3 drivers of innovation: customers, product, service
In our previous article on innovation, What are the 4 types of innovation? we talked about how employers are expecting employees to have innovation-focused skills, the definition of innovation, the difference between innovation, creativity and invention and the 4 types of innovation.
Innovation is a broad subject and therefore can be a daunting challenge for anyone trying to approach it. My solution is to place the information in categories. Organizing information in whatever way feels comfortable for you (lists, diagrams etc) improves your learning process greatly.
For the present article, let’s go deeper with the conversation on innovation and answer the following questions:
What drives innovation?
What stands at the core of innovation-centred efforts?
What is the first step toward innovation?
In this article:
- Customer-led innovation: customer-driven innovation, customer-centered innovation, customer-focused innovation;
- Product innovation: definition and example;
- Service innovation: definition and example.
The drivers of innovations are customers, product and service.
The first step on your path toward innovation should be deciding where to focus your efforts.
Are you going to focus on your customers and create products that meet their needs? Will you focus on product development?
Or find a new way to serve your customers?
Let’s discover more about each innovation driver!
Customer-led innovation is when the company finds an innovative solution to a demand arising from the customer experience & dissatisfaction with the choices currently available in the marketplace.
Examples of customer-led innovations:
- The extended battery life for smartphones;
- LEGO plastic bricks with tubes inside to stick together thus preventing the constructions from falling apart;
- Bumble, the dating platform allowing only female users to make the first contact with matched male users;
- Canva, the design platform for non-designers who had neither the money nor the time to invest in professional tools like Photoshop;
- Amazon’s Show and Tell feature allowing the blind to identify grocery items by holding each item to the Echo Show camera and asking, “Alexa, what am I holding?”.
According to this paper published in the award-winning Research Technology Management journal, customer innovation “has become an essential strategy for organizational survival.”
There are 3 types of customer innovation:
- Customer-driven innovation
- Customer-centred innovation
- Customer-focused innovation
What is customer-driven innovation?
At the centre of customer-driven innovation is the customer.
The innovation is made by the customer with the organization having a coordination role. The end result is an innovation that is dynamic, impossible to control and difficult to get to the market. The entire process is time-consuming and requires high levels of interaction between the customers and the organization.
What is customer-centred innovation?
Customer-centred innovation is about innovating with customers.
At the centre of this type of innovation are the customer AND the organization. The role of the organization is that of the communicator. This type of innovation is open, difficult to control and coordinate. The main challenge: there’s no shortage of ideas; the difficulty stands in the organization’s ability to develop them.
What is customer-focused innovation?
Although it’s called customer-focused innovation, at the centre of this type of innovation is not the customer, but the organization alone. A customer-focused innovation is where the organization innovates for the customer.
The organization discovers customer needs and seeks to satisfy them by expanding the choices available within a product category.
The organization is the innovator. The innovation is closed, easy to control and to coordinate. The main challenge of this type of innovation is that it requires an ongoing process of customer analysis.
Here are all three types of customer innovation in one picture:
ServiceNow – customer-led innovation example
ServiceNow is a platform that lets people automate workflow in a business. The company was ranked #1 by Forbes in its 2018 World’s most innovative companies list.
ServiceNow delivers digital workflows that create great experiences and unlock productivity. This is the future of work. Behind every great experience is a great workflow.
The company was founded by Fred Luddy in 2004. In an interview with Forbes, Fred Luddy says he’s never had an original idea but has always paid close attention to anybody doing, struggling to do or wishing they could do differently.
In his opinion, the company must “deeply, deeply, deeply understand customer needs”.
Also, technology must be used in the service of the employee. In keeping with his words, he met with over 500 customers and asked every one of them these questions:
What are your most important priorities? What keeps you up at night?
And regarding ServiceNow, what are we doing well? And—very importantly—where can we get better?
Product innovation is the development and market introduction of new, redesigned, or substantially improved goods.
Apple – Product innovation example
When you say product innovation and development, you say Apple.
The $2 trillion tech company has been launching new products in every one of its product lines every year since the company’s foundation four decades ago.
Apple’s goal is to create the world’s best products which are also what consumers want. The company has set out to make only great products by constantly focusing on innovating.
Innovation is making things better and not just merely changing. And that requires a depth of fall which is well beyond merely changing something.
Service innovation is changing the way you serve your customers to create greater value for them and deliver more revenue for your organization.
It’s about providing customers with an amazing and improved experience that wasn’t available before.
L’Oreal – Service innovation example
L’Oreal is one of the most innovative companies in the global beauty market.
As per the company’s 2020 Research, innovation & beauty tech report, L’Oreal has invested 964 million euros in Research & Innovation.
The beauty company has embraced the digital revolution as early as 2012. Since then L’Oreal has integrated technology to serve customers better and more efficiently.
One example is the brand’s use of Augmented Reality and Artificial Intelligence to virtually try on its products.
At CES 2020, L’Oreal unveiled Perso, an AI-powered at-home system.
The device delivers on-the-spot skincare and cosmetic formulas that optimize for increasing levels of personalization over time.
Here’s what Nicolas Hieronimus, L’Oréal’s Deputy Chief Executive Officer had to say about the company’s innovation goals:
Building on our deep scientific heritage and leadership in innovation, L’Oréal is once again leveraging advanced technology to create smart beauty products and services that answer the needs of our consumers and offer them near-limitless personalization and precision.
What are the 4 types of innovation?
Innovation – the #1 soft skill companies are looking for
Last year, the World Economic Forum in collaboration with LinkedIn released its 2025 Future of Jobs report.
This report maps the jobs and skills in the next five years.
As you can see below, innovation ranks at #1 in the Top 10 skills employers are looking for in an employee in 2025.
In 2020, the top most sought-after skill was creativity.
