Our Approach to Innovation and Growth
The Phoenix Principle, as developed in Adam Hartung's book Create Marketplace Disruption, states that companies must continually recreate their formulas for success in order to sustain long term growth and value creation. Most companies get "locked-in" to the formulas that made them successful and refuse to change. Like samurai fighting against machine guns they defend the "tried and true" way of doing business and invest in better swords and faster techniques (what we call "Defend and Extend"). The Phoenix Principle approach consists of anticipating the changed competitive world and creating new business models ("success formulas") to satisfy future unmet needs. As Wayne Gretzky famously noted when asked about his key to success: "I skate to where the puck is going to be, not where it has been."
Companies such as Virgin, Apple, Honda, ITW, and GE follow The Phoenix Principle to mobilize toward new market opportunities. They continually push themselves into growth markets even when those markets are potentially unrelated to traditional customers, technologies, or other core strengths. They keep growing and producing above-average returns regardless of market conditions. They follow a four-step approach:
1. Focus planning on future scenarios. Most organizations plan by analyzing traditional customers, market segments, technologies, and skill sets. Phoenix companies emphasize future scenario development—they don’t fixate on where they are, but on where they want to be. What’s important to planning isn’t what's “core”, but rather what new market opportunities can be identified or created.
2. Obsess about competitors. Phoenix companies are obsessive about understanding competitors—both direct and indirect—to better anticipate their actions and behaviors. They interview lost and unhappy customers to identify competitor moves they may have overlooked and they never dismiss any competitor, no matter how obscure or weak they appear. They realize that fringe competitors often bring to market completely new solutions that create market shifts.
3. Be highly disruptive. Disruptions are used to challenge status quo behaviors and force new ones to occur. Phoenix organizations reward their people for challenging conventional thinking, approaches, and processes and creating new ones.
4. Create and maintain white-space projects to identify and fill competitive gaps and create new success formulas. They give team leaders explicit permission to violate traditional internal standards (margin, volume, quality, technologies, etc.) and avoid making the white-space teams compete with the existing business for people or money.
1. Focus planning on future scenarios. Most organizations plan by analyzing traditional customers, market segments, technologies, and skill sets. Phoenix companies emphasize future scenario development—they don’t fixate on where they are, but on where they want to be. What’s important to planning isn’t what's “core”, but rather what new market opportunities can be identified or created.
2. Obsess about competitors. Phoenix companies are obsessive about understanding competitors—both direct and indirect—to better anticipate their actions and behaviors. They interview lost and unhappy customers to identify competitor moves they may have overlooked and they never dismiss any competitor, no matter how obscure or weak they appear. They realize that fringe competitors often bring to market completely new solutions that create market shifts.
3. Be highly disruptive. Disruptions are used to challenge status quo behaviors and force new ones to occur. Phoenix organizations reward their people for challenging conventional thinking, approaches, and processes and creating new ones.
4. Create and maintain white-space projects to identify and fill competitive gaps and create new success formulas. They give team leaders explicit permission to violate traditional internal standards (margin, volume, quality, technologies, etc.) and avoid making the white-space teams compete with the existing business for people or money.
"Defend and Extend" No Longer Works
For decades companies have prospered through “Defend and Extend” (D&E) Management—establishing a success formula, then improving and protecting it against competitors. In the Industrial Economy this worked well because size, economies of scale, and entry barriers were important. But today, due primarily to the emergence of information transparency, success formulas are being duplicated practically overnight—robbing companies of their competitive advantage. Practicing D&E Management in this environment is a prescription for failure, and yet that is what almost every company, large and small, is doing. Create Marketplace Disruption.
For decades companies have prospered through “Defend and Extend” (D&E) Management—establishing a success formula, then improving and protecting it against competitors. In the Industrial Economy this worked well because size, economies of scale, and entry barriers were important. But today, due primarily to the emergence of information transparency, success formulas are being duplicated practically overnight—robbing companies of their competitive advantage. Practicing D&E Management in this environment is a prescription for failure, and yet that is what almost every company, large and small, is doing. Create Marketplace Disruption.
Selective Use of Open Innovation Techniques
One of the challenges in identifying new market opportunities is finding potential solutions to future market needs that have been identified in the innovation process as well as finding unobvious applications for existing technologies.
We have incorporated within our overall approach to innovation access to a global network of technology and market experts using open innovation techniques. This can often make the difference in unlocking growth opportunities that would be impossible to uncover with the budgets and resources typically available to most companies—especially small to mid-sized businesses.
One of the challenges in identifying new market opportunities is finding potential solutions to future market needs that have been identified in the innovation process as well as finding unobvious applications for existing technologies.
We have incorporated within our overall approach to innovation access to a global network of technology and market experts using open innovation techniques. This can often make the difference in unlocking growth opportunities that would be impossible to uncover with the budgets and resources typically available to most companies—especially small to mid-sized businesses.