Four Quadrants of Innovation

Incremental versus Disruptive

by Hutch Carpenter

I recently wrote up a post, "Innovation Perspectives - No Shooting Stars." In it, I discussed the issue of organizations myopically focusing on only disruptive innovations to the exclusion of more incremental or sustaining innovations.

In doing more research on the subject, I began thinking about the dynamics that apply when a firm pursues different kinds of innovation. A post by Venkatesh Rao, Disruptive versus Radical Innovations, was very useful for distinguishing between disruptive and radical innovations.

Building on that, I wanted a framework for delineating innovations based on their technology and business impacts. Because they're not necessarily the same. The four quadrants below describe the dynamics for innovations according to their technology and market impacts:



In each quadrant, there are different rationales and issues that apply. Let's take a look.

Existing Tech, Manage Existing Market

The lower left quadrant represent innovations that leverage existing technology, and service existing customers. This is every day innovation. The block-n-tackle innovation that keeps companies nimble and operating at rates above industry averages.

Example? See how Wal-Mart improved the fuel efficiency of its vehicle fleet:


"Wal-Mart has taken a number of steps, including the installation of diesel Auxiliary Power Units on all its trucks, and applying aerodynamic skirting. On the tire side, Wal-Mart is working with super single tires. and is testing nitrogen-filled tires and an automatic filling process to maintain constant tire air pressure."


Improving the customer experience is also a critical opportunity. In an era of social-media empowered customers impacting your brand, the consequences of failing to improve the customer experience are higher than ever.

But this quadrant is the one often pooh-poohed by many in innovation. I like the way PriceWaterhouseCoopers puts it in this blog post:


"An unintended consequence of the Innovators Dilemma has been that companies have begun believing that unless they were pursuing a strategy of seeking disruptive innovations, they were somehow losing out."


Wal-Mart's efforts have paid off. The retailer has held relatively strong during the Great Recession, as seen in its stock price. And Toyota famously gathered over million ideas a year from its employees to emerge as a global leader in the automotive industry.

Existing Tech, Create New Market

In this quadrant, existing technology is leveraged to create a new revenue streams. This is the quadrant where the following phrase applies:


"Good artists borrow. Great artists steal."


The simple application of a technology that serves one purpose toward a different purpose can be disruptive from a market perspective. It's not a large technological leap. It's the intelligent application of what's already at hand.

Twitter is a great example. The technology itself is...simple. Web form. Subscription model. Limit to 140 characters. Yet it's revolutionized the way people share and find information, causing Techcrunch's MG Siegler to compare it to a modern day Walter Cronkite. All for a simple little web app. Here's what WordPress founder Matt Mullenweg says about Twitter:


"Whether the Twitter team intended it or not, they've built a killer and highly addictive reader platform with dozens of interesting UIs on top of it."


The thing with these innovations is that they are very much a market-determined disruption. This isn't some sort of EUREKA! the moment the technology is rolled out of the labs. It takes the market to say that it's disruptive.

Clayton Christensen (Innovator's Dilemma) types of innovation will often fall in this quadrant. Existing technologies applied in new ways to address the lower end of the market.

Venkatesh Rao has a great perspective on this quadrant:


"In fact, in most documented cases of disruption, the disruptive innovation was a minor/incremental change and well within the technical capabilities of the incumbent (and was often taken to market by a renegade spin off from the original company)."


This quadrant is the best one for producing organic growth for companies. It has lower risk, but produces meaningful revenue growth.

Radical Tech, Create New Market

If any one quadrant defines the popular view of innovation, it's this one. And that's not without good reason. In the previous quadrant, existing technologies are applied to new markets. Well, existing technologies have to come from somewhere. That's this quadrant.

This is the cool stuff that the press writes about. Check out AT&T's Technology Showcase for a great example of some of these new technologies.

