The B2B Innovation Imperative
In his excellent article titled, An Open Letter to CEOs, Alex Osterwalder, co-founder of @Strategyzer, reported, “A recent McKinsey study shows that 80% of your CEO peers think that their current business model is at risk. The research also shows that a mere 6% of your executives are satisfied with the innovation process in your organization.”
While these statistics sound foreboding, I believe this anxiety about the future, if not taken to extremes, can be healthy. Andrew Grove’s book title said it all, Only the Paranoid Survive. And the time to be paranoid is before your competitors take market share and before you become obsolete in your product, service delivery, or in your messaging.
Earlier in my career, I was part of several companies that failed to prepare for the onslaught of the SaaS/cloud software model. One of these firms was a leader in the CRM space that could have launched a cloud version (protecting their flank) while continuing to upgrade the installed version (protecting the core business). Their failure to do so cost the company hundreds of millions in valuation. I wish that I had been more forceful at the time, but the CEO insisted that customers would be fine with the installed version. Wrong!
When it comes to B2B innovation, private companies have one advantage over public companies – they do not have to report quarterly earnings to maintain or grow the stock price. I have been in the executive meetings where decisions were based more on meeting the expectations of financial analysts and stockholders (e.g. quarterly earnings) than on investing in a better future. This may be a useful strategy for the short-term but not so much for long-term growth and sustainability.
Practice Disruptive Innovation
“Disruptive innovation” is a term coined by Clayton Christensen, Professor of Business Administration at the Harvard Business School. Christensen is so well known that In 2011, a poll of thousands of executives, consultants and business school professors, Christensen was named as the most influential business thinker in the world. He describes disruptive innovation as, “a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors.”
When many of us think of B2B innovation, we are imagining changes at the upper end of the market, where the product/service demands are greater, the selling process more complex, and the stakes much higher. However, as the below examples illustrate, disruption can be as basic as offering a simpler option or a change in packaging, pricing, delivery, or implementation. For example, the early providers of cloud-based (SaaS) software offered far fewer product features than established on-premise software vendors, but the delivery, pricing and implementation models were truly revolutionary.
No one said that being a leader is supposed to be easy. You have to keep everything moving forward in the core business, while continually figuring out how to beat competitors who may not even exist. Here are some ideas on how to accomplish this and be a B2B innovation leader:
- Separate the innovators from the sustainers. There are talented employees in your company who are good at keeping things on track. They build the products, service the customers, manage the books, hire and administer the staff, and so forth. However, these sustainers can be like a deer in the headlights when it comes to innovation and will do their best to stifle the new idea if it threatens the status quo.
- Go for the big win. Sure, you can innovate on little things, like a subtle change in pricing strategy or some new product features. But, why not go for the big win – the 2x, 3x or 10x improvement – to pull away from the competition.
- Never take your success for granted. If you are tempted to do so, think about yesterday’s seemingly unbeatable market leaders such as, Kodak, Sun Microsystems, Sears, Blockbuster, Nokia, and Blackberry. Also keep in mind that only 71 companies remain today from the original 1955 Fortune 500 list.
- Organize to embrace innovation. I have seen instances where “innovation” was no more than one of the so-called company values listed on a coffee mug. The organizations that claim to support innovation don’t have to talk about it; they live it. They give space for people to make mistakes and don’t keep pulling the innovators back to the core business every time they hit a bump in the quarterly numbers.
- Allow for controversy. As Margaret Heffernan said in her Ted Talk, Daring to Disagree, “For good ideas and true innovation, you need human interaction, conflict, argument, debate.”
Dollar Shave Club: Great example of taking an entrepreneurial approach to an established business model. Instead of buying razors at a retail outlet, you now subscribe to receive them monthly. The company was acquired by Unilever for about $1 billion and now has 3.2 million members.
Zipcar: This innovative company’s motto is: OWN THE TRIP, NOT THE CAR™ – You drive, and we’ll take care of the rest. Members apply online and are issued a Zipcard, which is used to access vehicles worldwide. You then search for a nearby car and reserve it for as little as one hour. The Zipcard is used to unlock the car, and the keys are inside. Just drop off the car when you are done.
Deere & Co.: One of the oldest of the old-line companies, the John Deere folks are not relying on past successes. They are making a major expansion into B2B eCommerce, with a heavy focus on supporting mobile applications. For example, their MyMaintenance application lets customers view and document maintenance schedules by calendar or by how many hours a particular piece of equipment has been used. The application links directly to the ordering system by sending alerts allowing customers to buy parts and installation service – a benefit to customers to be sure, but also good for Deere & Co.’s bottom line.
I’ve mostly covered B2B innovation as it pertains to large companies because these are the examples with which we are familiar. But what is true for these large companies is just as true for micro businesses and the small-to-medium business (SMB) market. Regardless of the size or your company, you must adapt to survive and innovate to thrive.