Examining the difference between core and transformative innovation execution
This is the first of a 2-part series that uses a company case study as a backdrop to explore the differences between core business and new transformative business innovation approaches.
Back in 1999, both Apple and Iomega were struggling companies. Apple’s history is well documented. Its market share in the computer market that year was below 5 percent and its market cap was hovering around $5B (vs. $580B today). Iomega, the removable storage company known for the Zip drive, once a $3B market cap industry darling (remember Motley Fool’s love affair with the company), was already trending downward.
Another similarity from that timeframe is that both companies had their sights set on the MP3 player market. For Apple, the iPod helped turn the company around. For Iomega, the “HipZip”, despite winning multiple design awards, experienced a quick death shortly after its launch. Iomega struggled to repeat the breakout success of Zip and ended up being sold to EMC a few years later for a fraction of its peak value.
Could things have turned out differently for Iomega had its entry into the MP3 player market been a success? Most likely no, but the company certainly would have had a better chance. This article discusses where Iomega went wrong with its MP3 player development, how it’s approach to innovation contributed to the product’s failure, and how a different approach may have improved the company’s chances of success.
Click! And Iomega’s HipZip Development
In the late 1990’s, Iomega developed Click!, a miniature version of its popular Zip Drive. The strategy for Click! was to embed this small, high capacity removable storage medium inside digital consumer electronics. Click! would become the “digital film” standard for the growing digital camera market. When digital camera manufacturers balked at Click’s size, power consumption, and cost, Iomega turned to the nascent digital audio player market in an attempt get consumer electronic device manufacturers to take notice.
In 1999 there were over 20 MP3 Players on the market, including products from Sony, RCA, Pioneer, Sharp, Samsung and lesser known brands like Diamond Rio, Sensory Science, and Creative Labs. At the time, the market was projected to grow from under 500,000 units to over 8 million within the next 4 years. The market was being fueled by increased internet bandwidth, improved software for file sharing, and increased access to popular digital music content. A digital audio ecosystem was starting to take shape.
It was in this environment that Iomega decided to invest in developing an Iomega-branded MP3 player using it’s Click! platform to store and share digital music files. The product value proposition hinged on the low cost of the Click! disks, which cost 25 cents per megabyte versus over $3 per megabyte for flash media, the defacto standard for competing music players. That cost differential translated to 4 hours of music for $60 versus $600 using flash. Iomega was so confident it had a hit on its hands that it based the product’s whole marketing campaign around this cost advantage.
Where did Iomega go wrong? --
Iomega used its traditional gated development process to develop HipZip, a process that served them well in optimizing derivatives of its Zip drive platform. The company was able to successfully develop and launch Zip drives and disks into the computer storage market through its vast computer peripherals distribution channel, a market and channel familiar to the company. HipZip, however, was new territory for the company. The proposed product had new digital audio technologies unfamiliar to Iomega engineers and targeted a new consumer electronics category, digital music. In other words, it was a transformative innovation (horizon 3 in the graphic below).
Transformative innovations are, by definition, paving new ground and therefore have higher uncertainty and risk associated with development. Unlike core business innovation, which is relatively predictable and can be planned using traditional linear development approaches, transformative innovation approaches are characterized by controlled early-stage experiments to learn quickly, reduce uncertainty, and iterate toward solutions.
In part 2, we will describe the differences across each key element of innovation, including governance, investment decision making, consumer discovery, product definition, process, project team organization, incentives, and reward systems.
Noel Sobelman has worked extensively in the areas of innovation strategy, product development, portfolio management, product commercialization, and the software systems that enable innovation. He is a frequent speaker, researcher, and writer on innovation effectiveness, disruptive innovation, and time-to-market reduction.
By:Randall T Bartel
Posted: May 24, 2017, 3:47 am
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