Amazon's Jeff Bezos has done well in this quadrant. His latest innovation, the Kindle, is an example. It includes a new "electronic ink". Ability to read text aloud. It's incredibly thin profile.

And it's paying off. Amazon reports that the Kindle set a new sales record this November. Which points to the Kindle as a strong new revenue stream down the road, and a new source of sales for Amazon's book sales. A home run in this quadrant.

These types of innovations are important for maintaining the long-term growth rates of companies. They provide needed growth, replenishing changes in existing markets.

Which leads us to the final quadrant...

Radical Tech, Manage Existing Market

There are times a company's business is under attack, and it needs to address changing behaviors in its market. Innovations in this quadrant share the high risk profile of the previous quadrant, but they have a defensive nature to them. They don't seek to find new opportunities, they seek to address changes in customer behavior.

Hulu strikes me as an example of this. A joint venture of NBC, Fox and ABC, Hulu lets users view shows on computers. This initiative addresses the emerging market shift away from televisions to viewing on all sorts of devices. It's a better answer for this shift than the music industry initially had for the proliferation of MP3 songs on various P2P sites.

Gary Hamel has noted the increasing volatility of markets across the globe. Customers have better access to information about new options, and are willing to shift their spending more quickly. With this dynamic, expect some increase in activity for innovations in this quadrant.

Companies Need a Portfolio of Innovation Opportunities

In a recent Accenture survey, 58% of executives said their organization is looking for the next silver bullet rather than pursuing a portfolio of opportunities. When I hear that, I think first of the upper right quadrant (radical tech, create new market). These types of innovations are incredibly important, and should be part of a company's innovation efforts.

But there's really a good basis for expanding that view to look at the other types of innovation: technology vs. market, disruptive vs incremental.

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Hutch Carpenter is the Director of Marketing at Spigit. Spigit integrates social collaboration tools into a SaaS enterprise idea management platform used by global Fortune 2000 firms to drive innovation.

Do Ten Things, Do 100 Things

Ikea OGLA chair - made from 100% post-consumer plastic waste

by Kevin Roberts

I wrote a few weeks ago about Do One Thing, the Saatchi & Saatchi S initiative to personalize sustainable actions. Real change requires a ground swell of action, but as companies we can take decisive steps that have impact.

Walmart recently discontinued issuing paper checks to its employees in favor of electronic payments. By that stroke alone it will save some 257,572 pounds of paper a year.

Tesco in the UK has announced that it is now diverting 100% of its waste from landfills. This is no small feat, since it encompasses all of Tesco's 2300 stores and distribution centers in the UK.

Marks & Spencer has pledged to meet 100 separate commitments to reduce impacts within a five-year time-frame, and has already achieved 39 of those within the first two years.

Here are ten things Ikea did to be more sustainable:

1. Replace polyvinylchloride (PVC) in wallpapers, home textiles, shower curtains, lampshades, and furniture - PVC has been eliminated from packaging and is being phased out in electric cables;


2. Minimize the use of formaldehyde in its products, including textiles;


3. Eliminate acid-curing lacquers;


4. Produce a model of chair (OGLA) made from 100% post-consumer plastic waste;


5. Introduce a series of air-inflatable furniture products into the product line. Such products reduce the use of raw materials for framing and stuffing and reduce transportation weight and volume to about 15% of that of conventional furniture;


6. Reduce the use of chromium for metal surface treatment;


7. Limit the use of substances such as cadmium, lead, PCB, PCP, and AZO pigments;


8. Use wood from responsibly-managed forests that replant and maintain biological diversity;


9. Use only recyclable materials for flat packaging and "pure" (non-mixed) materials for packaging to assist in recycling.


10. Introduce rental bicycles with trailers for customers in Denmark.
    At Saatchi & Saatchi, we're setting goals relating to optimal management of our buildings, and doing less traveling. And individually our employees each declare what their DOT is.

