Should you invest your innovation budget in the front-runners or laggards in your organization? Should these investments go to employees and business units that are thriving or the ones that are struggling and need help? The answer is, you need to invest in both. However, for different reasons and using different selection criteria.
Probably, you can drum up examples of products that have come out of fashion: ipods, PDAs, telephone books, VHS systems, encyclopedia, etc.
What you may not realize is that services also have lifecycles. These lifecycles are often less hyped then those of products and new technologies, but being less visible does not mean they don’t exist. For example, video rental services no longer exist in the area of Netflix. Even a business concept like the ‘Fifth discipline’ of Peter Senge does not stay relevant forever. It was launched in the early 90ties and was perhaps its peak in 2004, when Google started tracking search terms. By now, it is at less than 10% of the search volume. And it may even be more out of curiosity that people look it up.
From a management consultant’s perspective, this means that you could have made a lot of money from Peter Senge’s Fifth discipline if you jumped on the bandwagon from the start in the early 90ties. You would have been a front-runner. But if your management consulting practice had not renewed itself by now, you probably would be out of business.
Different phases of the lifecycle
Front-runners and laggards are facing different life-cycle time periods in the services they provide. Front-runners are enjoying the period of growth where demand keeps growing and new opportunities keep arising.
Laggards are at a point in the lifecycle where things have dwindled down. They need to realize that the path they are on will eventually run into a dead end. The good old golden days won’t return, unless, they make a switch and catch on or create a new trend. In other words, service providers that are your front-runners today are not guaranteed to be on top for always. At a certain point, when their new offering matures and profits and revenues come under pressure, they will become the laggards. And laggards are not doomed forever, they can renew themselves.
Therefore, front-runners need to be supported in maintaining their growth spur for as long as possible. Laggards need support in the search for greener pastures and to make the switch from what they know, to what can be.
Recognizing that both laggards and front-runners are in different phases of the business lifecycle will help to understand that both need support and innovation investments, but for different reasons. As a result, the objectives and selection criteria for their innovation projects should differ too.
Investing in front-runners
What should you be looking for in the front-runners, when making an investment in the growth of their business?
Front-runners will need to stay ahead of the pack, to keep their customers happy, their growth going, and their profit margins healthy.
So the objective of their innovation portfolio of projects should be aimed at maximizing and leveraging what is already there. That means investing typically in more incremental innovations.
However, research into the market leaders of the then new ADSL market by Dr. Annelies Geerts, shows that only investing in exploitative types of innovations is insufficient. You will need to obtain a balance between investing in incremental and radically opportunities. You want to explore new opportunities, but you also need to make sure to significantly invest in upkeeping and improving what you already have.
The challenge of front-runners is thus what to focus on. If the sky seems the limit, it is difficult to identify boundaries. Trying to do too much, will spread your resources to thin and will kick you out of the growth cycle. So you need to consider carefully, where are the next opportunities for growth that will keep you in the growth cycle? Are you balancing exploring new opportunities and investing enough in maintaining what we already have.
For explorative investments, strategic fit criteria become important. Are these new opportunities not leading us too far away from the core? For the incremental opportunities, it is a matter of strategizing which ones will give you the best bang for the buck. Feedback from your clients should be guiding you in making the most relevant improvements.
Investing in laggards
Laggards need to realize that they are heading towards a dead-end. Doing more of the same, won’t help them. Further improving or introducing other minor changes, is not going to be enough to change the game. What is needed is really a radical change.
Clearly, making such a radical change is easier said than done. If you are a specialist in a certain domain with 20+ years experience, you are not just going to give that up. So what are your options?
That is what laggards need support with. They need to start going to conferences, tech- exhibits, etc. that they may not have considered before and identify opportunities of how to renew or reapply their expertise and experience.
Current clients may not be the best to advise laggards where to go next. Most likely, they need to be on the outlook for a new client base.
Once an opportunity has been identified, laggards need support in building this new offering. Investing in such a radical new offering is risky and will take time before the investment will pay off. Require that the team does their homework. The new opportunity needs to be differentiating enough and have enough potential to carry the current group. That sets a pretty high bar for which projects are worthwhile to pursue.
There is also always the alternative, to dismantle a lagging business unit.
However, don’t put your expertise and experience too soon with the trash. Your (once) talented performers have institutional and client knowledge that probably is worth fostering. As long as there is a willingness to change, give your laggards the opportunity. You may be in a similar situation later in your career.
It is therefore often better to restart with a much smaller team, a lean team that can be more agile and capture the front-runner position in a new market.
Final advice for laggards and front-runners.
It is always good to know where you are in the life-cycle of the services you are offering. Do you belong to the group of front-runners or laggards?
If you see your competitors growing faster than you, and you fear losing your front-runners position, make the effort into staying ahead and keep focused.
If clients are becoming more demanding and your pricing is being challenged, you may want to start looking out for alternatives. Because obviously it is better to jump from a front-runner position to a new front-runner position of a new offering. Don’t wait till you have become a laggard.
And lastly, knowing how to ease the transition at the end of your current lifecycle to the next will save you from a lot of trouble and stress.