Why are employees expected to have analytical thinking and innovation skills? Why is creativity not enough?
The World Economic Forum report answers this question with an in-depth list of key insights which I encourage you to read.
But if you want the short answer, here’s my conclusion.
The future of work is about automation and robots. The report found that by 2025, the time spent on current tasks at work by humans and machines will be equal.
Innovation requires other skills besides creativity. Read on to find out what these skills are.
If innovation is not (only) creativity, then what is it? Is it a process? Is it a mindset?
First let’s establish the difference between creativity and innovation.
Creativity vs Innovation
On this subject, the best definition of innovation as opposed to creativity I could find is the following:
The key difference between creativity and innovation is that the first refers to generating a fresh and new idea, whereas the second implies initiating new service, product or invention to the market, which was not introduced before.
Creativity vs Invention vs Innovation
Let’s bring another term into the conversation, one that is commonly used to define innovation: invention.
Does invention equals innovation? And if it doesn’t, what’s the difference between invention and innovation?
To answer this question, here’s a great piece of content from Innoway, an innovation consultancy:
They do a great job of explaining the difference between creativity, invention and innovation.
Creativity is the art of turning new and imaginative ideas into reality.
Invention is the creation of a new idea or concept.
Innovation is turning a new concept into commercial success or widespread use.
Zaha Hadid’s amazing buildings are a testament to her creativity, but they are neither inventions, nor innovations.
Leonardo da Vinci, the famous painter was also a prolific inventor. Among his many designs was that of a helicopter which he called the Aerial Screw.
If you look at da Vinci’s sketch dating back to the 1480s, you will notice a very strong resemblance with NASA’s Ingenuity Helicopter which took its first flight on Mars earlier this month.
Taking inspiration from Leonardo’s concept, the engineers at NASA were prompted to solve a series of challenges related to Mars’ atmosphere. The Red Planet’s atmosphere is 99% less dense than Earth’s which makes it difficult for the helicopter to achieve enough lift.
The Aerial Screw is an invention while the Ingenuity is an innovation.
What is innovation?
Innovation sits at the intersection of customer desires, technology and business opportunities.
Innovation is defined as something new to the market that creates economic and customer value through research, creativity and invention.
Innovation occurs where a market intersects with technology and business models.
The market is composed of people with a job to be done. The business model is a sustainable method to deliver and support solutions in a market. Technology is a runway on which new solutions are created.
Innovators start with the market in mind and what the customers want or need.
Technology is not a goal, it’s a means to an end. Innovators ask themselves How can I use technology to address an unmet need in the market? What technology-driven solution can I come up with that provides customers with a solution to their problems and revenue for the company?
This is what innovators think about when they wake up in the morning and when they go to sleep at night.
The 4 types of innovation
Jake Nielson, a marketing leader with 10+ years of innovation management experience came to the conclusion that there are 4 types of innovation:
- sustaining innovation;
- disruptive innovation;
- new market innovation;
- integrative innovation.
Apple is an example of sustaining innovation. Since the first iPhone in 2007, the company has come up with new iterations of the iPhone every year. Every iteration had new features, improved functionality, beautiful design and innovations.
Airbnb disrupted the hospitality industry. Uber disrupted the taxi industry. Netflix disrupted the DVD mail service. Amazon disrupted brick and mortar commerce. All four provide a better alternative enabled by new technology.
New market innovation
BMW has been manufacturing conventional cars since the early 1950s. Starting with the 1970s, the German car maker has been researching and testing electric cars. Today BMW electric cars are among the best in the market and the company is planning to offer plug-in hybrid versions of all its core-brand models.
MailChimp started out as an email provider for small businesses. The company’s email service was so successful that it became one of the most popular in the world. Listening to their customers’ needs, MailChimp expanded its services. MailChimp is now more than an email service provider, it’s an all-in-one marketing platform which empowers its users to build landing pages, create digital campaigns and leverage powerful insights. It supports small businesses to reach their marketing goals faster.
What type of innovation is your company developing?
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Last days to join Business Strategy for Top Executives Masterclass with Costas Markides
Next week on March 23, 2021, founders and entrepreneurs, CEOs and investors, business developers and sales executives will participate in Business Strategy for Top Executives Masterclass with acclaimed Prof Costas Markides.
If you’re looking to turn your business from disrupted to disruptor and find innovative ways to thrive, then this masterclass is for you.
These are the last days you can get your tickets.
The masterclass is held online through live streaming. It starts at 9 am and ends at 5 pm with a Q&A session which is a great opportunity to get answers to your questions. An outside perspective over your particular situation is invaluable. It could light a new pathway that you couldn’t have seen otherwise.
Here is the agenda of Business Strategy for Top Executives Masterclass:
Session 1: STRATEGY IN A VOLATILE WORLD
Success doesn’t come by chance or fall in your lap. It’s the result of a well-thought strategy and an excellent implementation plan.
You know how they say about overnight success?
This overnight success has taken ten years of hard work and perseverance.
That’s why you need a strategy for your business. And given the volatile nature of the world we are living in, even more so today.
Every successful business has a successful strategy. Remember: strategy before tactics.
Amazon’s main strategy is to focus on their customers. But the global leader of the ecommerce market doesn’t just listen to its customers.
Year after year, since 1997, Amazon sets out to delight its customers.
And that’s the drive pushing every improvement and product or service that the company has ever made: its search recommendation engine, AWS, one-click purchase, Alexa and so on.
Join the masterclass to upgrade and improve your business strategy!
Session 2: STRATEGIC AGILITY IN TODAY’S WORLD
There has never been a better time to go agile in business. Times are changing quickly and the business environment must adapt and keep up.
In 2014, consulting company McKinsey & Co introduced two new dimensions to their organisational surveys: speed and flexibility.
