Strategy series

Written on 17 March 2017
By Constantinos Lioukas
Associate Professor - Strategy, EDHEC Business School
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Innovation is a very powerful, yet challenging endeavor for companies. In order to innovate their company’s products, services or processes, managers need to spend a lot of time, effort and resources. However, many times the kind of innovations they are looking for already exist in a different industry. Problems that seem to be insurmountable in a given industry may appear in a different form in another industry and solutions may already be available there. This is the essence of analogous innovation; identifying solutions to problems by searching in analogous industries or markets. Of course, innovation is not just about problem solving. Looking outside the boundaries of your industry can be useful for other forms of innovation as well. It may also serve as inspiration to identify new ways to enhance the value of your product or service for customers, explore unmet customer needs, or even devise novel ways of making profit.

How can managers identify interesting elements in other industries that might also become a source of innovation in their own company? More specifically, what should they look for every time they scrutinize other industries to identify opportunities for innovation in their own company? Which guidelines or rules can help them in this process?

Creating synergistic combinations

One way of looking at another industry is trying to identify some elements in the core offering of the other industry that can create synergies with the core offering of your own company, so that the combined offering has significantly higher value for customers. The classic example of this type of innovation is Cirque du Soleil. Cirque is a particular type of circus that injected new elements drawn from theater. Unlike traditional circuses featuring a series of unrelated acts, each Cirque creation resembles a theater performance in that it has a theme and story line[1]. The key to Cirque’s success is that some of the traditional elements of the circus (e.g., acrobatic acts) become even more exciting for the audience when combined with theater elements (e.g., an underlying story). Nintendo attempted to create synergies by combining the advantages of the video game industry (e.g., the ease and fun of playing a video game at home) with the advantages of doing real sports (e.g., physical exercise). The Wii game console creates higher value for gamers by allowing them to play games using physical motion. When the core offering is not a service but a product, the elements that can be synergistically combined are often the components of one product that can also be useful for another product. For example, in a project for one of its clients, IDEO attempted to develop a spill-proof nozzle for a bicycle water bottle by using ideas from a shampoo bottle that had a similar nozzle and could hang upside down.

Based on the above, it is clear that when trying to innovate through synergistic combinations, the most promising industries to look at are the ones that have a core offering similar to the core offering of your industry. For instance, the core offering of Cirque du Soleil is a service, one that focuses on entertainment, so the company looked at another entertainment service industry (theater) in order to identify opportunities for synergistic combinations.

Mapping and filling gaps in customer preferences

Each product or service aims to address certain customer needs or preferences. When looking at the products or services of other industries, it can be useful to map the customer needs that these products or services address in order to identify unmet customer needs that represent opportunities for innovation. For instance, the laptop and the smartphone are different products, yet they can be compared with each other if we consider some of the basic customer needs they address. Indeed, both products enable users to work with electronic documents in various formats and communicate with others in a variety of platforms (e.g., social media, email, etc.). However, the two products differ significantly in their ability to address customers’ need for functionality and portability. The laptop excels in functionality (e.g., due to the bigger, more comfortable screen and keyboard, powerful processor, etc.) but scores poorly in portability, compared to the smartphone. Apple realized that there was a gap in customer preferences. In particular, there was a need for a product that is more portable than the laptop but offers better functionality than the smartphone: the iPad. Any computer or phone manufacturer would have come up with a similar idea by mapping customers’ preference for functionality or portability for these two products. They would have easily realized that these two products lie at opposite ends of a continuum of preferences, so that the middle of the continuum represents a gap in customer needs or preferences that a future product (e.g., tablet) could address.

When trying to innovate through mapping customer preferences, the most promising industries to look at are the ones that are undergoing technological convergence. This is because technological convergence tends to make products more comparable. For instance, in the transition from the traditional mobile phone to the new smartphone, this product became more comparable with the laptop because it can do most of the tasks that the laptop can do, although with reduced functionality.

