Why – and How – to Embrace Business Innovation

Everyone’s heard the story of a dominant company that lost its way by not embracing business innovation – or by going about it the wrong way.

In “Bold: How to Go Big, Create Wealth and Impact the World,” Peter H. Diamandis and Steven Kotler tell the story of Eastman Kodak. In 1996, Kodak employed 140,000 people, had a $28 billion market cap, and controlled 90 percent of the film market and 85 percent of the camera market.

But fearing that the digital camera would undercut its photographic film business, executives buried the technology, which Kodak researcher Steven Sasson had developed, in 1976.

In contrast, Fujifilm developed a three-pronged strategy in response to the anticipated rise of the digital camera – get as much money out of the film business as possible, prepare for the switch to digital and develop new business lines, according to “The last Kodak moment” in The Economist.

For many years, Hewlett-Packard was admired for innovation in refreshing its printer business. With startling frequency, it would introduce a new printer, often with more functionality at a lower price, that rendered a prior model obsolete. Yet this cannibalization kept them in the lead by a wide margin and drove a massive market share, which facilitated the true underlying strategy of increased profit through selling more toner cartridges.

Most agree that HP lost its enthusiasm for this type of innovation, which was a major factor in its overall decline. In “Why HP is failing and how you can avoid it,” business consultant Viktor Nagornyy says HP makes good printers but “one product won’t keep a giant company afloat.”

“HP is not an innovation leader in the industry, it’s a follower,” Viktor writes. “Not a very good one at that either. When was the last time HP introduced a laptop (or PC) so revolutionary that people lined up outside Best Buy to get it?”

As these stories illustrate, the biggest reason to embrace business innovation is to survive and thrive. One of the themes of those stories is grow or die. But beneath the surface is innovate or decay.

What’s the Impact of Business Innovation?

For the most part, change is uncomfortable to people and to businesses, particularly when things are going well. Yet this is the ideal time because evolving from a solid foundation is far easier than from one that is eroding.

Change means uncertainty, unpredictability and to businesses, financial risk. However, change and innovation is almost always the only path to sustainable growth and opportunity, particularly in the technology industry.

A McKinsey Global Survey found that of venture-backed software companies in the last decade, less than 1 percent make it from $20 million to $100 million. Of the ones that make it to $100 million, less than 3 percent make it to a billion.

Most companies don’t grow or innovate past a certain point. The reason?  Most companies have either a problem creating its “second act” or can’t find the enthusiasm to focus past its first success.  I view this as the blessing and curse of the installed base –immediate customer and competitive needs can easily consume all available resources.

But how do you know which strategies for business innovation to take on and which to set aside? According to “The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail” by Clayton M. Christensen, innovation is difficult if it requires radically changing what you do as a company. In the software world in particular, focusing on the next incremental feature to existing products can result in a myopic view toward the future.

 

Here are a few questions to ask to help decide on the right business innovation for your company:

1.  Are You Looking Far Enough in the Future?

It’s critical to look at least three to five years in the future and consider those macro changes that impact the constituents in the market you serve. These changes include global factors, cybersecurity risks, compliance, capital availability, and shifting business models from broad to hyper-focused. Usually, where there are risks, there are opportunities for new products and services.

Many software companies seeking business innovation falter because they don’t dedicate the time to evaluate the long term. Fearful of risk and drawn to the Siren song of short-term opportunity, many companies focus on a couple traditional areas for growth:

  • Improving the functionality of an existing product:That incremental innovation can add revenue by attracting new customers and increasing the loyalty of existing customers. Often, competitive factors drive this behavior. This type of innovation is likely more defensive and often consumes all available resources.
  • Growing into adjacent sectors:If it begins selling products to high schools, for instance, a company may expand its customer base to include universities and government agencies. This is a well-proven way to increase addressable markets and revenue in a relatively low-risk way but can ultimately restrict strategic options to a rollup or consolidation path over the long term.

These two are fine avenues for growth. But to be a standout market leader (these are the companies that are both most admired and most valuable), companies must also embrace business innovation in what I call the Rule of Three:

  • Business No. 1:Existing products or services that produce your current revenue
  • Business No. 2:Products in development that extend, expand and enhance your existing products but don’t yet produce revenue. These capabilities provide customer retention, revenue growth and competitive advantage for the next year or two, after which they become part of business No. 1. Most companies stop here.
  • Business No. 3:A hallmark of truly innovative companies, business No. 3 is the initiative that defines and develops the products that likely won’t produce any real returns for two plus years out but could potentially double or triple your addressable markets and represents an entirely new way of solving the problems you solve today. This gives any business the best chance for true sustainable growth.

