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Here’s a quiz. What do LEGO, GoPro, and CarMax have in common?
Wharton professor David Robertson says they all have a similar strategy for growth that involves building families of complementary innovations around a core product or service. It’s an approach to innovation that’s neither disruptive nor incremental. Instead, it’s somewhere in the middle – and it’s a strategy that any company, no matter the industry, should consider.
Robertson is the author of The Power of Little Ideas: A Low-Risk, High-Reward Approach to Innovation.
In this episode you’ll learn how to use customer feedback to identify a product or service that can anchor a family of complementary innovations. You’ll also learn how to anticipate common challenges, and how to know if this approach would work well for your company.
This episode originally aired on HBR IdeaCast in May 2017. Here it is.
SARAH GREEN CARMICHAEL: Welcome to the HBR IdeaCast from Harvard Business Review. I’m Sarah Green Carmichael.
Imagine that it’s 2005, and you work at a big camera company, like Nikon or Sony. You’re in a room with a bunch of other managers trying to come up with your next blockbuster product. But your ideas seems so small and incremental. Do consumers really want more megapixels? Then there are the ideas that are disruptive, but it’s hard to imagine your company really achieving them, like some better way to share cell phone photos using the internet.
Now, fast forward a year. It’s 2006, and someone has just handed you a first generation GoPro video camera. It’s not a revolutionary product. It’s small, simple, and sturdy. And it uses existing technology. But you can immediately see that this changes the game. And it does.
Within 10 years, this company will grow to $1.6 billion in annual revenues. So now, the $1.6 billion question– why didn’t your company think of that? It wasn’t an incremental product improvement. But it wasn’t a huge disruptive innovation either.
Here to help us get better at thinking through these kinds of ideas is our guest today, David Robertson. He’s a professor of practice at the Wharton School at the University of Pennsylvania and coauthor of the new book The Power of Little Ideas. Dave, thanks for talking with us today.
DAVID ROBERTSON: Sarah, thanks for having me.
SARAH GREEN CARMICHAEL: Why are these kinds of ideas so hard to think of?
DAVID ROBERTSON: The GoPro example that you opened with, that would actually have been a pretty easy thing for somebody like a Sony to copy. But what GoPro did after the camera made them so hard for Sony to fight back against. What GoPro did was they thought through, what do people want from an action camera, what are people trying to do. They’re trying to capture their greatest adventures.
It was started, as many people know, by a surfer, who wanted to show off his great surfing experiences. Well, what GoPro did is it developed the camera. But then it also developed mounts.
I mean, now, you can put your GoPro on anything. You can put it on your surfboard, your bike, your helmet, your dog. My favorite is, there’s a user that created a GoPro mount for a hula hoop. So you could get the hoop’s view of the world.
And my favorite little accessory, they created a wrench, so that you could tighten the bolts when you were preparing for your adventure and then take off the GoPro when you’re done. But on the other end of the wrench is a bottle opener. So you can celebrate your great adventure, right? That’s a company that understands its customer.
So Sony, a couple of years later, when they realized how big this market was getting, they came out with an action camera by Sony that was a third cheaper. It had more megapixels. It had image stabilization, which GoPro didn’t match for a number of years. And they’re getting killed.
I mean, GoPro sells seven times more action cameras than Sony and 50% more video cameras. That’s the interesting part– 50% more video cameras than Sony– because they were innovating, not just in the product, but around the product.
I call it the “third way” because it’s not just incrementally improving a current product for current customers. And it’s not disrupting. It’s not revolutionary. It’s not searching for some new market. But rather, it’s a “third way,” which is taking that current product and innovating around it to make it more valuable for your customers.
SARAH GREEN CARMICHAEL: One of the things you talk about is the importance of innovating around a product without fundamentally changing it. Why can’t you change the product?
DAVID ROBERTSON: Oh, you should change the product. I mean, you still want to do continual improvement of your product. What I’m trying to get at there is that there should be some respect for what made that product great.
