This strategy can positively affect your business' performance. Know more about it here!
Discussed in the book, “Driven,” RDS is a pyramid-shaped framework that has 11 tenets and 3 foundations. When applied properly to your business strategy, this framework can help you achieve wealth and value creation. Kudos to my friend and colleague, Professor Joel Litman, and Dr. Mark L. Frigo for coming up with this awesome framework! Today, we’ll continue our discussion about the fifth tenet of RDS: Innovate Offerings. Keep reading to know what TRUE innovation means and how it can help firms consistently generate high returns.
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This strategy can positively affect your business' performance. Know more about it here! What does “innovation” mean for you? New offerings? New strategies? New opportunities? It’s easy to associate innovation with the term, “new.” After all, when you innovate, there’s always something new you bring to the table. This is also why businesses, particularly salespeople, often focus less on the features of an offering and more on its benefits to customers. Return Driven Strategy’s (RDS) Tenet Five: Innovate Offerings According to Professor Joel Litman" and Dr. Mark L. Frigo in the book, “Driven,” there are always new opportunities for new offerings that answer existing unmet needs. In fact, return-driven firms consider all aspects of a potential or existing offering and what it does for consumers in the areas of product component, service component, and psychological component. Professor Litman and Dr. Frigo say this strategy is on the right track but can still be taken a step further. For them, the focus of innovation should be squarely on fulfilling otherwise unmet customer needs (Tenet Two of RDS). This means high-performing businesses should innovate anything that affects customers’ mental perception of their offerings. These firms should also believe how consumers view and receive their offerings is as important as the physical functions of the actual offerings. Let’s use the business case study below as an example of a firm that successfully innovates its offerings…
Dell is a multinational technology company that develops, sells, repairs, and supports computers and other related products and services such as:
… and more. In the 1980s and 1990s, Dell’s establishment of mass customization in a direct-to-consumer business model enabled customers to experience a myriad of self-selected choices in building their own PCs. [Mass Customization: The process of providing customized goods and services that best meet customers’ needs. Direct-to-consumer Business Model: Also known as business-to-consumer (B2C), this refers to the process of selling products directly to consumers and bypassing any third-party retailers or wholesalers.] At that time, Dell not only fulfilled an unmet customer need (a new business model that lets consumers purchase computers more conveniently) but also realized that the experience of the direct-to-consumer business model is as important as the actual offerings themselves. The result? The technology company was able to TRULY innovate its offering—provide an approach that was unique at that time AND fulfill customers’ needs for choice and flexibility in creating the PC they’ve always wanted. Simply said, Dell provided and innovated an offering for which there was no true substitute… and because of that, the company produced earning power levels in excess of 20%. Today, Dell is also known for effectively managing its supply chain and e-commerce strategy. Innovation When Previous Offerings are “Dying” Professor Litman and Dr. Frigo say one of the problems businesses face is having offerings that target non-existent needs. For example: Companies that produced buggy whips just before the advent of motor cars naturally experienced falling sales volumes and falling prices. [Buggy Whips: A horse whip with a long, stiff shaft and relatively short lash used for driving a horse harnessed to a buggy or any other small open carriage.] What else? Polaroid and Kodak’s failure to quickly move into digital photography despite available assets was a contributor to poor performance. These business failures show innovation is important especially when previous offerings are “dying” or no longer needed. According to Professor Litman and Dr. Frigo, the solution to these kinds of problems is a release of the attachment to existing product and services lines. They say firms that continually generate high returns have noticed how their assets could be used in new ways to innovate offerings for new unmet needs. This concept is shown in how General Electric (GE) makes more than just refrigerators, how Walmart is more than just a department store, how Toyota constantly improves its design and development of the RIGHT offerings, and how Nokia is no longer a paper company but a manufacturer of telecommunications equipment. — In commoditized industries, pricing competition rules the day… and with available substitutes, firms are forced to compete on price and not on the quality of offerings. The result of this? Companies are able to sell offerings that do fulfill needs, just not otherwise unmet needs. That’s why Professor Litman and Dr. Frigo say innovation is the only viable solution to the commoditization of goods. It can even save an entire industry. This is because firms that have displayed high performances in the long run have shown an ability to “reinvent themselves” as if their businesses were dying. They do that either by moving into entirely new industries or branching out into related industries. Always execute RDS’ Tenet 5 (Innovate Offerings) with RDS’ Tenet 2 (Fulfill Otherwise Unmet Customer Needs) in mind. This will help you create products and services that not only address unmet needs but also let you stand out in your industry. Hope you found this week’s insights interesting and helpful. Follow us on LinkedIn. Stay tuned for next Tuesday’s Return Driven Strategy! Since 1971, Starbucks has established itself as an iconic, premium brand known for its quality coffee products, exceptional customer service, and unique marketing strategies. Learn more about Starbucks’ phenomenal marketing strategies as seen in the lens of Return Driven Strategy in next week’s article! |
