Innovation Paths: Differentiation, Neutralization and Optimization

I like watching videos and talks by Geoffrey Moore. Geoffre Moore manages to capture fairly important concepts in understandable language. In many of his talks he describes innovation activities as falling into one of three basic categories. To summarize, he argues that innovation can take the form of:

• Differentiation: setting a product or service apart in a meaningful way
• Neutralization: reducing the gaps between the value of the product or service and outside innovations or;
• Optimization: delivering the product or service more efficiently

He also believes that individuals, teams and organizations can develop a bias to certain types of innovation or even more dangerously, try to blend innovation types into projects at the planning stage.

Having a bias toward differentiation, as an example, isn't necessarily a bad thing. Always wanting to come up with the next best thing can generate enormous benefits. However, if effort isn't allocated to ensuring that improvements developed elsewhere are integrated into the design then the value of the offer will suffer. The joy of innovation is that it is emergent in any system and believing that innovation can only be generated internally is a recipe for disaster. Additionally, not optimizing on the delivery or affordances of the product or service can lead to a differentiated product that is painful to use. How much technology fails because relatively simple fixes weren't applied as energy and resources were focused on making it a more perfect mousetrap?

Interestingly, strategic decisions can also hamper innovation. Each of the innovation paths (differentiation, neutralization, and optimization) generate 'power' that can then be used to advance the strategic interests of the organization. However, each of the innovation paths require a different orientation and different measures of performance. Differentiation finds new ways to create joy in the user. Neutralization requires a hard look at the competitive landscape to ensure that you're still in the game. Optimization is far more inward looking, and asks hard questions of how resources are being used and where they can be freed up.

So What?

I am a Certified ScrumMaster and believe in the power of agile methodologies to drive product and service development for my clients. Agility is paramount. Scrum is a management framework for getting things done incrementally using multidisciplinary, self-organizing teams. The framework offers a structure of roles, events, processes and artifacts but the focus is really on supporting people rather than processes in generating innovative solutions to client and stakeholder-driven requirements.

Other organizations employ their own processes and structures to support innovation. Regardless of the process in use, however, teams must be clear on the type of innovation being sought. Furthermore, the innovation type should be driven by those accountable for the product or service's success to align with overall strategic goals. We know that many engineers see differentiation as a more glamorous activity and will pursue new features at the expense of optimization when given the freedom. If differentiation is not in the best interests of the organization at that time, hard decisions must be made and processes in place to switch quickly if the context shifts.

A leaked memo from Nokia’s CEO, Stephen Elop, captures this concept well. The bolding is ours.

The battle of devices has now become a war of ecosystems, where ecosystems include not only the hardware and software of the device, but developers, applications, e-commerce, advertising, search, social applications, location-based services, unified communications and many other things. Our competitors aren’t taking our market share with devices; they are taking our market share with an entire ecosystem. This means we’re going to have to decide how we either build, catalyse or join an ecosystem.

Building an ecosystem would be an explicit commitment to differentiation. Catalysing is an optimization strategy and joining an ecosystem (like Android's) would neutralize some of the value gap. The choice came to define Nokia's future and efforts to do more than one of these extended the gap between Nokia and its competitors.

Not all innovation is flashy. Microsoft remains a master of neutralization and built enormous power on their ability to integrate new innovations quickly. Some would argue that the Japanese industrial complex is an oscillating wave of neutralization, optimization and then differentiation. From the level of individual contributors to senior leadership, clarity on the type of innovation required and allocation of resources to make it happen are critical to sustained performance.