They described the companies that combined both as agile.
Companies that are agile can adapt quickly to new challenges and opportunities. They mobilize quickly and show a strong relationship between organizational health and the creation of value. They move to market faster than traditional companies and have lower costs.
Join the masterclass to discover ways to create strategic agility for your business!
Session 3: MOBILIZING THE WHOLE ORGANISATION FOR STRATEGY EXECUTION
Whether you lead a business of thousands of employees or a small team of five, you need to be aware that for the strategy to work, everyone must be on board.
Every employee, from front desk to product development to supplier quality has to understand the strategy, contribute to its implementation and be on the same page with everyone else.
Learn from strategy expert Costas Markides how to mobilize your organisation for strategy execution.
Session 4: NEW CHALLENGES FOR LEADERS
One of the abilities that successful leaders need to develop or acquire is the ability to see around the corner.
What does that mean?
It means to have one foot in the future.
It implies to be able to spot trends before they go mainstream and take steps to leverage them to the benefit of your business.
It’s called strategic foresight. Strategic foresight allows companies to prepare for the future.
What challenges do leaders have to face in the near future?
Is it employee high turnover due to low engagement levels in the context of the work-from-home situation?
Everything going digital and online?
Changes in customer behaviour?
Attend the Business Strategy for Top Executives to find out!
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We’d love to hear what you have to say.
Achieve competitive advantage with the Porter Diamond Model
Looking to achieve a competitive advantage in international markets? Apply the Porter Diamond Model!
On this page:
- What is the Porter Diamond Model?
- What are the four attributes discussed in Porter’s Diamond Model (with examples)?
- How do you use Porter’s Diamond?
1. What is the Porter Diamond Model?
The Porter Diamond Model, also known as the Porter Diamond Theory of National Advantage is a business framework that describes a nation’s competitive advantage in the international market.
The Porter Diamond Model also refers to innovation and why certain companies based in certain nations are capable of consistent innovation.
The model was created by economist and researcher Michael Porter whose expertise focuses on market competition and company strategy.
If you follow this blog, you are already familiar with Mr Porter and his earlier business framework, Porter’s 5 Forces.
2. What are the 4 attributes discussed in Porter’s Diamond Model?
The Porter Diamond Model analyzes a nation’s advantage against four broad attributes that each nation establishes and operates for its industries:
- Factor Conditions
- Demand Conditions
- Related and Supporting Industries
- Firm Strategy, Structure, and Rivalry
Porter Diamond Model – Attribute #1 – Factor Conditions
This attribute defines the nation’s position in factors of production, such as labour, land, natural resources, capital or infrastructure, necessary to compete in a given industry.
It is worth noting that these factors are not inherited, but created.
According to the Porter Diamond Model, having a general workforce that is high school or even college-educated doesn’t constitute a competitive advantage.
To become competitive in the industry, a nation’s workforce must be highly specialized in an industry’s particular needs.
In Germany, the largest industry sector is the automotive industry.
The country is a primary location for innovative car manufacturers and suppliers and home to powerful car manufacturers such as BMW, Audi, Volkswagen, Mercedes etc.
The German automotive industry benefits from a strong industrial core, first-class infrastructure, a highly-skilled workforce and cutting edge research and development.
One of the factors underlying the German success is that the workforce is created. German students benefit from the country’s dual system of education where they combine vocational education with apprenticeships. This type of education supplies the country with a steady flow of highly skilled workers.
Nations succeed in industries where they are particularly good at factor creation. Competitive advantage results from the presence of world-class institutions that first create specialized factors and then continually work to upgrade them.
Porter Diamond Model – Attribute #2 – Demand Conditions
The second attribute of the Porter Diamond Model refers to the nature of home-market demand for the industry’s product or service.
Demand conditions include the nature of domestic buyers and of emerging buyer needs.
In a nation where the domestic buyers are the world’s most sophisticated and demanding buyers for the product or service, the nation’s companies gain competitive advantage.
Demanding domestic buyers pressure companies to improve, innovate and upgrade their products. Thus preparing them to rise to the challenges of buyers in other nations.
Amazon is leading the eCommerce industry in the US and worldwide.
What makes Amazon so successful on both domestic and international markets? The company’s focus on customer satisfaction.
Every product and service developed by Amazon is designed to delight customers and build a system around true customer obsession. Read this article to learn more.
Denmark is the world’s leading country in cleantech.
40% of Denmark’s total power consumption is covered by wind turbines with the goal of raising to 55% by 2030.
Everyone in Denmark is working to achieve this goal: the government, local authorities, corporations and the public.
Denmark’s energy transformation started in the 1970s when the country faced a severe energy crisis which left Denmark crippled. In just a few decades, the country veered from fossil fuels to clean energy.
Today Denmark holds exceptional cleantech opportunities with a collaborative business environment, government support and attractive framework conditions.
Nations gain competitive advantage in industries where the home demand gives their companies a clearer or earlier picture of emerging buyer needs, and where demanding buyers pressure companies to innovate faster and achieve more sophisticated competitive advantages than their foreign rivals.
Porter Diamond Model – Attribute #3 – Related and Supporting Industries
This attribute reveals the presence or absence in the nation of supplier industries and other related industries that are internationally competitive.
Internationally competitive home-based suppliers create advantages by delivering the most cost-effective inputs in an efficient, early, rapid, and sometimes preferential way. Developing a close relationship between your company and its home-based suppliers is mutually beneficial.
South Korea is the world’s largest producer of semiconductors. The semiconductors industry is a supplier for a wide range of other tech-oriented industries such as smartphone manufacturers, CCTV cameras, car manufacturers etc.
The country is home to leading high-tech companies such as Samsung, Hyundai or LG.