I go back to the LEGO story. And they’re a great example of a company that really lost faith in their core product, in the brick. Back in 1999, they were convinced that kids were leaving traditional toys– not just bricks, but Barbies and Hot Wheels and everything else, and moving to digital and virtual play experiences.
And they lost faith in the brick. And so they started to explore, how do we reinvent the future of play. And when they left the brick, that’s when people left the brand.
There’s a big difference between sufficient and necessary. And that’s what companies get mixed up in, that sometimes it’s not sufficient to just make your product anymore. But sometimes it is necessary. And LEGO learned that, almost went bankrupt learning that, that when they realized it wasn’t sufficient to just make a box of bricks, they got screwed up. And they thought it was not necessary to make a box of bricks.
Well, what they found was that it was necessary to make a box of bricks and surround that with games and stories and most recently movies. The Lego Batman Movie has done quite well and I’m sure has sold quite a lot of LEGO Batman toys. It’s not enough to just make a box of bricks, but it is necessary.
SARAH GREEN CARMICHAEL: So when you talk about a company like GoPro or a company like LEGO, it sounds simple in hindsight. Why is it so hard to figure out going forward?
DAVID ROBERTSON: What makes us good at developing a product can prevent us from developing a family of products. I mean, it seems like this is a natural approach to innovation. But when I looked at companies that did it and companies that didn’t do it, I think there are a lot of barriers.
And I think one of them is the role of the product manager. I mean, just think about that role– the product manager. You’re defining somebody’s job as managing the product. If you are Sony and you’re commissioning a team in Japan to come up with a better action camera and you define the leader of that team as the product manager, probably they’re not going to be thinking about the complements to the product. They’re not going to be thinking about the software, the smartphone app, the mounts, the social media site, et cetera.
And so you’re setting them up for failure. So just the role, you need a solution integrator. You still need a product manager. You still need somebody who’s going to care about the product. But that’s not the person in charge anymore. You’ve got somebody over that person who’s thinking about, what’s the best overall portfolio.
SARAH GREEN CARMICHAEL: What about deciding even which products to focus on in the first place?
DAVID ROBERTSON: Yeah, and part of this starts with just how we go out and talk to our customers, that we have to not ask them about, what do you think of our product, should I do A or should I do B, but we have to think more broadly. We have to watch more broadly and understand more broadly about what they’re trying to do with our product and what they’re trying to achieve.
One company that does this well is Sherwin-Williams. I noticed that within a five-minute drive of my house, I have more Sherwin-Williams stores than Starbucks. I mean, think about that– Sherwin-Williams Paint Stores, more of them than Starbucks. I think there’s probably too many, but–
SARAH GREEN CARMICHAEL: How many people are painting in your neighborhood?
DAVID ROBERTSON: I know, yeah. But what they realized is that their customer is not me. Sherwin-Williams’ customer is that painting contractor. And I learned about this from a good house painter in the Philly area. He went and looked at my house. And he said, well, I’d like to use this paint, this Sherwin-Williams paint.
And I looked at it on my favorite consumer rating service and saw that there was another paint that was half the price that was just as well-rated. And I said, well, why Sherwin-Williams? And he said, look, I can use this other paint, but if I use this other paint, then it’s actually going to cost you more. Paint is only about 15% of the cost of this job.
I’ve got my labor, I’ve got to keep them working, I’ve got to keep the supplies. And the Sherwin-Williams guy, if something happens, he helps me throughout the process. He helps me suggest colors for you. He helps make sure I’ve got all the supplies I need, so I don’t have people that I’m paying but aren’t working.
He helps make sure that everything is working well. And if something doesn’t work, he’ll be over on the site immediately. And so I can use this other paint if you want me to, but it’s going to cost you more, even though the paint is cheaper. So they are thinking about what the customer really cares about and what they need.
SARAH GREEN CARMICHAEL: You had an interesting story in the book, where you compared Victoria’s Secret with Frederick’s of Hollywood. And that’s an interesting story to me, because it seems like Frederick’s didn’t really understand who their customer was at all.
DAVID ROBERTSON: I was fascinated too. In the Philadelphia Airport, like in many airports, there’s Victoria’s Secret stores now. And they don’t have changing rooms. And so I just ducked my head in and I looked. And they don’t sell what you’d expect them to sell.
