There is no shortage of innovation advice—you have surely heard the persistent drumbeat, “disrupt or be disrupted,” for example. Conventional wisdom says that there are two types of innovation: incremental or radical. But this is a false dichotomy.
According to David Robertson, author of The Power of Little Ideas: A Low-Risk, High-Reward Approach to Innovation and Faculty Director of the Executive Education program Innovating in Existing Markets: Reviving Mature Products and Services, there is another way to innovate. This distinctive approach, which Robertson refers to as the Third Way, improves the value of a core product by innovating around it.
This third strategy consists of creating a family of complementary innovations around a product or service, all of which work together as a system to carry out a single strategy or purpose. And crucially, unlike disruptive or radical innovation, innovating around a key product does not change the central product in any fundamental way. While continual improvement of your product is, of course, a good thing, Robertson encourages respect for what made that product great in the first place.
“People will tell you to drop your core product and go ‘disrupt,’ … but it didn’t work for LEGO!” says Robinson. “Innovation can be damaging.”
Robertson is referring to LEGO’s reaction to competitive threats and market shifts in the late 1990s that caused the company to innovate away from its signature snap-together bricks in favor of diverse new products, including a line of toys designed around two blockbuster movie franchises, Harry Potter and Stars Wars. When no new movies from either franchise appeared in 2003 or the first half of 2004, however, a harsh reality was revealed: the bottom had dropped out for LEGO. Its attempts to create revolutionary change almost pushed the company into bankruptcy.
In the wake of that disaster, the company examined its series of failed experiments, and one bright spot emerged—a quirky construction toy called Bionicle, which differed in three key ways from what the company had done before: the plastic pieces were used to construct action figures; the toy came with a LEGO-created story of heroes battling villains to the save the world; and the plastic pieces were surrounded by complementary innovations, from new packaging to comics to an array of licensed merchandise.
None of these innovations were risky or expensive, and the company owned and profited from all the pieces. It was literally the toy that saved LEGO. Over the next four years, LEGO repeated the successful innovation approach. And the results have been dramatic.
In many industries, having a better product may get you a couple of months of competitive advantage. But, “If you have a portfolio of innovations that support the customer and what they need, then you are looking at five to ten years of competitive advantage,” says Robertson. For the companies profiled in of The Power of Little Ideas, this Third Way of innovating has paid off in a big way.
The story of Guinness and Irish pubs
Aimed at leaders seeking strategies for sustained innovation, Robertson’s book illustrates how many other well-known companies, such as CarMax, GoPro, Gatorade, Disney, and Novo Nordisk, have used this approach to overcome competition and achieve great success. These companies had the flexibility to innovate in lots of different ways as well as the discipline to remain focused around the central product or service and the business promise they were trying to fulfill. None the least of the case studies featured is the story of Guinness and its Irish Pubs Concept.
In the early 1990s, managers at Guinness noticed a spike in demand for Guinness beers in diverse markets and communities across Europe, in places that no one had anticipated. When they examined the phenomenon, they discovered that much of the growth was coming from areas where successful Irish pubs were located. These pubs were introducing patrons to Guinness, and the customers were getting hooked, ordering the beer at other local bars and restaurants. Managers wisely saw this as opportunity to further expand their market.
The company assembled a team of designers, restauranteurs, marketers, and real estate people to study the pubs and report their findings. Most of these pubs were extremely authentic, faithfully replicating the great mid- and late-Victorian pubs of Dublin and Belfast. They were warm, convivial, and universally appealing, each one quirky in its own way. The company decided that the key to expanding their market was to grow the number of authentic Irish pubs, doing everything necessary to sustain and replicate their warmth and magic.
They established an initiative that continues today dubbed the Irish Pub Concept. The program guides prospective business owner-operators through the entire process of site selection, building, opening, and operating a successful pub; a crack team of professionals, from real estate experts to hospitality consultants, make it happen and ensure success.
The initiative also connects a future pub owner with one of several design-build firms in Ireland that works with them to design the new pub to their preferred style and specifications. They design unique touches that are built around the story of that pub, its site, and its owner. Millwork and artwork is designed specifically for that pub—no two pubs are alike. Then, remarkably, the firm builds the pub in an Irish warehouse, disassembles it, loads it into a shipping container, and reassembles it on site.
Even more interesting—the whole thing is an informal arrangement. There are no contracts linking Guinness to any of it. Each member of the pool belongs because it benefits them to do so, pure and simple. Guinness benefits by linking its beer with the appeal of the pub, and the payoff is clear. Over a period of six years, some 2500 Irish pubs opened in Europe, increasing annual sales of Guinness draft beer throughout Europe by half a million barrels. As Robertson writes, “It’s hard to think of a better way of describing how the Third Way works.” The Power of Little Ideas provides a blueprint for companies seeking to embrace this approach to innovation.
David Robertson is visiting Lecturer at MIT and a Professor of Practice at the Wharton School at the University of Pennsylvania. From 2002 through 2009, Robertson was the LEGO Professor of Innovation and Technology Management at Switzerland’s Institute for Management Development (IMD). While at IMD, he was given inside access to The LEGO Group, and wrote his award-winning book Brick by Brick: How LEGO Rewrote the Rules of Innovation and Conquered the Global Toy Industry. Prior to IMD, Robertson was a consultant at McKinsey & Company for five years and an executive at four enterprise software companies. Robertson received his PhD from the MIT Sloan School in 1990.
Robertson's new MIT Sloan Executive Education program is Innovating in Existing Markets: Reviving Mature Products and Services.