Porter Diamond Model – Attribute #4 – Firm Strategy, Structure, and Rivalry
The Firm strategy, structure and rivalry attribute highlights the conditions in the nation governing how companies are created, organized, and managed, as well as the nature of the domestic rivalry.
In Italy, for example, successful companies are often small or medium-sized family-run companies.
In China, 85% of enterprises are state-owned and lacking in market flexibility.
In the United Arab Emirates, the law required foreign companies to set up their businesses in partnership with an Emirati sponsor. Starting in November 2020, the government changed the law to allow 100% foreign ownership of businesses.
These four attributes make up the foundation upon which nations build their business environment. This environment determines how companies are born and how they learn to compete.
3. How do you use Porter’s Diamond?
Is your company looking to achieve international competitive success?
Here are 6 main insights provided by the Porter Diamond model:
- availability of resources necessary for competitive advantage in the industry of your choice;
- availability of skills necessary for competitive advantage in the industry of your choice;
- information that shapes the opportunities;
- directions in which companies deploy their resources and skills;
- goals of the owners, managers, and individuals in companies;
- the pressures on companies to invest and innovate.
If your company is planning to achieve a competitive advantage in the industry, investigate to which extent the national environment supports the rapid accumulation of specialized assets and skills.
Or whether or not the national environment affords better ongoing information and insight into product and process needs.
Does the national environment pressure companies to innovate and invest?
If the answers to these questions are affirmative, then your company could gain a competitive advantage and upgrade those advantages over time.
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How Amazon, Nike and UiPath drive innovation
Innovation is at the core of Amazon, UiPath and Nike. Curious to know how these global companies drive innovation? Keep reading!
Amazon – Innovating by focusing on customer needs like no other company in the world
On December 15, 2020, Amazon announced that Twitter has selected AWS to provide global cloud infrastructure to deliver Twitter timelines.
A day before, Amazon launched Alexa’s new Live Translation feature. This feature allows individuals speaking in two different languages to converse with each other, with Alexa acting as an interpreter and translating both sides of the conversation.
Earlier this month, on December 8, 2020, Amazon Web Services (AWS) and the BMW Group announced a comprehensive strategic collaboration to further accelerate the automaker’s pace of innovation by placing data and analytics at the center of its decision-making.
These are just a few of the innovations that Amazon releases on a monthly basis. Amazon began focusing on technology innovations in the late 1990s.
The company’s first major breakthrough was its recommendation algorithm, also named recommendation engine.
In 2003, Amazon published a research paper which described a new way of filtering, the Item-to-item Collaborative Filtering.
“At Amazon.com, we use recommendation algorithms to personalize the online store for each customer. The store radically changes based on customer interests, showing programming titles to a software engineer and baby toys to a new mother”, was said in the paper.
Today, Amazon’s machine learning-powered recommendation engine drives 35% of its sales according to a McKinsey report.
An online bookstore initially, Amazon has become rapidly aware of the necessity of becoming a tech company.
In 2019, the research and development expenses of Amazon were around $36 billion compared to $16.9 billion of Microsoft.
Amazon’s investment supports the company to achieve its vision of becoming “Earth’s most customer-centric company.”
Here is a list of the most important innovations developed by Amazon:
Amazon Go is a chain of convenience stores in the United States, operated by Amazon. The stores are partially automated, with customers able to purchase products without being checked out by a cashier or using a self-checkout station. There are currently 27 Amazon Go stores.
Amazon fulfillment centers
In every fulfilment centre, computer vision systems analyze images to help Amazon staff keep track of everything. Based on data, AI solves a large combinatorial optimization problem and decides which orders to pick at the same time in order to get them in the same box. This way the system minimizes the distance the transport pods have to travel. AI optimization makes these decisions in real-time and with information that is constantly changing.
Amazon Prime Now
Amazon Prime Now is an app which allows users to order tens of thousands of products to their homes with 1-hour delivery and FREE 2-hour delivery.
Amazon Prime Air
Amazon Prime Air is a service that will deliver packages up to five pounds in 30 minutes or less using small drones.
AWS – Amazon Web Services (AWS) is the world’s most comprehensive and broadly adopted cloud platform, offering over 175 fully featured services from data centers globally. The platform is used by individuals, companies, and governments, on a metered pay-as-you-go basis.
Alexa is a virtual assistant AI technology developed by Amazon in 2014 and first used in the Amazon Echo smart speakers.
Kindle is a series of e-readers which enable users to browse, buy, download, and read e-books, newspapers, magazines and other digital media. The device was launched in 2007.
StyleSnap is the latest Amazon AI-powered feature which supports fashion-focused shoppers.
Show and Tell
Show and Tell allows the blind to identify grocery items by holding each item to the Echo Show camera and ask, “Alexa, what am I holding?”. The smart speaker identifies the item through advanced computer vision and machine learning technologies for object recognition.
UiPath – The path to innovation is paved with humility
UiPath is the world’s leading Robotic Process Automation vendor.
For the second consecutive year, UiPath has been placed highest in the Leaders’ quadrant for ability to execute by Gartner.
In July 2020, UiPath became the first European Cloud Decacorn with $10.2Bn valuation in a new funding round of $225M.
At UiPath, innovation comes from actively listening to and engaging with the company’s customers. “Solving real-world problems using artificial intelligence (AI)—and pairing AI with RPA—motivates every individual at UiPath.”
The company gathers feedback from many touchpoints, including preview programs, its customer advisory board, their 400k+ user community, meetups, and conferences.
UiPath’s purpose is to accelerate human achievement. The company’s core values are speed, immersion, boldness and humility.
UiPath top management believes that if their people are not happy, they have failed no matter how successful the company is. That’s why being a successful leader at UiPath means exercising humility and practising active listening. The employee who is provided with psychological safety is more likely to focus on achieving the company’s business goals.