Productizing services and servicizing products

When managers examine the core offering of another industry, the distinction between products and services should not imprison their thinking. After all, each offering aims to address certain customer needs, regardless of whether it is a product or a service. This means that if the core offering of the other industry is a service, it could also be useful to consider whether this service can be transformed into a product. Similarly, if the core offering of the other industry is a product, you might want to consider whether the product can also be offered as a service. A good example of this type of innovation is Hubspot. Following the success of Google’s search engine, some companies started offering consulting services aimed at helping their clients become more visible in Google searches. Hubspot developed software that enables companies to do search engine optimization and other inbound marketing techniques, thus transforming a core offering that others provided as a service into a product. Hilti manufactures high-end power tools for the construction industry, yet it differentiated itself from other tool manufacturers by selling services around tool use (e.g., managing its customers’ tool inventory by providing the best tool at the right time, quickly furnishing tool repairs, replacements, and upgrades, etc.) instead of the tools themselves, thus transforming a core offering based on a product into a service.

When searching for opportunities to productize services and servicize products, there are no limits to the industry one could look at, although the software industry appears to be particularly promising because software is a highly malleable product that can be designed to serve different purposes. Aside from that, this guideline simply suggests that a product company may identify opportunities for innovation by looking at service industries as well, while a service company could benefit by looking at products. Finally, it should be noted that overcoming the distinction between products and services can be useful for innovating not only in the core offering, but also in the way you make profit with your offering. For instance, Anduro Marketing has a core offering that is similar to Hubspot’s, but provides this as a service: it offers consulting services around web design and search engine optimization. Yet, the company did not choose to make profit in the way that is common for traditional service companies. Rather, it charges flat rates for individual services and packages of services, much like selling discrete products. Similarly, although Hubspot’s core offering is a product, the company uses a software-as-a-service pricing strategy for its product, asking customers to pay a monthly fee. Netflix also differentiated itself from traditional video stores that charged for each movie rented by using prepaid subscription based on a monthly fee.

Innovating in the delivery of the offering

Although the core offering of the other industry is very important, focusing too much on the core offering may distract attention from other opportunities. When examining another industry it is also important to look at the way in which the core offering is delivered to customers. For example, the core offerings of the hospital and aviation industries are very different, focusing on patient treatment and transport respectively, making it very difficult to innovate in the core offering by transferring ideas from one industry to the other. However, the Rotterdam Eye Hospital found that it could borrow ideas from the aviation industry in order to innovate in the delivery of their offering. First, they implemented a central planning and booking system similar to that of KLM so physicians were no longer directly involved in planning and booking individual patient visits. Inspired by airport shuttles, they also started a taxi service to bring patients to the hospital. In order to eliminate wrong-site surgeries, the hospital introduced a “time-out” procedure, which includes a check of the required materials and the patient’s health status with respect to the planned surgery, comparable with aviation’s flight plan before takeoff. They were also inspired by the “black box,” which records all flight crew activities in order to determine the causes of an accident, and started videotaping surgical team activities. The list of aviation innovations introduced in the hospital is longer[2], but the key point is that these innovations did not alter the core offering provided by the hospital (i.e., eye treatment) but the way in which this offering is delivered to patients. Other examples in which medical surgery benefited from another industry include removing impurities from the air by borrowing ideas from computer chip manufacturing, as well as detecting very small features like early-stage tumors in medical images using pattern recognition solutions from the military.

When trying to innovate in the delivery of your offering, the most promising industries to look at are the ones that have a delivery process that focuses on the same critical issues as your own company. For instance, in the above example, the hospital was struggling to achieve high production volumes, low costs, and a specific patient-centered approach, and so it decided to borrow ideas from aviation because this industry has been focusing on the same set of issues, such as handling more passengers, improving logistics and safety, and being service-oriented.

Looking outside the boundaries of your industry can yield very powerful, often surprising ideas for innovation. Yet, this search is a very messy process, and there is no guarantee that a satisfactory idea will be found. The above simple guidelines will hopefully reduce the chances of missing an important opportunity while navigating through this adventurous and messy journey.

 


[1] For more details, see the article by Chan Kim and Renée Mauborgne, “Blue Ocean Strategy”, Harvard Business Review. (October 2004), p76-84.
[2] For more details, see the article by Dirk de Korne et al., “Diffusing Aviation Innovations in a Hospital in the Netherlands”, Joint Commission Journal on Quality and Patient Safety. (August 2010), p339-347.