a situation that cannot last. As the categories mature, Apple is bound to run out of innovative new ideas.

Innovation, as a corporate strategy, is not limited to high-tech companies. No category has seen as many innovations as the cola category. Over the years, Pepsi-Cola has introduced Pepsi One, Pepsi A.M., Pepsi Kona, Pepsi Light, Pepsi Edge, Pepsi Max, Pepsi XL and Pepsi Blue.

Typical quote: Pepsi Blue has the potential to reinvigorate the cola category, said a company executive. Were convinced innovation is the key to growth.

In the United Kingdom, the company launched Pepsi Raw, the healthy cola, which the marketing director called the most significant innovation from Pepsi U.K. in the last 15 years.

Over at Coca-Cola, the innovations also roll out on a regular basis. The latest is Diet Coke Plus with five essential vitamins and minerals.

Meanwhile, per-capita consumption of cola in the U.S. continues its slow decline as consumers switch to water and other healthier beverages.

In general, a company should spend its innovation money to create new brands, not to salvage existing brands. Why didn’t Coke put the five essential vitamins and minerals into water instead of cola? The company could have saved the $4.1 billion it spent to buy Vitaminwater maker Glaceau.

As the Sharper Image story illustrates, innovation is not a strategy. It’s a tactic that needs to be used in support of a company’s branding strategy. Perhaps the management of the ‘New’ Sharper Image will embrace this?

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20 comments

  • Rob Curedale

    September 8, 2009 at 12:51 am

    The author’s viewpoint is the viewpoint that caused Detroit to fail and I don’t buy it.

    “Innovation is not a strategy and companies which depend on a constant flow of new, innovative products will someday find themselves in deep trouble. As Sharper Image did.”

    The problem wasn’t innovation in the case of Sharper Immage. What about Apple? Think different?

    “Most brands don’t need innovations; they need focus.” This is an outdated view. US companies cannot survive as suppliers of commodities. The Chinese can do commodities cheaper and better. One of the reason’s GM failed was because they couldn’t innovate. Americans are not prepared to pay for $75 per hour factory labor when they can get a similarly unimaginative product from China for $2 per hour factory labor.

    “In general, a company should spend its innovation money to create new brands, not to salvage existing brands.” People don’t buy brands they buy products. If a customer has a bad experience with a product they will not come back. GM was spending big on advertising and marketing and not enough on innovation.

    “What makes a powerful automobile brand today is not innovation, but a narrow focus on an attribute or a segment of the market. Reliability and Toyota. Driving and BMW. Youth and Scion.”

    The author picked the three most innovative vehicle manufactures. Companies that certainly wouldn’t support the author’s point of view that innovation doesn’t matter. What about the Prius?

    “The significant innovations in the auto industry took place decades ago: the V-8 engine, automatic transmission, power steering, air conditioning, seat belts, air bags, etc.”

    The author hasn’t heard of electric cars?

    The author is taking the position of a GM executive in this article. They kept arguing innovation didn’t matter and continued to build products that everyone else had stopped making.

  • Bhavana Jaiswal

    September 8, 2009 at 5:27 am

    It makes an interesting observation that early on, its rationales that make a brand succeed – instant photography, plain paper copier,e tc. ; whereas once the category develops, its ’emotionales’ that make a brand succeed – reliability, youth.

  • Bhavana Jaiswal

    September 8, 2009 at 5:30 am

    Apple certainly seems to be an exception to the principle. However, what you fail to recall is that Apple is successful because its iconoclastic, more than innovative. They’ve successfully portrayed to consumers that the Mac is not for everyone.

    Same goes for the iPod – it succeeds because of its prominent white design and distinct operating sounds – which are a source of self esteem to a person; not because the iPod is innovative.

  • Jenn Lee

    September 8, 2009 at 9:58 am

    How very true. I also think that many companies who use innovation as a strategy also do not engage with their customers…that is, these companies do not understand what value that their customers find in their products/service.

  • Gregg Gallagher

    September 8, 2009 at 11:36 am

    One of the problems here is the use of the term “innovation”. Some think of it as synonymous with “creative” – simply thinking of, and bringing to market, new products or services.
    I prefer a framework for innovation as being that of Ideation (creativity), which instantiates via Invention – but that true innovation has to provide actual, substantive value to customers.