There's an interesting exchange on the post I published a few weeks ago on DOT - a reader claiming that the "incremental steps" model does not achieve transformative change. Adam Werbach responds to this and other views on this, and how he believes the "bottom-of-the-pyramid" actions on the part of the general population have a major effect on decisions made by companies and governments. More on this to come.

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Kevin Roberts is the CEO worldwide of The Lovemarks Company, Saatchi & Saatchi. For more information on Kevin, please go to www.saatchikevin.com. To see this blog at its original source, please go to www.krconnect.blogspot.com.

When Wal-Mart Enters the Funeral Business

The Funeral Business is About to Change

by Idris Mootee

Will Amazon.com Follow? What's The Latest Innovation In The Funeral Business?

Some survey stated that the average person's greatest fear is having to give a speech in public. That's not it for me, but I am sure it is for many. I remember one guy telling a story about how he when he was put on stage in front of 800 people, the dead silence was like death itself. Giving a speech in public ranked higher in the survey than death (third on the list). So, you're telling me that at a funeral, most people would rather be the guy in the coffin than have to stand up and give a eulogy?

The first baby boomers are entering their mid-60s, and the death rate in the U.S. is expected to rise from 8.1 people per thousand in 2006 to 9.3 in 2020 (according to the National Center for Health Statistics). Yet the traditional funeral industry is hardly healthy: The Federated Funeral Directors of America, an accounting firm for independently owned funeral homes, found that in the past 20 years, its clients' profit margins have been cut nearly in half. Some 44% of funeral home directors, up from 28% in 2006, blame the increasing popularity of cremations and alternative burials for sinking profits. Some funeral homes have responded by more innovation such as themed funerals, from backyard barbecues to mini concerts.

The $11 Billion industry is forced to innovate when Wal-mart enters the business. Wal-mart has started selling coffins online at prices that undercut many funeral homes. People can choose from fourteen different models, from the $895 "Dad Remembered" steel model, to the exclusive "Sienna Bronze" model for $2,899. Why did Wal-mart decide to enter the coffin market?

Well, in fact this is a response to Costco's move to sell coffins online (not in bulk thank God) with delivery within twenty-four hours. I guess people don't want to wait for this category. I think it is a good idea. The funeral home industry is overcharging and often people don't know what these things should cost. With Wal-mart you need only to pay $1,000 versus three or four times more through a funeral home.

The funeral homes industry has reason to be concerned. I am sure their argument is these funeral homes can provide full service (like gas station) and ability to provide comfort and empathy, but it comes at a price. If it works for Wal-mart, the next one to join would be Target. They would invite Stella McCartney or Phillipe Starke to design caskets that costs just a little more, but with a lot more style. Amazon.com will follow with online customization that you can pick your favorite patterns or engraved your family crest on it. And for those creative types who are big thing art lovers, forget the traditional wooden box, you want something very special. A company called Crazy Coffins can pretty much order any design you want. There isn't a lot they can't make. The bespoke coffins are made by two carpenters and costs between $3,000 and $10,000.

And when you decide to spend more on a coffin, may be you should consider an upgrade to Louis Vuitton or Karl Lagerfeld. And for those die hard rock fans, they used to sell a KISS goodbye with the "Kiss Kasket". It is decorated with the logo and pictures of the band members; plus: it is waterproof. The Kiss Kasket went on sale in 2001 until 2006 and now it's no longer available from Kiss' website. I'd like to see a Beatles one.

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Idris Mootee is the CEO of idea couture, a strategic innovation and experience design firm. He is the author of four books, tens of published articles, and a frequent speaker at business conferences and executive retreats.

Content is No Longer King (Part 2)

by Stephen Shapiro

In an earlier blog entry on content, readers provided a number of interesting comments. If you haven't already read that article (and the comments), you may want to do so in order to understand this new article.

Many did not agree with my point of view. And that is great. I only wanted to stimulate some conversation.

