At the highest level, breakthrough innovators put a higher priority on innovation—far more so than other companies do; they know innovation is essential to their future. The top corporate priority at more than half of breakthrough companies (54 percent) is innovation and product development, and it’s a top-three priority at 92 percent of them. But breakthrough innovators differ from the rest in three other specific ways.
- They cast a wider net for ideas. They are far more likely to generate new product ideas from almost all of ten different sources than either strong or other disruptive innovators. The only two innovation sources on which they lag behind are telling: customer complaints and acquisitions or licensing. The former would be more associated with existing products—and the latter with gaining access to innovations made by others. (See Exhibit 2.)
- They use business model innovation more. Breakthrough products and services increasingly need to be part of a broader business model. Many industrial companies have found that moving from selling products to selling products embedded in a service offers greater differentiation and higher returns. But successfully shifting from a product to a service mind-set requires holistic changes to the underlying business model. Breakthrough innovators understand this and are thus more likely—43 percent compared with 35 percent—to target business model innovation in their innovation efforts than are strong-but-not-disruptive innovators. And breakthrough innovators are nearly twice as likely to use business model innovation as are disruptive-but-not-strong innovators—further suggesting that this latter segment is unlikely to achieve its goals.
- They have cultures geared toward breakthrough success. They use a wide variety of metrics and KPIs that consider the bottom line, but they go well beyond pure financial returns to contemplate longer-term impacts and competitive advantage. They are much more likely than even strong innovators to track the number of new products and the success ratio of those products. Breakthrough innovators worry about hiring and retaining the right talent and prioritizing ideas for development, while weaker innovators are concerned with funding ideas and moving them through the process. Breakthrough innovators bring a higher degree of focus to their efforts. (See Exhibit 3 and "A Breakthrough Innovation Culture and Organization," BCG article, October 2014.)
The proof of these differences can be seen in the results: almost half of breakthrough innovators report generating more than 30 percent of sales from innovations from the prior three years—more than twice the average for all companies.
Perhaps no company exemplifies the ethos of breakthrough innovation better than Amazon. And no company has been more effective at building on what it has learned at each stage of its disruptive development.
Amazon got its start upending the book-publishing business with an online sales model. Then it upended that business again with the e-book. The company has used the lessons learned to expand into myriad other areas of retailing, significantly transforming the consumer purchase pathway and rearranging consumer expectations of what the shopping experience should be. It had embraced thousands of customers as product reviewers and engaged thousands of traditional retailers with the development of Amazon Marketplace. Although it is far from the biggest retailer (Wal-Mart’s annual sales of $475 billion dwarf Amazon’s $75 billion), it is the one retailer that all others in the retail and consumer-packaged-goods sectors must take into account when planning their future strategy. (See “Secrets of Online Marketplaces,” BCG article, December 2012.)
Amazon rolls out new products and services with almost frightening speed: the Kindle e-reader, Kindle Fire tablet, the Amazon Fire Phone, Amazon Prime, AmazonFresh, and Subscribe & Save have all been introduced in the past ten years. Amazon Web Services has led the paradigm shift to cloud computing and is a major force in enabling big-data analytics. The company has built one of the biggest and most valuable databases of consumer information based on its 150 million customer accounts. Nobody laughed when Amazon debuted the idea of delivery by drone on CBS’s 60 Minutes.
Several characteristics define Amazon’s disruptive approach throughout its relatively short 30-year history: a long-term horizon, a searing focus on the customer, and a relentless ability to learn from one disruptive move the lessons that could be the basis for the next.
To be sure, not every company wants or needs to break through to the same degree. Perhaps it is not surprising that companies with long innovation cycles, such as industrial-goods and pharmaceutical companies, have less aspiration to be disruptive. And although one could argue that these executives may be underestimating the risks they face, there is a more important issue to address: many more companies out there aspire to break through than have the capabilities to do so. Most will not succeed. But they can improve, and there’s nothing stopping those that truly want to apply themselves—aside from their own institutional constraints—from joining the breakthrough elite. They need to prepare themselves for an arduous process, however. Putting the building blocks in place is an essential first step.
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