Innovation is Actually Category Leadership

Dan & Kieran

Innovation is Actually Category Leadership

The word “innovation” is such a constant in meetings around the world that it has almost become a contender for “corporate buzzword bingo.” Although it is often over-used it is not always well understood in terms of how it should be implemented into organizational culture, or even how it might be best used as a frame for evaluating business strategy.

Traditionally, innovation is defined as the design of new products or development of new systems and services that have not previously existed. It is also attributed to slogans such as, “now available in blue.” Clearly, blue is not an innovation, but what is less expected is that the previous definition of innovation is equally misleading.

In fact, research by Oded Shenkar, at the Ohio State University, found that the overwhelming majority of the profits generated by an innovation go to the imitators, not the originators. So clearly innovation success requires more than the production of “new.”

In fact, even Apple, the corporation most often cited in innovation case studies and discussions, rarely took new technology to the market place – the visual operating system in the first Macintosh was preceded by that of Xerox at the Palo Alto Research Center, the iPod was beaten to the MP3 Player market by offerings like MP Man, and tablet technology was hardly new when we saw the first iPad. And yet, Apple has a reputation as one of the most innovative companies in the world.

What Apple did do, was to drive the personal computer industry towards intuitive operating systems – they led their category to reduce the friction between the user and the digital interface. This was critical.

And so it is that we believe a better definition of innovation is Category Leadership. In other words, innovation is the ability to set and direct the path of an entire industry for the future.

This definition also makes sense when we look at those organizations that have failed to innovate and survive commercial change. A myopic focus on product tinkering rather than category design is an all too common theme in many corporate obituaries. What this all means is that innovation is not simply a job for R&D or marketing, but is actually a leadership skill and a cultural imperative. 

Critical behaviors for innovative leaders:

  1. Focus on your business not your product or services – Kodak’s Executive believed they were in the film manufacturing business and this filter drove their innovation, when perhaps a better lens, and in fact one that echoed through their marketing all the way through their history, was that of “Memory Preservation.” This definition of category leadership might have seen Kodak build on their expertise in the creation of photographic technology such as the CD-R and parlay it into initiatives such as Cloud Computing, Data Storage and USB technology – businesses now worth billions – unlike that of 35mm film.
  2. Understand the value exchange you are engaged in – Customer insight is critical in every part of our businesses, but is particularly important in terms of innovation. While consumers can rarely articulate a new product idea for you, they do provide us all with data that reveals what they value. Value is a more important measure of how our customers experience our products and services that features or benefits.
  3. Drive “Innovation on Purpose” – Innovation must be evaluated across three filters:
    1. Is it congruent – Does it support your broader business strategy?
    2. Is it consistent – Is it more than a “one off”? Does it provide a clear vision for future iterations?
    3. Is it deliberate – Have you developed your culture in such a way that creativity is seen as a discipline not a random flash of talent?