Nike – Innovation through knowledge and insights
Nike is no longer just an athletic shoe manufacturer, it’s a technology company.
The brand’s mission is to expand human potential. And to achieve that, Nike creates new products through game-changing innovations.
Most innovations come from the brand’s own lab, the Nike Sport Research Lab which the company set up in 1980. The lab focuses on biomechanics, physiology, sensory/perception and data science.
Over the course of thirty years, Nike’s lab, employing more than 40 researchers has grown into a world-class research facility. Its function is to provide knowledge and insights and turn data into innovative products for athletes.
The Nike Flywire support system, Lunarlite foam cushioning, Hyperdunk basketball shoe are among the most famous.
The latest innovation is Nike Fit, a foot-scanning solution designed to find every person’s best fit. Nike Fit uses a proprietary combination of computer vision, data science, machine learning, artificial intelligence and recommendation algorithms to find your right fit.
A report from 2017 estimated that Nike has spent “~$2.5 billion on research and development in the last five years.”
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March 2021: Business Strategy Masterclass for Top Executives with Prof. Costas Markides
We have exciting news!
BRAND MINDS is launching Business Strategy Masterclass for Top Executives with London Business School professor Costas Markides.
The masterclass is scheduled for March 23rd, 2021 and will take place online. It starts at 9 am and ends at 5 pm with a Q&A session which is a great opportunity to get answers to your questions.
Check the agenda to find what you will learn at this masterclass:
Session 1: Strategy in a volatile world
Session 2: Strategic agility in today’s world
Session 3: Mobilizing the whole organisation for strategy execution
Session 4: New challenges for leaders
6 benefits of attending Business Strategy Masterclass for Top Executives
BUILD CUSTOM BUSINESS MODELS
Learn to develop custom business models and drive success through innovation.
WORLD-CLASS EXECUTIVE EDUCATION
Acquire a premium learning experience from the former Executive Education Director of London Business School.
EXPAND YOUR COMPANY
Drive growth by exploring new business opportunities through networking with other Top Executive participants.
BECOME THE ARCHITECT OF YOUR BUSINESS
Acquire the necessary business tools to plan your company’s future efficiently.
LEARN BUSINESS INNOVATION PRINCIPLES
Upgrade your knowledge on innovation and disruption to drive business success.
IMPROVE YOUR DECISION-MAKING PROCESS
In today’s fast-paced environment, making good decisions fast is an invaluable skill.
Are you a CEO, investor, business owner, sales expert, marketing manager, HR director or strategy specialist?
Then this masterclass is for you!
Prof Costas Markides – One of the world’s foremost experts on strategy & innovation
A business author and strategic thinker, Costas Markides has been a professor at London Business School for the past 30 years teaching Strategy & Entrepreneurship.
As the holder of the Robert P. Bauman Chair of Strategic Leadership at London Business School, Costas Markides’ role is to create innovative educational approaches that shape the next generation of strategic leaders.
He received his MBA and DBA from Harvard Business School and served as the Faculty Director of Executive Education at London Business School until 2016.
His expertise includes strategic innovation, business model innovation, diversification and international acquisitions.
A skilful professor, he won 5 awards recognizing his excellence in teaching and innovation in learning over the past ten years.
He is the bestselling author of Fast Second: How Smart Companies Bypass Radical Innovation to Enter and Dominate New Markets and Game-Changing Strategies: How to Create New Market Space in Established Industries by Breaking the Rules.
Fast Second illustrates how to determine which new markets have the potential to be successful and how to move into them before the competition does, when to make a move into a new market, how to scale up a market, where to position a company in the market, and whether to be a colonizer or a consolidator.
Game-Changing Strategies presents practical ideas on how established firms could not only discover new radical business models but also grow them next to their existing business models.
His forthcoming book is entitled Architects of Change and is set to launch in April 2021. The new book explores how individuals could design innovative solutions to social problems in ways that make them easily scalable.
Costas is currently serving on several editorial boards of strategic management journals among which is Sloan Management Review, the research-based magazine published at the Massachusetts Institute of Technology (MIT).
Have a long term strategy, especially in a fast-changing world; listen to the customer, but don’t always do what they say; don’t feel threatened by disruptive innovation; promote innovation in the face of core resistance; and, finally, do your best to bridge the know-do gap.
Do you want to get your company ready for an amazing 2021?
Access now BRAND MINDS Business Strategy Masterclass for Top Executives with prof Costas Markides!
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Blue Ocean Strategy: How to differentiate from the competition
On this page:
- Definition of Blue Ocean Strategy – What is Blue Ocean Strategy? Who created Blue Ocean Strategy?
- Differences between Red Ocean Strategy and Blue Ocean Strategy in business and leadership
- 3 brands that have differentiated from the competition, generated new demand and found a new market
- How to create a blue ocean for your company through value innovation
What is Blue Ocean Strategy?
Every entrepreneur wishes their company was the only one in the market. No competitors, having all the customers to themselves. King of the castle ruling unchallenged over the country.
While for most entrepreneurs this dream is only wishful thinking, for some it’s reality.
These entrepreneurs (and we will talk about three of them later) have led their companies to great success by applying Blue Ocean Strategy.
Blue ocean strategy is the simultaneous pursuit of differentiation and low cost to open up a new market space and create new demand. It is about creating and capturing uncontested market space, thereby making the competition irrelevant. It is based on the view that market boundaries and industry structure are not a given and can be reconstructed by the actions and beliefs of industry players.
Who created the Blue Ocean Strategy?
Blue Ocean Strategy was created by management thinkers Chan Kim and Renée Mauborgne.
