Apple vs. Iomega: Why Innovation Approach Matters - Part 2

    By: Noel Sobelman on May 19, 2017

    Noel Sobelman 

    nsobelman@yahoo.com

    Apple vs. Iomega:  Why Innovation Approach Matters - Part 2

    Examining the difference between core and transformative innovation execution 

    This is the second 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. In part 1, we introduced Iomega’s MP3 Player Project and the company’s failed attempt to develop a transformative innovation using a development process more appropriate for core innovation execution at scale.  Here in Part 2, we will describe the differences between core and transformational innovation approaches across each key element of innovation, including governance, investment decision making, consumer discovery, product definition, process, project team organization, incentives, and reward systems.

    Core vs. Transformative Innovation Approach

    Governance & Investment Decision Making

    Core

    Using its phase gate approach, Iomega’s leadership team made the decision to fund the MP3 Player project applying traditional project evaluation criteria, such as market size, strategic fit, and ROI-based financial measures.  These criteria work well for the core business where markets and customer desires are familiar and market data for existing products can be used to extrapolate next generation product projections with reasonable accuracy. 

    Transformative

    The role of the governance team for transformative new products and business models is not only to select and fund, but also to nurture and support these higher-risk opportunities that otherwise would be the first to get cut during tough times.  Unlike phase gate governance, funding decisions for transformative innovations are based on discovery-driven learning plans and objectives.

    In Iomega’s case, the governance team missed out on the opportunity to surface and prioritize the major MP3 player product unknowns and business model assumptions that could have been tested with consumers prior to full scale development.  Fundamental questions that could make or break the business model, such as:

    • How do consumers want to store their digital music?
    • Where do consumers go to download their digital music and how do they prefer getting the MP3 files onto their portable device?
    • Where do the target consumers go to purchase their music players? 

    Consumer Discovery & Product Definition

    Core

    Iomega’s MP3 player project team used traditional market research techniques, such as focus groups, customer surveys, and conjoint studies to gain insight into customer wants and needs.  However, the focus was on feature/function benefits to help them define the product (e.g., battery life, form factor, computer interface, display functions).  Once the MP3 player was defined, requirements were “locked” and the team initiated design, test, and launch activities.

    Transformative

    For transformative innovation, where there is a high degree of unknowns, consumer engagement is an ongoing, iterative process with frequent customer touch points.  It evolves from an initial focus on validating the consumer and their problems and progresses in an iterative manner toward solutions.  Consumer discovery often continues all the way through market communications and launch.

    This iterative, discovery-driven approach also applies to the business model.  For example, Iomega had a strong presence in consumer electronics retail where it built a strong distribution channel for its core Zip product line.  However, Zip, being a computer peripheral, was sold in the computer section of the store.  Would MP3 players be sold in the computer section of the store or in the audio section?  Would the early adopters of these devices even shop for their consumer electronics in brick & mortar retail or would they buy online?  Just like product design, these business model questions can be tested early, with time to adjust or pivot as necessary before scale up.

    Process Structure

    Core

    Iomega had a fully-defined phased development process which worked well for its core Zip product lines.  In fact, the MP3 player project team developed the product in record time, progressing through definition, design, test, and launch phases in just over 8 months.  The team received many accolades and awards for the execution of the program, including USA Today’s prestigious Quality Cup.  However, it ultimately got to market quickly with the wrong product.  The first time the consumer got a demonstrable product in their hands was after it was fully developed. 

    Transformative

    Transformative innovation approaches incorporate iterative build-test-learn cycles using minimum viable product (MVPs) to get early and frequent feedback from consumers, well before expensive tooling and market introduction tasks take place.

    Project Team Structure and Staffing

    Core

    Iomega used the same project team staffing model for the MP3 Player project that it used for its Zip projects--a cross-functional core team structure staffed with decision-makers representing each function.  These teams were staffed with available resources from the existing core business.  

    The cross-functional core team structure works well for both core and transformative innovation projects.  However, asking a transformative project to share resources with the core business can be tricky.  Team members are not shielded from the corporate antibodies that can kill breakthrough innovation projects.  If not protected with top-down support and clear separation, short term core business needs are usually given priority by functional managers incented to meet today’s objectives. 

    Further, the MP3 player team was staffed with experts in computer storage.  Their expertise had been built through years of experience optimizing the Zip business.  Many lacked sufficient knowledge of digital audio technology and struggled in a role where comfort with ambiguity, lean experimentation, and iterative learning was required.

    Transformative

    New business efforts need to strike the right balance between integration with the base business and team autonomy.  While there is no “one size fits all” approach, an effective model is to create a dedicated, autonomous team with mechanisms that encourage alignment with select core business support functions, especially on the back-end when the new business is ready to scale. 

    More and more, leading companies are learning to work with a network of entrepreneurial start-ups, academia, and other partners to co-create new businesses.   Iomega missed out on an opportunity to collaborate outside it’s four walls with digital audio experts, not only to fill technical knowledge gaps, but also to bring insight into technology trends, market timing and direction.

    Incentives & Reward Systems

    Core

    The Iomega MP3 Player project team was rewarded for meeting the same project performance parameters as any other project being developed in the Zip side of the business.  Metrics like time-to-market, product cost, development spend, quality, and in-market revenue and profitability. 

    Transformative

    The incentives and reward systems of the core business do not lend themselves to transformative innovation where the goal is to de-risk big ideas through experimentation.  With transformative innovation, it is important to track learning metrics, especially in the early stages when you are trying to validate unknowns and remove uncertainty.  Learning metrics encourage experimentation and allow changes in direction or pivots.  Teams execute to staged investment readiness or confidence levels instead of rigid, financial-based evaluation criteria more appropriate for the core phase gate approach. 

    Recognition and shared rewards for success in-market are also important motivators for the entrepreneurial-minded team members who thrive in the uncertain, high risk/reward environment that defines transformative innovation. 

    The following table summarizes the differences between core and transformative innovation approaches across key innovation capability areas:        

    tabew.png

    The Result

    Sales of the Iomega MP3 player fell far short of projections and it was discontinued within a year of its launch.  The key value proposition, low cost removable storage, was not compelling enough for consumers to make the switch from incumbent flash-based players.  To make matters worse for Iomega, flash memory prices dropped quickly, eventually going from 3 dollars per megabyte to pennies (Moore’s law at work).  The Iomega value proposition vanished.  Less than a year later, Apple came out with its hard drive-based iPod.  Steve Jobs famously proclaimed, “Over 1000 songs in your pocket” at the iPod unveiling, struck a deal with record labels enabling iTunes, launched a multi-media promotional campaign and the rest is history.  

     

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    Would things have turned out differently for Iomega’s MP3 player program had they used a more suitable development methodology for a product aimed at a new market with new-to-the-company technology and a high degree of unknowns? Would iterative experiments with consumers have uncovered incorrect assumptions or flaws in the business model in time for Iomega to pivot or kill the program?  We will never know for sure.  What we do know is that the Iomega MP3 player project is typical of what happens when companies try to run transformative innovations with a high degree of unknowns through their standard core development process.     

    In today’s economy, optimizing your core business is not enough.  Success comes from executing your core business AND creating whole new sources of growth.  To successfully manage this paradox, companies must build the capabilities and apply the appropriate approaches to simultaneously manage both.  If not, your company might become the next Iomega. 

    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.

    Contact Noel.

    Released: May 19, 2017, 11:40 am | Updated: May 22, 2017, 9:30 am
    Keywords: PDMA Blog


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