GUEST POST from Geoffrey A. Moore

The first principle of managing innovation is that there are three distinct returns on innovation one can invest to achieve.

They are:

1. “Unmatchable” differentiation, which confers enormous bargaining power as customers who want what you have “must” select you and “must” pay a premium for your offer. We call this DIFF for short.
2. “Speedy” neutralization, which catches you up to some new market norm set by a competitor, thereby enabling you to stay in the game rather than be eliminated for lacking this feature. This is NEUT for short.
3. “Rigorous” optimization, which extracts high-value talent and other scarce resources from non-differentiating work in order to free up investment in highly differentiating work or high-speed neutralization efforts. This is OPT for short.

The second principle is that these three outcomes are mutually exclusive, meaning you do not want to combine any two of them into the same work stream. Most innovation programs bind DIFF objectives with NEUT objectives, tying both to the same release cadence. This either slows down NEUT or dumbs down DIFF, both of which outcomes are painfully counterproductive.

The third principle is that most innovation investment is wasted (which is actually good news, because it means you can get a much bigger bang for your innovation buck once you learn how to avoid the waste). The three great sources of waste are:

1. DIFF initiatives that do not result in “unmatchable” offers that create unequivocal customer preference. You end up being different but not different enough to gain real bargaining power.
2. NEUT initiatives that take too long or go too far (or, more typically, both). Here the team has become obsessed with its competitor and is doing extra work that the customer will not value, meanwhile delaying the “good enough” state that the customer would value.
3. OPT initiatives that do not address “sacred cow” resources. You end up moving around a lot of junior resources, meanwhile leaving the senior ones trapped in context instead of being deployed against core.

A corollary that can help teams avoid waste is to pay attention to their reference points.

• If your goal is DIFF, then your reference point should be a prospective customer’s use case, one where purchase preference will be determined by you achieving “unmatchable” performance in your key area of innovation.
• If your goal is NEUT, then your reference point is a competitor, then your innovation focus should be to get “good enough” fast enough.
• A behavior you must avoid is to use a competitor as a reference point for DIFF. The all too likely outcome here is that you will create a difference that the customer either will not notice, will not acknowledge, or will not value. Meanwhile, the competitor will debate the fact that you even achieved it or that it is relevant if you did.

Finally, in light of these principles, the role of the leader is to deconstruct the overall workload of the team to tease out the DIFF from the NEUT from the OPT, and to charter specific work-streams accordingly. This rarely results in a perfectly pure outcome, but the more pure it is, the more productive your team’s efforts will be.

That’s what I think. What do you think?

Image Credit: Dall-E via Bing

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