Both Chan and Renée are Professors of Strategy at INSEAD, one of the world’s top business schools, and co-directors of the INSEAD Blue Ocean Strategy Institute in France.
In 2005, Chan Kim and Renée Mauborgne co-authored Blue Ocean Strategy. The book shows the results of a study of 150 strategic moves spanning more than 100 years across 30 industries. The authors’ conclusion is that lasting success comes not from battling competitors but from creating blue oceans – untapped new market spaces ripe for growth.
Since its first edition, Blue Ocean Strategy has been revised and expanded in 2015 and has become a bestseller with over 4 million copies sold in 46 languages.
The book is recognized as one of the most iconic and impactful strategy books ever written and is the recipient of numerous distinguished awards. Both authors received widespread recognition for their work in the form of various awards and distinctions.
Apart from their careers in academia, Chan and Renée have been employed in an advisory capacity by prestigious organizations. Kim is an advisory member for the European Union and serves as an advisor to several countries and Renée served on President Barack Obama’s Board of Advisors on Historically Black Colleges and Universities (HBCUs) for the president’s two terms.
In 2019, Thinkers50 named Chan Kim and Renée Mauborgne the #1 Business Thinkers in the World.
Differences between Red Ocean Strategy and Blue Ocean in business and leadership
In Blue Ocean Strategy, red ocean is a metaphor for the known market space encompassing all the industries in existence today. Remember the documentaries that showed the audience what happens when a large number of sharks feed at the same time, in the same place? It’s called a shark feeding frenzy event and it turns the ocean water red with the blood of the fish the sharks are feeding on.
Blue ocean is the metaphor for the unknown market space and all the industries that are not in existence today. It’s the unchartered land that courageous explorers venture in to discover unimaginable riches and opportunities.
- Red ocean strategy is about competition
- Blue ocean strategy is about creating new demand
- Red ocean strategy is a market-competing strategy where profit and growth decline while competition increases
- Blue ocean strategy is taking the opportunity to grow rapidly and profitably
- Red ocean strategy competes over customers
- Blue ocean strategy turn non-customers into customers
- Conventional leadership focuses on the cognitive and behavioural skills of leaders
- Blue ocean leadership focuses on actions and activities tied to market realities
- Conventional leadership has resulted in 87% global average in employee disengagement
- Blue ocean leadership’s goal is to unlock unrealized talent and energy in the organization fast and at low cost
3 Brands that have differentiated from the competition, generated new demand and found a new market
Cirque du Soleil
Founded in 1984 in Canada, Cirque du Soleil is an entertainment company and the largest contemporary circus producer in the world.
There’s circus in the company name but the performances are not your usual live animal children focused shows.
By taking out live animal acts from their performances and focusing on creating storyline-based shows with live music and amazing acrobats, Cirque du Soleil has created a new market space and new demand: circus entertainment for adults.
More than 180 million spectators have seen a Cirque du Soleil production since 1984 worldwide. The company generates annual revenue of approximately $1 billion and its creations have received numerous prizes and distinctions, including seven Primetime Emmy Awards and a star on the Hollywood Walk of Fame.
Uber & Airbnb
Both Uber and Airbnb are great examples of the blue ocean strategy.
Airbnb launched in 2008, Uber – one year later.
Although operating in the hospitality industry, Airbnb doesn’t own any property, it manages an online travel platform. By allowing homeowners to monetize their spaces and travellers to book them instead of hotels, Airbnb has found a new market, a big one.
The numbers speak for themselves: 7+ million listings worldwide, 2+ million people staying on Airbnb per night on average, 750+ million all-time Airbnb guest arrivals. In Q1 of 2019, Airbnb registered $9.4 billion in the total booking value.
Although Uber is operating in the people moving industry, it is not a taxi company, but a ridesharing service.
The latest stats say there are 21 million trips a day taken by 111 million monthly active platform consumers located in over 900 cities across 69 countries. In 2019, the company registered $65 billion in gross bookings across all platforms.
How to create a blue ocean for your company through value innovation
Value innovation is one of Blue Ocean Strategy’s tools and is defined as the simultaneous pursuit of differentiation and low cost, creating a leap in value for both buyers and the company.
The concept of Value Innovation is the cornerstone of the market-creating strategy.
Because value to buyers comes from the offering’s utility minus its price, and because value to the company is generated from the offering’s price minus its cost, value innovation is achieved only when the whole system of utility, price, and cost is aligned.
Chan Kim and Renee Mauborgne
But how does one achieve value innovation?
To achieve value innovation, the company looks at two factors: cost savings and buyer value.
The company makes cost savings by eliminating and reducing the factors an industry competes on and lifts buyer value by raising and creating elements the industry has never offered.
Many businesspeople believe that lowering costs and increasing value is a trade-off. It’s either creating greater value for customers at a higher cost or creating reasonable value at a lower cost. Blue Ocean Strategy allows companies to pursue differentiation and low cost simultaneously.
A great starting point for achieving value innovation is to answer the following questions devised by Chan Kim and Renee Mauborgne in the Four Actions Framework:
- Which of the factors that the industry takes for granted should be eliminated?
- Which factors should be reduced well below the industry’s standard?
- What factors should be raised well above the industry’s standard?
- What factors should be created that the industry has never offered?
In conclusion, to find your blue ocean, namely to tap into a new market, you need to perform an innovative leap in customer value at lower costs thus making the competition irrelevant.
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IKEA’s Latest Innovation – ThisAbles
IKEA Israel teamed up with disability rights groups to develop ThisAbles, an innovative line of 3D-printed add-ons for IKEA furniture.
Find out more in the video!
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Innovation in the pet food industry – E-commerce for dogs
Are you fed up with buying toys your dog doesn’t play with?
Wouldn’t you like your dog to let you know which toy to buy him?
