Friday, January 19, 2007

The Real Clue to Innovation that Matters

Every corporate leader nowadays seems to tout the value of innovation. Some companies get innovation right—Google, Apple, Target, and FedEx come to mind--but elsewhere, many leaders have failed to garnish the kinds of returns from innovations that they hoped for. One of the reasons, I’ve found, is that the innovations have little impact. They are innovations, to be sure, but they are often so incremental (slight improvement in current products and services) or so inconsequential (they don’t matter to customers and investors enough to generate a “gotta have it” buzz) that their impact is muted, sometimes irrelevant.. Innovations must have impact to generate noticeable returns. One of the best signs of serious impact is how much an innovation (pardon my French) pisses off competitors. I don’t mean “piss off” as in making competitors “concerned, attentive, anxious, puzzled or alert”. I mean “really riled up and angry”. That’s because true innovations disrupt established industry practices and conventional wisdom. They seriously threaten the status quo of how business is conducted and how customers are dealt with, which in turn means that competitors face the possibility that their size and sunk costs suddenly become liabilities, and their usual competitive responses (continuous improvement, more marketing, cost and quality initiatives, and such) will no longer suffice.. When Apple launched its iTunes platform and iPod hardware, incumbents in the music world were ticked off because they could no longer ignore the disruptive realities of online music and peer-to-peer file sharing. When Southwest Airlines launched its point-to-point, low-priced, employee-involved airline, the company was vilified by entrenched legacy players in the field. Plywood producer Columbia Forest Products is beginning to ramp up production, distribution and promotion of its new Pure Bond product line, and that really ticks off its competitors. Pure Bond reflects a truly disruptive patented technology. It is a formaldehyde-free product line in a market place where the plywood in buildings (including your home) has been manufactured (and still contains) formaldehyde—a.k.a. poison. As part of its move to become a “green” forest products company, Columbia is banking on the fact that demand can be spiked up by selecting distributors who “get it”, and when necessary, going straight to the end user (homeowner, architects, builders and such) with the simple message that unlike competitors’ wares, Columbia’s plywood is not soaked with a dangerous chemical. Would you pay a little more for that sort of product? If the example of Whole Foods Market is any benchmark, a lot of customers will. How do you think other players in the forest products space are reacting? How do you think Columbia is viewed in industry publications? How do you think Columbia people are treated in professional association meetings? (Hint: from what they’ve told me, not very nicely). My prediction is twofold: First, Pure Bond will take off just like the iPod and Southwest services took off—because at the end of the day, it doesn’t matter how competitors react, it’s how customers react. Two, like what happened in the wake of iPod and Southwest, competitors who manage to survive will try to copy Columbia. The challenge for Columbia is not to fear their competitors’ current wrath, but to fear the danger of complacency when formaldehyde-free wood eventually becomes conventional industry practice.


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