    To use Apple as an example – the Macintosh in particular – Apple neither provided the ideation, nor the invention of window-based, mouse-driven, iconic interfaces. However, they did provide the innovation as they were the first company to understand and deliver the value of these ideas to the marketplace.

    BTW, I would never put forth Sharper Image as a company based on innovation strategy – they were basically a retail distribution chain that private-labeled products designed and manufactured by 3rd parties….

  • Derrick Daye

    September 8, 2009 at 12:29 pm

    @Gregg, agree – Sharper Image is not the right example. In light of that, I think the take away remains strong – A business enterprise has only one basic function: build a brand that can dominate a category.

    @Rob, you have to step back and look at the bigger picture. Detroit’s failures included an innovation deficit yes, but the brand management gap was much bigger. I disagree with your view that Al’s perspective is faulty. The argument is not ‘down with innovation’. The essence of his post is on Branding as the dominant force in business.

    Best,

    Derrick

  • Mital Patel

    September 8, 2009 at 12:37 pm

    ” One of the problems here is the use of the term “innovation”. Some think of it as synonymous with “creative” – simply thinking of, and bringing to market, new products or services. I prefer a framework for innovation as being that of Ideation (creativity), which instantiates via Invention – but that true innovation has to provide actual, substantive value to customers.”

    Gregg, you bring up a great point here.

    I think innovation and strategy can go hand in hand. Using innovation to further the quality of the products a company is providing, in conjunction with customer demands. Basically the evolution of a product.

    I’d have to agree with the author, I feel that it is very important to focus a brand on it’s segment. Instead of creating new products which are not in alignment with the core values of the organization,(eg. Google radio ads), they should use those resource to create a new brand.

    Unless of course your branding strategy is innovative in itself, like the example of Apple that Bhavana mentioned,

    “Apple certainly seems to be an exception to the principle. However, what you fail to recall is that Apple is successful because its iconoclastic, more than innovative. They’ve successfully portrayed to consumers that the Mac is not for everyone. ”

  • Gregg Gallagher

    September 8, 2009 at 1:03 pm

    Good point re the need for focus – don’t want to lose that excellent point the author made. Invention for invention’s sake, and one which “defocuses” an organization, is a trap.

    We may be talking past each other a bit, since the term “branding” can be just as nebulous & mis-applied as “innovation”.

    I use the terms mission & purpose re an organization’s underlying drivers – it’s then essence of what the organization is all about.

    That can & should be evidenced in various strategies the organization implements. Their branding strategy should reflect the soul & purpose of the organization.

    How a company executes can & should be innovative – that is, providing customer-value based on the creative application of technology, processes, marketing, etc..

    One of the key challenges is when to understand that an organization can/should/must change it’s focus (e.g., Microsoft switching to an internet-centric approach in the mid-90s), versus “defocusing” the organization by willy-nilly changing targets of opportunity…

    And, IMHO, that’s a leadership issue, and can be proscribed by “one right strategy approach”

  • Rob Curedale

    September 8, 2009 at 3:14 pm

    I have been hearing these arguments for a long time in the US but they are motivated by the desire to sell branding services.

    There is an increasing awareness that spending more on product excellence and less on advertising creates longer relationships with customers.

    Many US companies spend more on advertising and marketing than they do on product development, twice as much on average as European companies.

    Americans are buying BMW vehicles and Apple computers because these companies invest in product development.

    Bhavana Jaiswa wrote:

    “However, what you fail to recall is that Apple is successful because its iconoclastic, more than innovative. Same goes for the iPod – it succeeds because of its prominent white design”

    Using white is product innovation. Have you forgotten that Apple invented the personal computer category and the first portable computer, first mass produced digital camera, the hand held Newton. If you believe that the iPod is successful just because it is white you are wrong.

    The world has stopped buying US products because you can buy the same commodity from Asia for less. If you advertise a lemon it is still a lemon.

  • Derrick Daye

    September 8, 2009 at 4:17 pm

    @Rob “I have been hearing these arguments for a long time in the US but they are motivated by the desire to sell branding services.”