Now it’s possible thanks to the AI facial recognition tool!
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Ecoalf – Because There Is No Planet B
Ecoalf is a Spanish company which turns plastic sea waste into high-quality fashion products.
It was founded in 2010 by Javier Goyeneche after the birth of his son, Alfredo (the ALF in Ecoalf comes from Alfredo). Javier started Ecoalf after he became increasingly frustrated with the excessive use of the world’s natural resources.
Read my interview with Javier Goyeneche: Turning Plastic Sea Waste Into Fashion
Ecoalf is a sustainable fashion brand from A to Z. The company created Sea Yarn, a new 100% recycled filament which is made of the plastic bottle collection found at the bottom of the Mediterranean Sea.
As Javier highlights in our interview, Ecoalf is not about recycling grandma’s old blanket into a backpack; it’s about innovation and design.
Mission and Vision
Ecoalf’s vision is a world where natural resources are not used in a careless way. Its mission is to create the first generation of recycled products with the same quality and design as the best non-recycled.
The company is founded on three principles: compromise, coherence and transparency. Its DNA is based on sustainability, innovation and sustainable design.
In the majority of processes, Ecoalf uses mechanical recycling – the most sustainable form of recycling.
In terms of energy consumption and CO2 emissions, the production of a recycled material thread has a much lower impact compared with conventional thread.
Here are the parameters which Ecoalf uses when determining a material’s sustainability:
- Energy consumption/CO2 emissions;
- Use of water;
- Use of the ground;
- Use of chemical products;
- Relationship with biodiversity;
- Production of solid residues.
Ecoalf’s designing team creates clothing fashion lines for women, men and children, footwear (flip-flops and sneakers) and accessories (backpack).
What recycled materials does Ecoalf use to create new products?
- Recycled plastic bottles retrieved from the ocean by fishermen;
- Recycled nylon (fabric scraps, fishing nets from the oceans and carpets);
- Recycled cotton;
- Recycled wool;
- Recycled used tires;
- Post-consumer coffee grounds.
Here are the results of Ecoalf’s innovative recycling process:
- More than 80 million tonnes of plastic bottles recycled so far;
- 135 grams of discarded fishing nets = 1 meter of Ecoalf fabric;
- 1 Ecoalf t-shirt made from recycled cotton saves 2500 litres of water;
- Recycling nets means 27% less consumption of natural resources and a 28% reduction of greenhouse gases emissions;
- Every 1000 kg of Ecoalf fabric reduces the equivalent CO2 emissions of a car driving 9800 km;
- Production of 1000 kg of fabric saves the equivalent of 955 kg of crude oil;
- It took 2 years of research and development to come up with an innovative process by which to turn used tyres into flip-flops as tyres contain metals, antioxidants and fabric pieces.
Ecoalf believes in creation through transformation. The company partnered with major brands that share the same commitment to the Zero Waste philosophy.
Here are some of them:
Starbucks partnered with Ecoalf to create exclusive products made with recycled coffee grounds.
Ecoalf developed an exclusive collection made with 100% recycled fabrics to dress Swatch employees. The company used 40.807 recycled plastic bottles and post-consumer cotton which saved over 30 million litres of water.
will-i-am and Coca-Cola
Ecoalf joined will-i-am and Coca-Cola to launch an exclusive and limited collection of Ekocycle garments made with Ecoalf fabrics at Harrods.
The Spanish company and the famous actress successfully designed a vest and backpack.
Ecoalf designed for Apple a special collection of stylish and eco-conscious accessories.
Awards and Recognition
Ecoalf has received numerous awards and accolades in recognition of its amazing work. Here are some of them:
Recognized by PETA
Ecoalf received the PETA Award for its 100% VEGAN Collection FELDER FELDER.
A Certified B Corporation®
Ecoalf is the first fashion brand in Spain to become a Certified B Corporation. There are 2,441 Certified B Corporations in the world with 1 unifying goal – to redefine success in business. B Corporations inspire all businesses to compete not only to be the best in the world but be the best for the world.
El Confidencial-KPMG Award for the best Initiatives in Eco-efficiency.
Land Rover Award in the category of “Technology and innovation”.
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India To Become The 2nd Largest Economy In The World
The economists predict that by 2030, India will become the world’s second largest economy in the world. This article delves further into the subject.
According to the World Economic Forum, there is an important change taking place among the largest economies in the world:
- China is set to overtake the US as the largest economy by 2020 thus becoming the world’s most powerful economy in the world;
- India is likely to become the world’s second-largest economy by 2030;
- Crowned as the most powerful economy in the world since the 1800s, the US will lose its title within a year and step back to number 3.
Here are 8 reasons this prediction is likely to come true:
1. Growth acceleration
India’s trend growth is accelerating to 7.8% by the 2020s partly due to ongoing reforms, including the introduction of a national goods and services tax (GST) and the Indian Bankruptcy Code (IBC).
2. The world’s largest group of young people
While in the rest of the world, the ageing population is growing, India has become home to the world’s largest group of young people: half of the country’s population is under the age of 25, that is 600 million people.
3. The highest concentration of the urban population by 2020
The UN expects the world’s urban population to increase from 55% to 68% by 2050. This increase is expected to be highly concentrated in just three countries: India, China and Nigeria. India’s contribution is the highest: 416 million urban dwellers by 2050. In 2018 the urban population of the world accounted for 4.2 billion people.
4. $1 trillion real-estate market size by 2030
India is the country where the largest urban transformation of the 21st century is happening.
Key contributors to this growth are the Indian real estate and infrastructure, a young demographic base, growing income levels, expanding middle-class and stable democracy.
5. The fastest-growing cities
Rapid urbanisation is one of the five megatrends identified by PwC to shape the world in 2019. According to PwC, cities are breeding grounds for wealth creation and economic growth.
