Hacking Strategy Part 1: Solving VR and other Early Stage Innovations

This is Part 1 in a series of articles I plan to write on “Hacking Strategy”.

Hacking Strategy is about using innovative strategy techniques to disrupt your industry or competition. It is about understanding market structures and value chains to know how to position your product for the best business outcomes.

What do Apple, Tesla and BigBasket have in common?

What do Apple, Tesla, and India’s BigBasket have in common? All of them introduced a disruptive product/service by vertically integrating across their value chains. For example, Apple owns the hardware, operating system and software that powers the iPad. Tesla produces its own batteries for its electric cars. BigBasket owns the whole supply chain from contract farming and distribution to the consumer.

By controlling the entire value chain, the quality of the product/service goes up many fold. Apple can optimize the operating system to suit the hardware and battery on the iPad. Tesla can improve electric car range by ensuring all car components are tuned for optimal battery usage. BigBasket can ensure cold-chain handling of perishable fruits and vegetables all the way from the farm to the doorstep of consumers.

There were tablet computers available before the iPad was introduced. But they did not meet customers’ needs in terms of ease of use, form factor and battery life. This is because the hardware, software and OS were built by different companies for different purposes and when they were put together, the performance of the componentized end-product was below what mainstream customers wanted.

This, in fact, is one of the fundamental principles of innovation strategy laid down by Clayton Christensen — A tightly integrated product performs much better than a compartmentalized product.

Boost performance with integration

Clayton Christensen established that there is always a performance gain to be achieved when a product is tightly integrated as illustrated by the examples of Apple, Tesla and Big Basket. This performance gain is shown as the gap between the green line and orange line above. Customers always expect a certain level of performance that is “good enough”. This is indicated by the black line above. As you can see, the pace of innovation is often faster than the increase in customer need over time. That’s why the slope of the green and orange line is greater than the slope of the black line.

If you are working with a nascent technology or service (electric cars, smartwatches, grocery delivery), that is not yet good enough for customers, you don’t want to be on the orange line. You want to be on the green line. I.e. You want to integrate and control all components that go into your product or service. By doing so, you get a boost in performance, that will place you above the crowd. This is what Apple did with the iPhone and iPad.

Once the technology matures, even the componentized product will become good enough for most customers. This is the case with the Android phone today. In fact, a componentized product is able to provide more choice and flexibility to customers. This flexibility is important when there is little technological differentiation possible.

Companies must therefore try to move from an integrated to componentized approach as the innovation evolves. This is shown below:

Organizational Structures for Early Stage Innovation

Moving from modular to integrated approach to innovation is easier said than done. Building new capabilities for the integrated approach requires time and money. It helps if your company is already taking an integrated approach to existing products. For example, with Macintosh, Apple had experience with an integrated approach to hardware, OS and software. For companies like Amazon, changing an established componentized supply chain to a fully integrated one, is a tall order. Amazon tried unsuccessfully for years to fit grocery delivery into an existing componentized supply chain model. Grocery delivery requires tight control of the supply chain; an integrated approach is needed. Packaging and delivery of grocery is different from other products. Startups like BigBasket are well positioned for this, as they are able to build the company from the ground up around an integrated model.

If you are an established company, and you want to take an integrated approach to an early stage innovation, you may want to consider organizing this innovation as part of a new Business Unit with considerable executive authority to build new capabilities required for tight integration, or even to make an acquisition to acquire the capabilities.

Solving Virtual Reality and other bleeding-edge innovations

If you look at existing bleeding edge innovations that are struggling to take off, that are just not good enough for mass adoption, like Virtual Reality, tight integration may well be the silver bullet to mass adoption. Imagine if a single company could build the hardware, OS, Software and App store for a Virtual Reality device.

This is a hard problem because 1) 3D requires unique capabilities 2) Huge investment is required in multiple areas. The company that is going to succeed in this game is the company that already has most of these capabilities and is willing to acquire companies to build others. In other words, someone has to place bold bets for VR to take off.

Conclusion

If you are struggling with an innovation that seems to just fall short of customer needs in terms of technology capability, integrating all components may be the solution. But this requires massive investments in areas that your company is new to. You should either wait for the market to mature or choose to invest in other bleeding-edge innovations that your company has end-to-end capabilities in.

ABOUT THE AUTHOR: I love taking a theoretical approach to product strategy, with frameworks that can be applied to every business problem. I hold an MBA and MS in Strategic Management from Kelley School of Business. I work as a Senior Product Manager at Adobe India. The views expressed in the blog are my own. Connect with me https://in.linkedin.com/in/jnanateja