If you want to send shivers down the spines of many company leaders, all you have to do is say one name: Kodak.
The Eastman Kodak Co. has become the poster child for big, successful companies that failed in a spectacular way after missing opportunities that were critical for its evolution and survival. In Kodak’s case, it was digital photography, which it invented.
While Kodak emerged from Chapter 11 bankruptcy in 2013, its failures – and the resulting thousands of lost jobs – have become the cautionary tale for company leaders who fear their businesses may suffer the same fate if they don’t embrace radical innovation.
But what is missing from this “disrupt or be disrupted” discussion is that Kodak’s tale if often repeated – but it is not the norm, says David Robertson, professor of practice at the Wharton School at the University of Pennsylvania.
Instead, it’s stories like Gatorade’s that are more common, he says.
Specifically, Gatorade’s sales were stalled in 2007 after inventing the sports drink category in the 1960s. While it was pursuing some more radical, disruptive inventions (a chemical that would help the body process oxygen better that later turned out to be impractical for many reasons), it also began looking at innovation of its core product or “complementary” innovations.
Using market data, Gatorade knew that serious athletes were sticking with the brand despite cheaper competitors and so began developing products such as nutritious gels, bars, smoothies and shakes that were designed for before and after exercise.
This sort of innovating isn’t seen as ground breaking, but it is often underutilized by company leaders who feel they must begin with radical innovation before trying other options, Robertson says.
Robertson says research shows that revolutionary innovations have a 60% to 75% failure rate, while incremental improvements have a 25% to 40% rate of failure. But what Gatorade did is what he refers to as “The Third Way” in his book, “The Power of Little Ideas: A Low-Risk, High-Reward Approach to Innovation.” The approach worked for Gatorade because the products were diverse, they were targeted toward specific customers and they posed little strategic risk, he says.
While this third alternative is not a replacement for incremental improvements or disruptive innovations, it does provide another option that businesses need to understand and consider when faced with an innovation challenge, he says.
“I strongly disagree that something is an innovation only if it’s disruptive,” he says. “It’s time to explore this more lateral move.”
Another benefit to companies is that such an approach involves more employees in the innovation process, from marketing to manufacturing to distribution. This means the more customer-facing positions will be able to contribute their knowledge to the innovative move. It also allows individual employees to become more familiar with how to make the kinds of small changes that can have a big impact on the company’s success – and their own, Robertson says.
Robertson says the key features of The Third Way include:
Robertson says that any company – big or small – can benefit from such a strategy, but there must be a culture to support it.
“I’d advise starting small. Choose a product and go talk to a small group of customers and try to see where the frustrations are,” he says. “I don’t want companies to think they always have to disrupt to innovate. They can explore and take the time to look at where they can innovate around an existing product.”
Robertson adds that this approach isn’t new. Walt Disney used the same strategy in the 1950s to build complementary innovations such as the Mickey Mouse Club and Disneyland to support animated films.
“What successful companies have learned is that great products may not be enough today. The fortunes of a product can depend less on the product itself than on a group of small, supporting innovations around it,” he says.