Indian cities are leading the change. Here is how:
- 70% of future employment is expected to be generated in Indian cities;
- Emerging cities (population less than 1 million) are driving consumption expenditure;
- Significant opportunities for domestic and international investments.
According to research institute Oxford Economics, all the top 10 fastest-growing cities by GDP between 2019 and 2035 will be in India: Surat, Agra, Bengaluru, Hyderabad, Nagpur, Tiruppur, Rajkot, Tiruchirappalli, Chennai and Vijayawada.
6. The 3rd largest consumer economy by 2025
According to the Boston Consulting Group consumer report, India will become the world’s third largest consumer economy by 2025 with consumption set to triple to $4 trillion.
The factors driving this growth are as follows:
- The wealthy will represent 40% of all spending, the largest consumer segment;
- Emerging cities will constitute ⅓ rd. of total consumer spending;
- Nuclear families will make three-fourths of all Indian households;
- Retail sales will increase from 30% to 35% due to digital channels;
- Online will grow to 10% from 8% as a preferred medium of retail spending.
7. The World’s Leader in renewable energy
According to the World Economic Forum, India will soon be leading the world in renewable energy.
India is currently in the second spot after Chile in the 2018 Climatescope report by energy researcher BloombergNEF. But the country’s latest increased investments, clean energy installations as well as the world’s largest renewables auction market have slingshot India in top three from the 5th position it held in 2017.
8. The Innovation Mission and the Innovation Diplomacy
The Indian Government has set innovation at the core of the country’s growth policies.
The country is currently running its innovation programme, the Atal Innovation Mission which started in 2016. The programme was designed to reach its goals by implemented the following: scaling start-up incubation centres, promoting innovation culture among schoolchildren by providing them with hands-on experience in 3D printing, leveraging the Internet of Things and developing robotics. As a result, India moved up in the Global Innovation Index, from 81st place in 2015 to 57th place in 2018.
Innovation Diplomacy was defined by the Mori Government as the ongoing diplomatic efforts in forging strong economic ties with other nations, based on innovation.
The efforts of the Indian diplomats paid off: the India-Israel Innovation Fund was launched in August 2018; the fund encompasses an annual investment of $4 million from each country for five years, putting its total value at $40 million.
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Dell and Nikki Reed – Gold Jewellery made from Electronic Waste
Every year, over 50 million tons of Electronic Waste is created
According to statistics, only 12.5% of electronics are responsibly recycled globally. The rest of 87.5% is recycled in a standard fashion, by burning, which can have serious consequences such as: air, water and soil pollution.
$60 million-worth of Gold/Silver in Electronic Waste
Statistics have found that Americans are throwing away $60 million in gold and silver that come from un-recycled smartphones.
The E-Cycling Leadership Initiative
Together with Apple, HP, LG, Panasonic and other major electronics suppliers, Dell joined the E-Cycling Leadership Initiative.
The E-Cycling Leadership Initiative is committed to “the reusing, or the distribution for reuse of pieces of electronic equipment and their components at the end of their life cycle” .
In January 2018, Dell was the first electronics manufacturer to use recycled gold from e-waste in its products. Dell’s process for extracting gold from old computer motherboards is 99% more environmentally friendly than extracting gold from the earth.
There is 800x more gold in a tone of computer motherboards than in a tone of ore in the earth.
Pollution in the Fashion Industry
Another industry that is responsible for a lot of waste is fashion.
Just three years ago, in 2015, fashion was the second most polluting industry in the world, next to oil. The fashion industry had a serious impact on our society and the planet: sweatshops in third-world countries, increased levels of pollution, high carbon footprint, use of great amount of natural resources, toxic dyes waste etc.
In 2011, Greenpeace launched its Detox My Fashion campaign which asks the textile and fashion industry to urgently take responsibility for their contribution to toxic pollution.
Ethical and Sustainable Fashion
In the last years, fashion has become waste-conscious and recycling-focused.
Ethical and sustainable fashion brands do right by their society, environment, employees and customers. According to The Ethical Fashion Forum, fashion sustainability means “maximizing benefits, while minimizing negative impact”. It’s a win-win situation.
As focus shifts to a circular economy, sustainability will evolve from being a menu of fragmented initiatives to being an integral and defining part of the entire fashion value chain.
BoF and McKinsey & Company conducted a research on sustainability in fashion – The State of Fashion 2018 which was published in January 2018.
Here are the main findings of this report:
- Sustainability is moving to the core of the fashion industry;
- Sustainability is driving innovation “to unlock technical innovations, efficiencies, and mission orientation”;
- 42 out of 100 fashion brands have embraced sustainability in 2017;
- Fashion brands are becoming aware that moving towards a business model that is sustainable and ethical is a powerful differentiator;
- Sustainable and ethical fashion brands attract a new category of customers: the Millennials;
- 66% of global Millennials are willing to spend more on brands that are sustainable.
We all should be thinking “circular” in our approach to design. One industry’s “trash” can be another’s treasure
Actress Nikki Reed (who starred in the Twilight series) started BaYou with Love when she couldn’t find products in the fashion industry that were ethically made, sustainable, chemical-free.
Inspired by the beauty that surrounds us and motivated by the lack of sustainable and natural options, BaYou With Love was born. It’s the way it makes you feel to merge thoughtful consumerism with effortlessly chic style. Sustainable fashion isn’t the future, it’s the present. Wearing BaYou is wearing love.
Dell approached Nikki Reed with the idea to design beautiful products from e-waste. Nikki accepted the challenge with enthusiasm and created two 14-18 karat gold jewellery collections: The Circular Collection and The One Earth Collection. The jewellery is made from upcycled gold from technology and conflict-free gemstones.