    So branding is only meaningful to people who provide branding services? Surely you don’t mean that. If you do it makes a product design consultant like yourself sound very self-serving and certainly uninformed.

    Please read more of this blog for a better grasp of what branding is (it’s not Advertising) and its place in business.

    Best,

    Derrick

  • Gregg Gallagher

    September 8, 2009 at 5:08 pm

    LOL…we “experts” need to be constantly on our guard not to be viewing the entire organizational construct through our own subject’s filters. All of our disciplines have roles to play, and where the best balance is can & will vary according to a variety of contexts, circumstances, etc.

    The trap for us can be “we have a hammer” – i.e., our specific areas of expertise, so all the business world’s issues are nails that only our hammers can drive to most effectiveness….

  • Derrick Daye

    September 8, 2009 at 6:02 pm

    Gregg,

    Well said. We all have critical roles. Thanks for keeping us on track.

    Derrick

  • Brandon R Allen

    September 8, 2009 at 6:10 pm

    I agree that focus is extremely important and I agree that innovation for innovation sake is not a good business strategy. However, in today’s environment you have to always be looking for ways to create value in the marketplace. Innovation doesn’t have to be massive just small improvements to the products that you already have. Apple didn’t invent the cell phone they just changed the way we looked at what a cell phone could do.

    Most companies that struggle with this don’t realize that innovation doesn’t have to be revolutionizing for it to be important.

  • Vicky Frank

    September 8, 2009 at 6:45 pm

    Thanks for this insightful article! I worked for Cray Research in the late 80s. They went from a mission of “We build the fastest computers in the world.” to a strategy we insiders dubbed “Focus Everywhere.” In a panic not to get overrun by competitors with alternate parallel processing technology, the company “focused” on hardware, software, networking, and storage media and engaged in strategic partnerships that further diluted whatever brand the company still had left.

    Eventually the company was sold with disastrous consequences to SGI. Your article exactly pinpoints this problem and aptly describes another path companies could take.

  • Burak Babacan

    September 8, 2009 at 11:03 pm

    In that sense, is it possible to say :

    “innovate within your brand focus”

    Apple and Gillette are good examples as they innovate almost in a cannibalistic manner (which i like by the way)…actually making their own products obsolete through new product development.

  • Jeannie Chan

    September 9, 2009 at 12:11 am

    I think that we can’t view things in black and white. Yes, focus is absolutely essential. However, that can exist alongside with innovation. Also, not all innovations are created equal.

    1. Innovation = something totally brand new. It literally creates a new category. e.g. TiVo

    2. Innovation = bring improvement to something old, where it expands the category. I think Glad forceflex is awesome. It expands the use of garbage bag. I may now use a garbage bag rather than a box, because it won’t break.

    3. Innovation = bring improvement to something old, without real expansion of opportunities. Diet Coke now has vitamins, whoopie. Does that mean that these products should not be launched? Absolutely not. Each product has a product cycle, and it is the aim of each product manager to expand that cycle for as long as possible. Yes, there is the argument of building a brand, and there is milking the brand. However, if there is no real way to grow the brand, why not milk it?

    Diet Coke belonged to category #1, when it first came to market, because while it wasn’t first to market, it significantly expanded the market.

    Diet Coke in tiny little cans so it fits nicely into a lunch box belonged to category #2. It helped expand the use of the product.

    Diet Coke + vitamins belonged to category #3, because it’s just milking the Diet Coke brand. Let’s be honest, Diet is Diet. In the world of single-minded messages and positioning, there shouldn’t be any big time innovation to this brand.

    Big time innovation would need to be launched under a different brand, and the cycle continues.

    My 2 cents.

    Jeannie Chan
    Twitter: @jeannie_chan

  • Bhavana Jaiswal

    September 10, 2009 at 5:08 am

    @Rob – I agree with you on the world switching over to Asian products due to the price factor.

    However, I’d beg to differ on the iPod. The material chosen for the body is product innovation. Choosing to produce only white coloured products is strategic branding. The fact that it’s only sold in white gives its consumers the assurance that one glance and everyone knows what brand they own. It’s all about being proud of the brand choice they have made.

    Same goes for the trademark click sound. Putting that into the iPod was product innovation. Converting the same sound into a strong brand symbol is very smart branding.

