Innovation Requires Creating Business Models, Not Just New Widgets

Special Coverage

2010 Convergence

DETROIT – Thomas Edison’s light bulb wasn’t a success just because it was superior to gas lanterns.

It flourished because Edison created a low-cost electrical infrastructure and battled the lamplighters union and others married to the old technology.

Apple Inc. wasn’t the first to offer an MP3 player. Its iPod took off because Apple created iTunes, an easy way to buy and download music online.

Innovation isn’t just about coming up with great inventions, it requires creating new business models, Mark Johnson, chairman of the innovation strategy firm Innosight, tells attendees at SAE Convergence 2010 here.

Johnson, an author and lecturer who specializes in helping companies achieve transformational growth in new markets, says executives need to focus more on developing new ways of doing business, rather than just pouring resources into developing new widgets.

He points out numerous instances where big enterprises actually developed great new products but failed to exploit them because they didn’t understand their potential.

Xerox Corp., for example, originally developed the computer mouse in the 1980s, but did nothing with it because it didn’t know how to incorporate the technology into its copy machines.

$2,500 Tata Nano not developed with typical automotive rules and metrics in mind.

Sony Corp., a major innovator in portable music in the 1990s with its Walkman, ignored emerging MP3 technology in the late 1990s because the company thought it threatened its core products. Sony was making huge profits on compact discs and related established technologies at the time.

A decade earlier, producers of corporate mainframe computers did not develop personal computers because the potential profit margins were smaller.

Traditional rules, norms and metrics limit innovation, and companies need to develop new ones if they want to innovate, Johnson says. For instance, the Tata Nano, with a $2,500 price tag, was not developed with typical automotive rules and metrics in mind.

The Nano was not meant to be a low-cost car, he explains. Instead, it was conceived as a new type of transportation, a replacement for a motorbike that typically is loaded with two or three passengers and a driver – a common practice in Asia.

The elimination of traditional automotive metrics freed engineers and designers to develop a practical alternative to a motorbike, Johnson says.

But even the most innovative ideas do not last forever. Companies need to continuously evolve their business models to thrive.

Johnson points to Dell Inc. Not long ago, it was considered one of the most-innovative companies in the world, because it would allow consumers to custom-order their computers.

Today, personal computers have become commodities, and buyers can order all the features they want and more without customizing. And Dell is struggling.

A better model to follow is Amazon.com, which is built to constantly transform, Johnson says. The company started out selling books online and then began adding other products, including brokerage and information-technology services.

Most recently, Amazon introduced the Kindle, an electronic device that allows the company to deliver high-profit publishing content from a wide array of sources.

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