SARAH GREEN CARMICHAEL: No underwear.
DAVID ROBERTSON: They don’t sell lingerie. Well, actually, they do sell some types of underwear, something where you could probably fit that without having to try it on. But they don’t sell brassieres, negligees, bustiers, whatever, so the core product for Victoria’s Secret.
Back in the ’80s, Victoria’s Secret, they were second to market behind Frederick’s of Hollywood. And they almost went bankrupt in the ’80s. And they were both kind of selling this kind of lascivious, wanton view of lingerie, I mean, if you look at the catalogs back then.
And what Victoria’s Secret did is, they put a woman in charge of the brand. And she changed the entire kind of promise of the brand, that it became one knot of wanton lingerie, but rather of romantic love. And they began to offer things that complemented that and helped deliver that.
The complementary products were things like classical music CDs and cosmetics and perfume and robes and pajamas. And it was things that emphasized that view of the world. And that’s what you see in the Philadelphia Airport, it’s just the complements. And I imagine them making quite good money now from things that aren’t their core product.
SARAH GREEN CARMICHAEL: Well, and meanwhile, Frederick’s of Hollywood seemed to assume that it was the men buying the lingerie. When that may not actually have been true.
DAVID ROBERTSON: That’s true, yeah. It does seem like they did switch. And I’m sure that men and women both buy products from both stores, although it’s getting harder and harder. Frederick’s of Hollywood closed–
SARAH GREEN CARMICHAEL: They don’t even–
DAVID ROBERTSON: –its last physical store, yeah. I’m sure that both genders are buying from both stores, but it is a very different type of sale. And it’s clear who’s won.
SARAH GREEN CARMICHAEL: Once you kind of know what your customer wants and what your business promise is, how do you go about actually delivering on what it is that they want?
DAVID ROBERTSON: It requires being humble about, number one, your ability to understand what your customer wants, and number two, about your ability to develop it. There’s two companies in my book that both used drones for commercial purposes. They both tried to make money from drones.
One of them was the insurance company USAA. They used drones to replace insurance adjusters. So if there’s a tornado, or there’s a flood, or something like that, a hurricane, and you have to get into to find out whether somebody’s house or car has been totaled, it can be very hard to drive in there, if you’re an insurance adjuster.
Well, what if you could fly a drone overhead and see that the house is, in fact, gone? Then you can get a check into the hands of your customer. And that customer is first in line with the builder. They’ve got the check, and they’re going to be the first to hire that builder. An hour or two difference can make month’s difference in terms of somebody being back in their home. So they did a partnership with a drone company.
Now, GoPro, they also saw an opportunity for drones. And what they did was they said, well, sometimes the way to capture your greatest adventure is to have a drone fly over you and to follow you around as you go out on your mountain bike or as you go surfing or whatever. They tried to do it themselves. They created their own drone, and it was a disaster.
I mean, the thing would just fly away or crash into the ground. They had to recall every single one of those drones, because they didn’t know what they didn’t know, that doing these drones is really hard. And so it really hurt them. And it was one of the reasons why they had such a down year last year in 2016.
And so as you explore these types of complementary innovations– and neither of these was really that risky or important to the promise– it’s one of those things where you’ve got to be humble about what you can and can’t do and look for partnerships or look for an acquisition when it’s out of your range of things you know well.
SARAH GREEN CARMICHAEL: One of the examples you talked about that I also found really interesting was CarMax versus AutoNation. And I thought, that might be helpful too, to just explain why this is so hard.
DAVID ROBERTSON: CarMax is fascinating, because very few companies have been able to achieve kind of a big box strategy in retail when they’re suffering from a purchase disadvantage. What I mean by that is, they only sell used cars. And so they have to get them from the wholesale market, they have to get them from people that sell them. And so they had to be really good at innovating around the product, because their product was starting out at a disadvantage.
And what they did was they realized that the promise there, the thing that they were really delivering to customers, wasn’t so much the car. It was the purchase experience. And so they created a building, and they created a process, and they created an entire experience around buying a used car. And then they attract the attention of probably the greatest entrepreneur in US history, Wayne Huizenga.