Of course, this is easy to say.  How do you do it?

Innovate for the future by building business No. 3. It isn’t necessary to build an unrelated business. Often, just by objectively looking at how your customers will do their jobs differently in five years may provide the clues for business innovation.

A great example is the software as a service industry. The standout example is Salesforce.Com of course. But Marc Benihoff did not really create the CRM business, the leader in that sector was Seibel Systems. Salesforce.Com determined that CRM users were likely ready to use a CRM solution that was not necessarily managed and implemented by its own IT department.

A bold idea and, as we all know, absolutely correct. But what if Seibel Systems was thinking about its business No. 3 and came upon the same idea?

At Nintex, it became clear the normal enterprise IT department at customer companies had little resources to satisfy the new application demands of its lines of business. What if there was technology available that permitted the line of business department to build its own applications using its business analysts rather than programmers from the IT department? That idea has facilitated entry and leadership in a new market.

Business changes fast and if you don’t change, too, you’ll be left behind. We started developing Nintex Workflow Cloud™, Nintex’s new cloud platform, over two years ago, and it’s a fresh way to do what we initially provided six years ago. If we hadn’t started developing it back then, we’d be behind the business innovation curve and have to play catchup now.

Even while Nintex has always innovated in areas such as function – adding new features to our products – and pricing – our new subscription pricing – innovating for business No. 3 is critical.

2. Why Do We Do This?

When considering areas to innovate, this is a great question to ask yourself. It can be easy for companies to get complacent and comfortable in their success. One way to avoid this is to think about what you would do if you were starting the company from scratch today.

Often, new employees ask these questions naturally. Consultants can help because they ask these questions to better understand how to help.

What would you do differently? What would you do the same? Are there things you used to do well that have been lost as you’ve grown? Asking yourself these questions can help you narrow your business innovation focus.

Interestingly, these are the questions a newly hired CEOs asks most frequently. And its corollary: Why do we do it this way? When preparing for an executive meeting or Board meeting, ask yourself what your team, department or company can do better rather than what you did well.

3.  What Areas Should be Targeted for Innovation?

In asking this question, keep in mind another: What are the most important things to your business? Business innovation should be true to what’s most valuable to your business. It could be your financial and economic model. It could be manufacturing. It could be distribution.

Are they at risk? Can you sustain those characteristics? And if you’re comfortable, great. But remember Kodak. And what Uber and Airbnb have done to their competitors’ business models.

For Nintex, a critical asset is our relationship with our partners, which serve as our primary sales channel. By partnering with companies that build solutions with our workflow platform for their customers, Nintex gains new customers and develops a sustaining relationship with partners concurrently.

But we know our channel partners have many choices for partnering so we endeavor to make our services, technology and relationship essential to their success. We continually enhance all aspects of working with Nintex for our partners, and spend much time understanding their needs and business models to remain a strategic partner to them. That relationship also encourages our continual technology innovation.

4.  What Amount of Risk is Smart?

As we’ve discussed, business innovation brings risk.  As in most business situations, a risk/reward analysis is necessary.  Defining the potential opportunity guides how much risk is worthwhile. For example, if a new product could increase your market by 10 percent but you would sacrifice 50 percent of your revenue to get there, it’s not worth it.  Diverting all your research and development resources to new products may accelerate new revenue but if recurring revenue from existing customers is at risk, it may be shortsighted.

The answer is usually less dramatic than these examples. Business innovation is frequently done best by newly formed companies and small, focused groups. Some companies create “skunkworks” or promote “intra”preneurial activities. Offsites can work well for stimulation of ideas.

More often than not, the biggest risk in innovation is distraction from regular operations and unforeseen challenges. If uncertainty and speedbumps are anticipated as a normal part of the process, you can more easily deal with them. That’s why sports teams have back-up plans and players. The outcome of innovation is the objective, not the path to get there.

 

The vision for Nintex Workflow Cloud evolved over time, with Nintex initially considering specialized workflow products for different environments. Soon in our planning, the idea of a unified, cloud-based workflow platform serving all environments became our strategic innovation.

 

Try Nintex Workflow Cloud free for 30 days here!

 

John Burton

CEO John Burton joined Nintex after working with the company during its expansion planning and significant financing event with TA Associates and Updata Partners in 2013. In his three-decade technology career, John has founded and built high-growth private and public software companies, co-founded a highly successful growth equity fund and a leading M&A advisory firm, and served on several boards of directors. Follow John on Twitter - @NintexJB