Customer experience-led: Amazon spends a lot of money
on R&D – both in absolute terms and as a percentage of its sales. In 2020,
in SEC
filing it reported an expenditure of $42 billion (11% of sales) which includes
both technology and content (such as films and web series). Amazon also filed
2244 patents in 2020. However, innovation strategy at Amazon seems to be
customer experience-led. Every concept proposal starts with a 2-pager
“press-release” describing how the product/service would be useful to the
customer. Even the CTO, Werner
Vogels says his main job is customer pain management. Even a futuristic fully
automated grocery store such as Amazon Go had to go through several iterations
of the “press-release”. For Echo/Alexa Amazon did significant idea testing with
potential customers to determine which features to be included and also launch
worthiness. After having launched the product in the market, Amazon updates product
roadmap based on customer feedback.
A. G. Lafley led P&G’s innovation strategy during
2000-2010 was also customer experience-led. As Lefley wrote in “The game-changer”,
it meant strengthening the design capability, launching programs such as Living-it
and working-it for teams to spend time with potential customers to
gather insights, creating
structures such as Clay Street and innovation gyms to prototype ideas
quickly and get customer feedback. Technology development continued to be an
important element of the innovation strategy. However, customer experience was
clearly the driving force.
Like Amazon and P&G, if your innovation strategy is
customer experience-led, then you need to design structures, processes and
capabilities that put customer experience at the centre of the innovation
process. It might mean design thinking needs to be a crucial competency in the
organization.
Technology-led: When Google invests in moonshots
like self-driving cars or quantum computing, its innovation strategy is being
led by technology development. It shows up in the accounts, the R&D
expenses for Google (Alphabet) in 2020 were $27B, 15% of revenue. Technology at
the cutting edge is risky, highly competitive, and needs a talent pool that is not
easy to retain. When will quantum computing start generating revenue? and when
it does will it be significant? Nobody knows. Hence, only companies with deep
pockets like Google, technology-focused start-ups, government funded research
labs like National Chemical Laboratories (NCL) take up this route.
Many technology-led start-ups like DeepMind eventually get
acquired. Companies like Bose Corporation who manage to do technology-led
innovation on their own typically remain privately held in order to avoid
quarterly performance pressure. To be a technology-led innovator, you need to
build a war chest to fight legal battles. This means building a legal team in
addition to building intellectual property.
In fact, Bose has been described by the audio
industry as a “litigious company”.
Continuous improvement led: I remember one of my
early consulting engagements with an R&D organization more than a decade
ago. The then Head of R&D said, “We don’t have an insight right now to take
a big bet. However, for the next couple of years, we would like to democratize
continuous improvement.” And we did and we created a process of logging,
selecting, encouraging, helping employees implement ideas. Idea catalysts from
various teams met every month to share their experience and learn from each
other. We circulated an innovation dashboard every month. And it helped build
creative confidence in the organization. After a couple of years, the Head of
R&D was ready to build an innovation sandbox around the challenge of cloud
migration.
The point is continuous improvement can be a strategic
direction for innovation efforts at least for a while. Creative confidence
across all levels of the organization can be a huge advantage. A look at
Toyota’s “40 years, 20 million ideas” gives us some idea. Katsuaki Watanabe,
the then President of Toyota has said in an interview in
Harvard Business Review, “There is no genius in our company. We just do
whatever we believe is right, trying every day to improve every little bit and
piece. But when 70 years of very small improvements accumulate, they become a
revolution.”
In a large organization, different businesses may be
pursuing different innovation strategies. It is possible that in one business
unit innovation is technology-led while in another business unit it is customer
experience-led and in yet another unit it is continuous improvement led.
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