Now, this guy, he’s taken a single garbage truck and turned it into waste management. And then he’s done the same thing with Blockbuster Video. So he’s grown this huge network of video stores. And then he’s bought the Florida Marlins, and they’ve won the World Series. So the guy has done everything.
SARAH GREEN CARMICHAEL: The golden touch.
DAVID ROBERTSON: He’s succeeded at everything. And this is the guy that’s targeting your company. But the thing is, he saw that the way to catch up to CarMax was to do it through acquisition, and the way to remove the purchasing disadvantage was by both selling new and used cars. But when he did that, he ended up not being able to really deliver, really make it a trustworthy, hassle-free, car-buying experience, that when you acquire these existing car dealerships, that they had different IT systems, that they have different ways of doing business.
And no matter how hard they tried to make this work, people fell back into their old habits, that they couldn’t teach them this new way of doing things. And so they ended up backing out of every single one of these used car superstores. And CarMax owned the market to itself for a number of years. And it just shows, number one, how powerful it can be from the CarMax perspective, but how difficult it can be to match from the AutoNation perspective.
SARAH GREEN CARMICHAEL: How much should companies be worried about the competition?
DAVID ROBERTSON: You’re going to see competition. If it’s a good product in a growing market, you’re going to see competition. Once you establish that portfolio, that family of products around your current product, then you have different ways of making money. And so if a competitor comes in the market, and maybe they’re lower cost or maybe they’re better in some way, you have different ways of making money.
SARAH GREEN CARMICHAEL: It seems like with this approach you’re not at the risk of cannibalizing any core products, which is always a tough sell inside a company.
DAVID ROBERTSON: Yes. Yeah, cannibalizing a current product, I mean, it’s always dangerous to do that. Now, you do want to have that team off in the corner who’s looking to cannibalize, who’s looking to disrupt. But those teams fail much more often than they succeed.
And when they fail, it can be very expensive and damaging. And so you don’t want too many of your eggs in that basket. And so honoring and supporting your current product is often both a lower risk and a higher reward approach to innovation.
SARAH GREEN CARMICHAEL: How low is the risk really?
DAVID ROBERTSON: Well, I think if you have– let’s go back to portfolio theory of finance. I mean, if you’re investing in lots of different types of innovation and one or two don’t work, then it’s not going to kill you.
Gatorade was being challenged by Powerade. And Powerade was coming into the market. They were backed by Coca-Cola. They had a cheaper energy drink.
They were taking share away from Gatorade. And Gatorade started spinning out more flavors to combat power. And all that happened was that sales didn’t go anywhere, costs went up, and Powerade continued to gain share.
Well, what Gatorade did is it went out and looked at those serious athletes to try and understand what they really wanted from the drink. And what they found is that serious athletes really cared about doing well at athletic events and that doing well often involved much more than hydration during the event. It involved preparing for the event, and then hydrating during, and then recovering after. And so Gatorade worked with other parts of PepsiCo, their corporate parent, like Quaker Oats, to develop sports bars and energy chews and protein shakes and things like that to help support the entire athletic event.
It diversified the sources of income for Gatorade. And if one of those fails, it doesn’t really matter. The risk is much lower. When you look at just the drink, what you’d see back in 2009 when this strategy really kicked in is that there were fewer varieties of drink, but the drink sales went up, because they had this whole solution around the drink. And it brought people back to the drink.
SARAH GREEN CARMICHAEL: When I hear stories like that and it’s like some innovation team went out to the customer and observed them in their natural environment and found that professional athletes really care about performing well at their sports, I’m like, really you didn’t know how important that was your customers? Like, maybe it’s the benefit of hindsight. But sometimes, these kinds of insights just seem like, really, it took this for you to realize that?
DAVID ROBERTSON: And don’t you think that that is probably not a problem within the team, whose job it is to develop the product? It may be something that’s imposed on them by their management. And it’s because their management is fighting the competition, not dating the customer. They’re just thinking about, what’s my share against this competitor, and how can I get that back.
