The Number 1 Reason We Innovate


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Ask any business executive about innovation, and they’ll say it loud and clear: innovation is essential to their strategy. And why not? Studies show that companies that innovate enjoy not only higher growth, but higher profit margins.

Ask them why they’re planning to innovate, and things get fuzzy.

The reason we innovate is to differentiate our companies. Differentiate them how? You have three ways to do it: innovation by cost, product features, or promise.

The first two are the easy one to understand. Find a new way to do it cheaper, and you’ll stick out. Same for product features.

Because cost and features are easy to understand, companies concentrate on these two types of innovation. And that’s why they run into problems. Innovation has to be translated into value for the customer, and the value of cost or feature innovation is usually transitory. Companies are good at competing on costs, and features leapfrog each other all the time.

The real differentiation comes with promise innovation – creating a new promise of value for the customer. Netflix didn’t just offer customers cheaper video rentals – they offered a way to do it without stepping outside. Facebook doesn’t just offer a way to show photos and chat with friends. It offers a way to bring your whole life and personality online.

I said that innovative companies have higher margins and growth. Here’s the real news: companies that differentiate by promise have higher margins and growth than those that differentiate by cost and features. A recent study we did of 135 companies’ innovation strategies bears this out. I’ll elaborate a bit in my next post.

So yes, innovation is vital to your company. But if you’re looking to thrive, it’s critical to focus on promise innovation.

Republished with author's permission from original post.

Thompson Morrison
Thompson Morrison has spent the last couple of decades figuring out how companies can listen better. Before co-founding FUSE, Mr. Morrison was Managing Director of AccessMedia International (AP), a consulting firm that provides strategic market analysis for the IT industry. His clients included Hewlett-Packard, Compaq, IBM, and Vignette.


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