Harnessing innovations: Efosa Ojomo’s framework for saving your business
Understanding which innovations could help grow your business is critical to escaping the coming economic storm. Efosa Ojomo's research points the way forward.
Efosa Ojomo leads the Global Prosperity research group at the Clayton Christensen Institute for Disruptive Innovation, a think tank based in Boston and Silicon Valley. In January 2019, Ojomo and late Harvard Business School professor Clayton Christensen published The Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty.
During the final episode of What’s NEXT’s first season, he explored how a framework for exploring innovation can help you make the right choices to grow your business.
What is innovation? What does it mean to you? Ojomo suggested that most answers would come down to the same basic group of ideas. People usually say things like “high tech”, “technological advancement”, “new features”, “Silicon Valley”, and so on.
“But these are not as helpful when we think about what innovation really is,” said Ojomo.
He reiterated the three basic types of innovation:
- disruptive or market creating innovations.
Let’s look at each of them in turn.
Efficiency innovations are innovations that enable us to do more with less.
As a product manager, or a manufacturing manager, or the CEO of a firm, and someone comes and says, ‘hey, there’s this process we’ve been doing, I think we can do it a lot more efficiently’, you do it. You’ll save on cost, and you’ll be able to get the products to customers at a lower cost so that way, you get more money as a company.
Examples of this include outsourcing operations in manufacturing or using mechanical electronic devices to automate a process, and at a much lower cost.
“Now, efficiency innovations are important because they keep your company vibrant. But, but when you think about it, they release cash flows for companies, and they don’t really expand the market, right? Because you sell the products to existing customers. And so, at best, they give you a short term advantage before other companies develop their own efficiency innovations.”
Sustaining innovations are innovations that make good products better. These typically target high end customers who just can’t get enough performance from existing products. Examples include new smartphones, with better cameras, more memory, faster processors, and new features like facial recognition and so on.
“They keep organisations vibrant, exciting, and so people want to work there,” said Ojomo. “But, again, they target the existing market that can consume the products and so typically don’t expand the market. So when I’m in a sustaining innovation battle with my competitors, I’m really fighting for market share.”
The third type of innovation is what we call market creating innovation, or, in some cases, disruptive innovations. These are innovations that transform complicated and expensive products into products that are simple and affordable.
“Many more people who historically did not have access to those products can actually get access,” said Ojomo. “Now, here’s the unique thing about these types of innovations: they expand the market. We don’t target these innovations at the existing consumers who have the money, the time, the skill and the expertise to afford the existing products on the market. We target these innovations at what we call non-consumers.”
These are people who would benefit from gaining access to the products, but have had barriers in their way. These are, typically:
A global perspective on innovation
Perhaps that’s why there’s a lot of sustaining innovations going on in Silicon Valley at the moment.
“For the regions where you have a majority of efficiency innovation you would have to go out East,” he said. “I would have to go out to China, I would have to go out to maybe even Vietnam, Cambodia.”
“These are the countries that have many companies that take processes and do them more efficiently or at lower wages. And so companies can sell the products to existing consumers, but make more money. You might design it in Hamburg or Silicon Valley, but you tend to make it somewhere else.”
For disruptive innovation, he suggested you look elsewhere: Mexico, for example, is producing disruptive innovation.
“Interestingly, we’re also seeing a lot of these coming out of sub-Saharan Africa, and Latin America. These innovations are connected to the struggles of current non-consumers.”
These are people that don’t have access to existing products and services. Financial services delivered through your mobile phone was an innovation that really got its start out of Kenya.
“Now many other emerging economies are holding on and latching on to it. So if you look at Brazil, you have a company called Nubank, that is one of the fastest growing FinTech companies in that country,” he said. “And in that region, it’s giving people access to financial services, who, in their wildest dreams would have never been able to get to a bank to open up an account.”
The impact of COVID-19 on innovation
David asked about the impact of the pandemic on innovation.
“If you work at a company where any of the value you create can be digitised, you have to digitise it now,’ said Ojomo. “If you work for a healthcare company, for instance, and the engagement between the healthcare professional and the patient can be digitised, you have to figure out a way to digitise it because that’s where the world is going.”
He sees banking as another sector ripe for disruptive innovation, as well as education.
“When you look at education, especially higher education and ancillary services, there’s going to be a lot of disruption in that space,” he said. “I don’t know about Europe, but in the USA the cost of education has been growing exponentially. It’s so exorbitant that most people can’t afford it. The higher education sector in this instance has not kept up with innovation.”
He gives the counter-example of Southern New Hampshire University that has been offering a lot of innovative ways to deliver content and knowledge and to build a network of alumni.
“We will see education going in that direction. We already see it with COVID-19: many schools are saying we’re going to only offer online learning come this fall.”
“If you take a look and just step back as an executive, a product manager and look at the R&D at your organisation, and ask yourself which of the portfolio of innovations that you’re investing in fall into which of these three buckets.”
Their research shows that most companies spend the vast majority of their resources on efficiency and sustaining innovations. And very few spend on the disruptive or market-creating innovations.
“But that’s really where the new growth engines reside in your organisations.”
Ojomo pointed out that once you understand that, you now have a framework that can help you think through the portfolio of investments you have in your organisation. Then you can make better strategic decisions around them.
“The key is, how do we make sure we have processes that help us prioritise market creating innovations and disruptive innovations? I think that’s the key because the sustaining and efficiency innovations, they’re always going to happen.”
This is a summary of an interview with Efosa Ojomo, conducted by David Mattin and Monique van Dusseldorp during the NEXT Show on July 9th 2020. You can catch up with Efosa and his work on the Christensen Institute website or on Twitter.