And so they commission a team whose job it is to do a better product than the competition. And that may work in the short term, but it’s very hard to make it work in the long term. And so it may just be that internal view in the company, that we tend to see the world through this lens of, what’s our relative share. And maybe if we’re a senior manager in charge of a business unit, we’re bonused on that, it’s how well we’re doing against the competition. And so it ends up creating this whole incentive system and process and structure and roles around fighting the competition, not dating the customer.
SARAH GREEN CARMICHAEL: Some of the examples you’ve been giving sound a little bit like horizontal diversification. How is this different?
DAVID ROBERTSON: Horizontal diversification can happen in any number of ways. You can go into new markets. You can serve new market segments. You can come up with new products that your current customers might also want.
What’s different about this, and what’s challenging about it, is that you’re trying to do a set of diverse products that all help to deliver a common promise. You’re helping to help people capture their greatest adventures. In the Gatorade case that I open the book with, you’re helping people to succeed in athletic events. For Sherwin-Williams, you’re helping that painting contractor manage their small business.
And that’s not horizontal diversification. In a way, it’s the opposite. It’s bringing a wide range of things together to serve the single goal that you’re trying to deliver to that one customer.
SARAH GREEN CARMICHAEL: With so many types of innovating out there and approaches to innovation, do you think that companies now kind of have a hard time about deciding which one to go with or which one makes the most sense for them?
DAVID ROBERTSON: Yeah. I mean, there’s a lot out there. And it’s you Harvard guys that are the–
[LAUGHTER]
SARAH GREEN CARMICHAEL: We keep publishing this stuff.
DAVID ROBERTSON: It’s you, Sarah.
SARAH GREEN CARMICHAEL: Yeah.
DAVID ROBERTSON: You’re talking about–
SARAH GREEN CARMICHAEL: I take responsibility.
DAVID ROBERTSON: –the blue ocean and the lean startup and the disruption and all that. But the fact is that’s the world now. I mean, there isn’t one best way to innovate.
SARAH GREEN CARMICHAEL: So how do you know if this approach, your approach, is right for your company?
DAVID ROBERTSON: Right, yeah. And you don’t. If all you’ve got is a hammer, everything looks like a nail, right? But if you’re an innovation leader, you should have a full tool belt. You should have the screwdriver and the wrench and the hammer and all the other tools out there. And you should be open to trying these different approaches to innovation.
But the other part is sometimes it’s really obvious. And there’s example after example of companies, it’s very clear that their competitors are doing this and they’re not able to execute. They can’t get the internal stuff out of the way to let their teams have a chance to succeed against competitors that are doing this approach to innovation.
SARAH GREEN CARMICHAEL: Now that we’ve talked about a bunch of different case studies and a bunch of different concepts from the book, I’m wondering if we can go back to where we began with the challenge that Sony was facing in 2005 from what was then the tiny company competitor of GoPro. What could they have done?
DAVID ROBERTSON: Well, I think they probably weren’t watching the market. And they probably thought, well, we can catch this company whenever we want. We know much more about video cameras and how to develop good ones than this little company does.
But then as the market started getting bigger and they realized that there was an opportunity there, what they did wrong was clearly to commission a team to develop a better product. You’ve got to have that higher level effort. And the thing is it doesn’t necessarily need to cost more. It doesn’t necessarily mean that you have to do everything yourself.
You can work with an external company to develop the desktop software, the smartphone app, the mounts. And maybe you give away some of that money in the short term. Maybe you share that revenue. But at least you won’t be giving away the whole market.
Coming in late, you may have to share the wealth with the partners that you bring on to be able to match your competitor’s product and complementary innovations and distribution, and so forth. But Sony could have done that. But they were trapped in their own way of thinking about the world, and obviously didn’t.
SARAH GREEN CARMICHAEL: Dave, thanks so much for coming in today.
DAVID ROBERTSON: Thanks very much for having me, Sarah.
HANNAH BATES: That was Wharton professor David Robertson — in conversation with Sarah Green Carmichael on the HBR IdeaCast.
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