Thursday, June 15, 2006

Innovate or Die - Core (Reprise)

Geoffrey Moore did an interview with CIO Insight that recently got reprinted in an eWeek special insert entitled "Innovations 2006". I thought that some of his comments dealt particularly with the "focus on the core" argument I made earlier in this blog. Geoffrey Moore first talks about what he considers the three forms of innovation:

In my view there are only three kinds of innovation: You can differentiate through innovation, creating a new value proposition that the customer prefers and your competitors don't have. That will win you new revenues at attractive margins. That's a good economic return on innovation. Second, you can innovate to neutralize a competitor's innovation. Not quite as attractive. You don't necessarily gain an advantage, but you can begin to overcome a deficit, to catch up. As a result, you gain more sales, ableit not with a really competitive margin. But at least you're in the deal. And you can also innovate in ways that don't change your outward competitiveness, though they can change your return on innovation internally. That means doing things more efficiently, getting the same amount of bang for less bucks.

Sybase has been innovating through the third approach (cost cutting) since John Chen took over the reins. I believe that the recent release of PowerBuilder 10.5 represents the second approach to innovation (overcoming deficits, particular in GUI features). What I'm arguing is that Sybase needs to focus on the first kind of innovation. They need to find some new approach to software development or some aspect of it that is underaddressed now and capitalize on it by making it the differentiating feature for the product. It might be leap frogging Microsoft in terms of object relational mapping (now that ObjectSpaces has been stripped down to LINQ) or smart client development and deployment (which is an emerging field). But it won't be by just being an alternative method of developing .Net applications. Or not unless the PB method is radically easier to do than is currently is with Visual Studio. It can't be just another .Net IDE. Borland's Delphi is already in that space, and it doesn't appear to be doing them much good.

In order to do that, Sybase is going to have to really focus on dramatic breakthrough in the product. The question is whether they can, or whether they will allow themselves to be distracted by competing demands and only introduce incremental improvements. As Geoffrey Moore went on to discuss, the second path is the one all too easily followed:

The big problem is that too many companies dabble in innovation. They say, "Well, we've got a little of this, and we've got a little of that." But that only guarantees -- since they don't take any one project very far -- that they never escape the gravitational field of their own sector. They'll go down a path for a while, and then they'll think, "I like this other idea, too." And so they'll try a little bit of that and a little bit of the other. And their innovations don't resonate. I call it smorgasbording. Meanwhile, 95 percent of their revenue is coming from a commodity product or service they're producing that they know damn well is never going to get differentiated. Here's the critical distinction: core versus context. I define core as that which creates a return on innovation. Innovation for differentiation is core. And everything else is context. It may be mission-critical context, but it's still context. The problem is that you can't improve your economic outlook on the context side. You can get more productive, but you can't change your competitive position, your future, without changing your competative-advantage equation. If you don't have any new competitive advantage coming along, every year the environment gets a little bit better at competing against you, and every year you get a little bit more marginalized. So you've got to cut a little more cost. And you get a little more marginalized. You cut a little bit more cost. And we watch these very powerful institutions quietly sunset themselves with about a one-degree decline every year, for decades.
(Emphasis added).

You could probably fill in the blanks for "commodity product" and recongize the pattern of cost-cutting and marginalization. You probably also recoginze some of the "smorgasbording". I'm thinking particularly of some new products that were developed over the last few year that never established a significant foothold in the market. Some of these product appear to have initiated without sufficient coordination with the target customer base. As a result, they didn't seem to solve a problem that the customer base was aware they had, or solved it in a manner that the customer bases was not wholly comfortable with. Others may have faltered because they didn't introduce enough differentiating features to justify wide customer acceptance. The development of "me-too" products falls more along the lines of the second form of innovation, in which Sybase as a company attempts to "catch-up" with regards to offering a comprehensive product suite.

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