Let me first address some of the comments (and I appreciate the time that everyone took in writing comments). The comment is in italics with my response following.


"I wonder if the Kindle model requires a subsidy to offset the upfront cost of technology development and/or design manufacturing." Two thoughts come to mind. 1) No one has an issue paying $150 for an iPod even though the cost of the music is pretty much the same. 2) As new generations of eBook readers hit the market, prices will drop. Several are now on the market for under $200.


"The reason distribution appears to be the source of value isn't distribution itself but the monopolistic nature of new distribution channels." Indeed. And that's my point. Those who aggregate are the ones who create positions of power. The content creators are not the power players. And the individual publishers certainly aren't.


"If content was truly losing its ability to create value, Comcast would not try to purchase NBC - they might instead bid for Netflix or for a content delivery device company like Roku." Great point. The reason why I mentioned Comcast's acquisition of NBC was not to say that it was a good or bad move. I was only trying to point out that a few years ago, the networks were the ones doing the acquiring. Now the distributors are in a position to buy the content creators. It will be interesting to see what this Comcast deal does to Hulu.


"It's the publisher that is not essential anymore - the content creators are also becoming content publishers due to technology." Indeed, the publisher is now playing the role of middleman and is going away in many respects - or needs to play a very different role. As you suggest, content creators do have the option to go straight to the consumer now. And we are seeing a democratization of content. Having said that, content creators will still want to push their content to content aggregators - the source of the eyeballs. The reason why Google is so successful is that they are currently a significant player in how content is found.


Some interesting things have evolved in the past week since I wrote the first article. It appears that the big innovations are being developed by the content aggregators (not that that is surprising).

Google Digital Books: Google is offering eBooks on out of print books that are no longer subject to copyright restrictions. They scanned nearly 2 million books and will be offering them in digital form for about $8.

HP/Amazon paperback books: Soon after Google's announcement, HP and Amazon.com indicated that they will offer print on demand paperback books for these out of print books. A 250 page book from their library of 500,000 can be purchased for about $15. A single copy can be printed in a few minutes.

Book Pricing War: Wal-mart, in an effort to crush Amazon.com, is offering 10 new release books for $10. Well, that was until Amazon said they would offer those same books for $10, at which point Wal-Mart dropped the price to $9. Target joined the price-war, dropping the price to $8.99. This caused Wal-Mart to drop the price to $8.98. According to the WSJ, "The publishing industry is also watching warily to see if the price war will have lasting impact on book pricing and the contracts that publishers sign with authors."

BN Nook eBook Reader: Barnes and Noble, announced the release of their 'Nook' eBook, intended to take on Amazon.com's Kindle. One account says that the Nook is "closer to a printed book than its precursors in some respects, (in that it) allows users to lend their copies of electronic books to any friend who has installed Barnes & Noble's e-reader application on a mobile device or personal computer."

Comcast Premium Channel Streaming: Comcast announced that by end of the year, you will be able to watch popular cable television series such as HBO's "Entourage" and AMC's "Mad Men" on your computer without paying extra. They are reported to be the first cable TV operator to "unlock online access to a slate of valuable cable shows and movies, aiming to replicate what's available on television through video on demand."


Please don't get me wrong. Content is necessary. As an author, I sure hope there is value in what I do. Amazon.com, iTunes, Wal-Mart, Barnes and Noble, and Comcast would not exist without content. So yes, content is important. I just wonder if it is still king.


P.S. As an aside, Andrew Odlyzko published an article entitled "Content is Not King" where he contends (according to Wikipedia) that "1) the entertainment industry is a small industry compared with other industries, notably the telecommunications industry; 2) people are more interested in communication than entertainment; and 3) therefore that entertainment content is not the killer app for the Internet." I realize it is a different topic altogether, but it is interesting nonetheless.

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Stephen Shapiro is the author of three books, a popular innovation speaker, and is the Chief Innovation Evangelist for Innocentive, the leader in Open Innovation.

