Tech Innovation in Tough Times: Q&A with Scott Anthony

When the economy is bad, companies often pull in spending everywhere, including R&D. But cutting back on the innovation seems like a potentially dangerous move. So I spoke with Scott Anthony, president of consulting firm Innosight, lead author of The Innovator's Guide to Growth, and author of the upcoming title, The Silver Lining: An Innovation Playbook for Uncertain Times.

BNET: Many tech companies are pulling back in all areas. What's the danger in slowing down innovation to get over the financial hurdle? Scott Anthony: The general perspective, and this is a little pie in the sky, is that the biggest mistake the companies can make in tough times is to stop innovating. It's really hard to keep innovating because every part of your body wants to return to the corporate equivalent of comfort food: getting back to your core business, hunkering down, trying to cut costs, improve operational efficiency, focus on the bottom line, and wait for times to get better. The problem is that the world doesn't stop changing. The constant change we're experiencing now really constitutes a new normal, and that means companies have to change as well. Companies may think that they have a choice between innovation and survival, but they don't. The technologies keep changing and customers keep seeking the things that help them solve the things in their lives better than anything else. If someone else comes alone with something that does it better, faster, and cheaper, they'll go to someone else.

BNET: But why can't companies find ways to stay innovative, only doing it more efficiently? SA:When most people do more with less, what they do is les with less. They say let's slash the biggest item in our budget or trim all costs by 10 percent. They deliver something to the customer that is worse than before. You can only do more with less if you know what more means to the customer. The most reliable guide to this is not you. It's the customer. More means not that you're having more profits, but that you're providing better customer value. The starting point is to take a hard look at the customer and what things really matter to them and what don't. Then see if there are ways to selectively strip out things that effectively make it better for the customer by making it simpler or cheaper.

At Salesforce.com, they're providing less compared to what you'd get from a full service vendor. It is clearly less performance than the best products out there. But it's simple, it's cheap, it's flexible, you don't have to make massive up front investments. To the customers that fit it, it's fantastic. Not everyone wants that. But to the customer that seeks simplicity, they would rather have something that is simple and cheap rather than having something with every single feature packed into it. You don't have to look further than some of the struggles that Microsoft has had as they try to convince people that they want an operating system [Vista] that they don't.

BNET: Why are simplification and reaching smaller companies so important? SA: The chance of meting your objectives by serving large customers that have even bigger problems is very low. It points you naturally to customers that you're probably not serving today. You have to love the smaller customers if you got the simplification route, and you have to go that route to meet your growth objectives.

BNET: Companies like SAP and Oracle have tried that, but without overwhelming success. Why is that? SA: I'm not suggesting that it's easy. It's not. It's punishingly hard. It's hard to really accept the fact that that which made you great is coming to an end or leveling off and won't make you great in the future. To reach those new customers requires a fundamentally different business model. It can be a different channel, a different sale force, a different pricing or support model. A lot of times companies try to start with what they have and adjust it to meet the needs for different customer segments. That can be more difficult than starting with a blank piece of paper and with what would be best for a given group of customers. They have to approach leveraging what they've done in the past far differently. They have to think not only of the good things about borrowing things from the past, but the negative as well. It may be too expensive, too complicated, or lean on a brand that has certain connotations that signals to a customer that is complicated and expensive.

BNET: Companies moving into new markets have often used new brands, right? SA: All of Toyota's moves on markets have been new brands like Lexus. There are some examples of companies that have gently moved brands up, like P&G did with Oil of Olay, but that sometimes take 20 years. It is easier to create a new brand or acquire a new brand to move into a new tier. People say that isn't true, because they've built existing brands. But you see start-up companies do it. If you've got the right product, the brand builds itself.

So much of that comes not from advertising but from what the relationship is. If you look at some of the brands that have become real powerhouses on the tech side, most of the brand didn't come through advertising. Most of it came through having awesome solutions. People forget that even in the early days of the iPod, it was mostly word of mouth. It wasn't in your face advertising campaigns. The campaigns help with the advertising curve, but the brand takes off from word of mouth excitement.

BNET: Where else can tech companies go wrong? SA: They [can] have a misguided view of quality. What happens over time is they begin to confuse what the engineers view as quality and what the market views as quality. What you can end up with if this goes too far is the 53rd button on the remote control, which the engineers love and the customers doesn't.

BNET: That reminds me of what W. Edwards Deming, one of the originators of statistical quality control, said: Quality is meeting the expectations of customers. SA: That's right, and you have to know what customer expectations are. But it can be a difficult thing to do. In new products, customers may not know what they're looking for. They can deeply describe the problems they face, so investing to understand the customers is in my mind always a good investment. You don't go to them and say, What can I give you?" They may not understand. But you can say "What can I help you with?" Customers aren't product designers. You have product designers. Customers can react to things. But asking a customer what they want -- there's that old line attributed to Henry Ford: "If I asked customers what they wanted, they'd say a faster horse."

The final thing companies get wrong is that they think they have to do it themselves. There are ways to partner, to form joint ventures, to buy things that can greatly accelerate a company's ability to get into a market. When you insist on doing everything yourself, it makes things slow and not particularly good.

BNET: How can tech companies approach this type of innovation differently? SA: One way is to get some kind of demonstration project. Pick a market, pick a problem, pick a brand, and use it as a test bed to develop a new way of approaching problems. Where I see people struggle is that they have top-down education efforts. They keep telling people think differently. Those things aren't bad, but if you want to change culture, you have to change the tasks that people are doing. The best way to do that is to have something happen that demonstrates the new way. Another thing to at least consider whether there's a way to inject a different way of thinking into an organization. There was an article about Google and P&G working together. Have people brush up against what's different from what they usually encounter. There will be other companies in your market to tap into where people can learn from the exchange. Every company exists in some geographic area with some diversity in companies in that area. It can lead to surprising outcomes. I've seen companies invite in a group of customers just to talk. What's going on in your life, what are you running into, what does help look like to you?

BNET: Any other tips on how to keep the innovation you need? SA: Stop supporting what you shouldn't be doing and you'll have the resources [to innovate]. Companies should constantly be watching for things they're doing that they shouldn't be doing. It means taking a hard look at things you're working on, businesses you have, brands you're selling, and asking if this is really something that will deliver long-term value. I'd say 100 percent of companies will find there are things they're working on that they shouldn't be.