  • Mike Marn

    September 10, 2009 at 3:39 pm

    Good stuff, even the mildly contentious parts! In my view, innovation is not a destination, it’s a route. The destination is “where the consumer wants to be.” If that destination is “able to enjoy photos sooner” then instant photography (an innovation) is a darn good route. If it’s “getting E-mail when I’m not at my computer” then Blackberry is an innovative means to that end. Lots of Sharper Image products were “cool” but you’d be hard pressed to easily identify the destinations they sought to occupy.

    If you can figure out the next destination (and you should always be thinking about it) then innovate — first is good. But in the meantime, the point of this post is very well taken; when it comes to that place your customer wants to be, your product had better be good at not just “getting there” but at “staying there.” “First” is by definition a temporary advantage. “Best” – or at least “unique” has some staying power.

  • elaine vergara

    December 6, 2009 at 9:23 pm

    My viewpoint, just focus on how your target market or potential customers will be fascinated and delighted on the products or services that you offer, as a result, you capture their minds and hearts that will definitely established loyalty and brand positioning, so the essence of being part of the organization you provide whether it is service or product but the bottom line is the customer value; customer value the benefits they get is greater than the cost, your not after the profit but you go beyond and be able to response to their exact needs, wants, and expectations.

  • Sascha Brossmann

    December 30, 2009 at 10:51 am

    It strikes me funny how everybody in the discussion seems to have missed the main innovation that occured with the iPod and provided the foundation for its success: it’s not a single device but a highly integrated _ecosystem_ of hardware, software (iTunes), and retail service (iTunes Music Store). An ecosystem optimised for simplicity/comfort at all stages, that comprised e.g. a new user interface paradigm with the scroll/click wheel, earbud cables that easily distangled due to their coating, painless synchronisation, comfortable music library management with integrated online music shopping (that even further turned then more expensive music downloads into a cheaper commodity). Apple’s clever branding (the signifying _white_ everywhere, the neo-modernist aesthetics [owing much to Dieter Rams], the silhouettes on single vivid colour, …) was just the icing on this cake. But the key point remains that iPod/iTunes offered a whole bunch of highly valuable _solutions_ to several real world problems at once in one package. And that even on both the customer’s and business partner’s (music distribution) side.

    Remember further the success of the VHS video system? Technologically inferior to e.g. Betamax, but higher customer value due to available movies. Nintendo reviving the game console market in the late 1980s? Technologically a rather mediocre product but _together_ with the highly playable and meticulously designed games a great customer experience. Both kinds of successful innovation in an often technologically driven kind of market that were primarily neither founded on technology nor branding but on providing good customer value. Without doubt, branding can still improve this initial advantage (see e.g. Nintendo’s positioning concerning the always ‘family value’ compatible contents of the games they allow on their consoles). But it does not create it.

    Bottom line: without providing solutions that create perceivable value/wealth (b2b and/or b2c-wise), even the best branding won’t get you anywhere, at least not in the long run. OTOH, if neither your processes nor your offerings don’t differentiate you significantly from your competitors, good branding will most probably give you an advantage. Still, it won’t safe your market share if someone manages to provide recognisably better solutions/more valuable experience (this can as well happen internally, see e.g. the invention and introduction of JIT production at Toyota that turned out a significant innovation in industrial manufacturing).

    Side note: I suggest that purely technological inventions and advancements should not be called ‘innovation’. Artefacts and services as such cannot be innovative – innovations only happen when inventions (not necessarily restricted to products/artefacts) reach out into human culture _and_ gain enough traction to change it at least slightly (general expectations, perceptions, behaviours, …). Which further concludes, that a) the label ‘innovation’ can _only_ be retrospectively applied. b) you cannot work on innovations, just on identifying the right problems, defining them well enough, and creating hopefully good solutions for them etc. _If_ successfully implemented/marketed those solutions _might_ then turn out as innovation – but more often than not they don’t. One can definitely increase the odds (BTW, good ideation/creativity is fundamental but far from sufficient), though I wouldn’t count on this bet alone. Success always needs a whole set of tools intelligently applied. Not to forget a small amount of serendipity/chance, as well.

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