Content is No Longer King

by Stephen Shapiro

We often hear that content is king. But I wonder if this is still true.

Let's take some very simple examples.

I am sure most of you know that the iPod was not a revolutionary invention. It was merely a new spin on the already existing MP3 player. The real innovation was the integration of the iPod with iTunes. This changed the game. Using this model, the distribution of content became as important as the creators (the musicians) and the publishers (the record labels). Apple is now one of the most powerful and profitable players in the music industry.

I now own an Amazon Kindle. I have to admit, I love it (I'll blog about that another time). But what strikes me is that we are seeing the same 'content distributor as king' dynamics unfold again. In the book business, the author's royalty is a pretty small slice of the pie. I should know because I just signed a two book deal with Penguin's Portfolio imprint.

Here are some illustrative figures for a printed book (kept very simple using made up, yet not far fetched numbers):

• An author can expect about 10% +/- of the retail price of the book. So if the book retails for $25, the author gets $2.50.


• The retailer expects roughly a 50% discount and then they sell it for whatever they can get. If they sell it for a 20% discount, they gross approximately 30% of the price of the book (about $7.50). Their profit is quite a bit less due to overhead costs.


• Finally the publisher gets the remaining 40% or so - about $10 a book. By the time the publisher has covered all of their costs, books that sell poorly can lose them money because they need to pay the editorial staff, the various designers, the printers, and the shipping companies.

As you can see, the creator of the content (the author) gets a small slice. The publisher of the content gets a small slice. And the distributor gets a small slice. The rest of the money is eaten up in various costs.

Enter in the digital age.

Book on Kindle sell for $9.99 as a rule (we'll make it $10 to keep it simple). Let's look at an illustrative breakdown now.

• The author gets 5% of the retail (eBooks typically get a lower royalty) - $0.50. As you can see, an author can make 80% less with a Kindle book.


• The publisher and Amazon split the rest in a way I am not privy to.


• The publisher's costs are lower because they don't need to pay for shipping and printing. They still incur the upfront design and editorial costs.


• Amazon's costs are close to zero. They only need to pay a small amount to Sprint to provide mobile services. No overhead (except maybe some computer servers). No distribution. No warehouses.

In this model, I want to be Amazon. Everything sold is nearly pure profit. The content creator (me) is definitely not the financial king in this model. The publisher does fine. But the distributor appears to be the one in charge.

This concept of distribution as king appears in all areas. I was speaking with a seasoned consultant from the retailing industry. He indicated that a few years ago, the power shifted from the manufacturers to the retailers. Wal-Mart has the lion's share of power in the industry and they now call the shots.

You could argue that Google has a similar position, although their financial model is a bit different (AdWords accounts for most of their profit). But like other distributors, they don't create content. Instead they aggregate content from a variety of sources into one distribution system.

I just read on Friday that Comcast may be buying a 51% stake in NBC from GE. This shows how the power is moving from the creators of the content (the writers) and the publishers of the content (NBC and their production staff) to the distributors of the content - Comcast.

Are you a content creator or you a content publisher? Does someone else control distribution? Or, are there new entrants who might control distribution? Beware. The current and future distributors/aggregators of your content could be one of the most serious threats to your business.

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Stephen Shapiro is the author of three books, a popular innovation speaker, and is the Chief Innovation Evangelist for Innocentive, the leader in Open Innovation.

Beyond the Amazon Kindle

I came across a video on BNet on the future of ink. Electronic ink (aka electronic paper) is the display technology powering the Amazon Kindle and pretty much every other serious digital book reader out there. The technology is also being tested with store signage in Wal-Mart and was used to power a multimedia panel on the cover of Esquire. If you're not already familiar with the technology, or if you'd like to see more, watch the video below:



The key question in my mind is not what has the technology been used for so far, but what other imaginitive uses can people come up with that will improve the quality of our lives?

What do you think?

@innovate