Innovation Is Killing Your Business

Ford Assembly Line

Innovation Is Killing Your Business

Posted by justin.reilly on Oct 29, 2014 7:35:39 PM

It’s 1900. Hawaii becomes an official U.S. Territory, L. Frank Baum publishes The Wonderful Wizard of Oz, and the American automobile industry consists of 500 luxury automakers producing handmade vehicles that start at $1,500 (roughly $41K today). By 1906, the automobile industry is so unattractive that it divides a nation.

"Nothing has spread socialistic feeling more than the automobile."

— Woodrow Wilson

Anti-car activists vandalized cars with barbwire, dismantled paved roads, and organized the first Occupy Wall Street-esque movement by boycotting rich businessmen.

Enter Henry Ford. Ford knew a few things. Horse-drawn carriages were not only cheaper than every car on the market—they were more practical. Even if you could afford both the upfront cost and ongoing maintenance of a handmade car, there were only a few roads worth driving it on. Horse-drawn carriages were better equipped to navigate the bumpy unpaved roads, especially when those roads turned to mud in the rain.

Ford never claimed to invent anything. He studied the assembly lines of the meatpacking industry, the practicality and price points of the horse-drawn carriage, and the product-centric shortcomings of the incumbent automakers.

By 1921, Ford’s market share was 21%, up from 9% in 1908. W. Chan Kim would call what Ford did here creating a Blue Ocean. Others might say he recognized the eroding competitive advantages of the incumbents and decided to go with a strategy that aligned much more with what Rita Gunther McGrath would call Transient Advantage. In either case, Ford took a two-pronged approach to innovation that allowed for an iterative track focused on optimizing the assembly line, while leaving room for a disruptive track governed by customer insights.

“Electricity was not invented by improving candles.”

Procter & Gamble (P&G) used both the models from Ford’s Highland Park complex and Thomas Edison’s Menlo Park industrial research lab as inspiration for its “new-growth factory”. P&G’s innovation strategy allows its business to realize iterative growth in its staple brands—seeing Tide revenues double from $12 billion to $24 billion over the past decade, while also spending $2 billion a year on R&D to develop disruptive products such as the Tide to Go Stain Remover pen. These huge strides are a product of CEO A.G. Lafley’s Connect + Develop plan that merges P&G’s internal resources with outside, “open” innovation. The most progressive part of Lafley’s approach to innovation is that he famously restructured the incentive plans of executives leading R&D teams, to reflect those of executives leading billion-dollar business units like Tide.

So what can we learn about innovation from Ford, Edison, and Lafley?

Three Things You Need To Be an Innovative Company:

  1. A Top-Down Approach To Innovation — Without C-Level focus, we wouldn’t have Built Ford Tough commercials or portable stain removers. Without executive buy-in, there is no story. And when there is no story, there is no growth.
  2. Dual Innovation Tracks: Iterative & Disruptive — Most companies balk at innovation because they are too busy running their business. Create two separate teams and incentivize them accordingly.
  3. Reimagine Your Definition of Success— Tide’s main business unit and the Tide to Go team were measured against a very different set of metrics. Align your tracks around the customer and set your definition of success accordingly.

Ultimately, we are in the customer economy. Without a granular understanding of the wants and needs of your top customers, you are innovating in a vacuum. And no one wants to be a Hoover commercial.

Topics: Marketing Technology, Innovation