Beware of mental models that crowd out innovation
By Elba Pareja-Gallagher | UPS
As a member of a corporate strategy team, innovation is in my job description. The cross-functional team that I’m part of is responsible for developing commercially viable concepts for how to compete in e-commerce deliveries. Since the pressure keeps growing, I’m often searching for creative approaches. Recently, I found interesting ideas in a Harvard Business Review article by W. Chan Kim and Renée Mauborgne describing the mental models that trap us in “red oceans.”
Water water everywhere
A red ocean is a metaphor for a market bloody from crowded, cut-throat competition where profits and growth are challenged and products become commodities.Contrast this with a blue ocean – an untapped market, uncontested market space and new demand. The entrepreneur defines the rules of the game and there is highly profitable growth. Blue Ocean Strategy principles are based on a mindset of no boundaries. No customer boundaries, no industry boundaries, no functional boundaries.
To sustain innovation and value in today’s consumer-driven market we are in constant search of blue oceans.
Trapped in cut-throat competition
To avoid getting trapped in red oceans, we must avoid six limiting paradigms. There are three that are very relevant to our work in developing unique solutions for the e-commerce retail segment:
- Solving only for your customers’ problems. Ask the question: Who is not using your products and why? In the B2C domain, sometimes it’s hard to imagine who’s not ordering online… but they are out there. In fact, by thinking about non-customers, our new product development team envisioned the UPS Access Point Network.
- Thinking just about technology innovation, instead of “value innovation.” Technology isn’t the solution to every problem, and can sometimes create new problems. That reminds me of a similar idea I uncovered from reading a Bain & Co. report during our peak 2014 holiday season. Bain described the importance of value-driving characteristics including emotional benefits like reducing anxiety, reducing effort, saving time and enabling self-actualization.
- Obsessing over cost reduction at the expense of value creation. Bare bones doesn’t work. Value innovation requires ideation that strategically balances the costs and benefits of features. Improve and add features that customers pay for and kill features that don’t have commercial value.
I find it intriguing that Kim and Mauborgne’s approach to strategy is “both-and,” meaning companies have to develop products and services that are both low cost and provide differentiated features. Sometimes this seems impossible. It’s also contradictory to the fundamental principles of Michael Porter’s framework of three generic strategies.
Porter, a leading authority on economics and competitive strategy, described the three generic strategies in his book, Competitive Advantage: Creating and Sustaining Superior Performance. His approach to sustaining a competitive advantage suggested every company had to choose one strategy to acquire a competitive advantage: achieving the lowest cost, differentiating its products and services or dominating a niche.
The marketplace has changed dramatically since he first published his classic work. Today, we exist in a world that that feels more like the theories of economist Joseph Schumpeter.
Schumpeter coined the phrase creative destruction. He believed the economy is driven by the entrepreneur who develops new approaches to production and drives cycles of constant change. Schumpeter warned us that this radical innovation can destroy organizations that suddenly find their processes outdated.
Sustainable competitive advantage
And that brings me to Rita Gunther McGrath, who like Schumpeter, also suggests that the notion of sustainable competitive advantage no longer exists. In her book, The End of Competitive Advantage: How to Keep Your Strategy Moving as Fast as Your Business, she posits that today’s relatively boundary-less and barrier-free markets require companies to exploit temporary competitive advantages. Globalization, digitization, transparency and access to resources have changed the game. Companies must innovate constantly and shed declining businesses.
Gunther McGrath talks about the need to reconfigure assets, people, and capabilities continuously as the organization shifts from one opportunity to another. Having spent my career exposed to finance, I understand the value of liberating capital that is tied up in unprofitable products and services.
So where does all this theory lead? It reminds me that in this world of shifting advantage, creative destruction, and constant change, we need to apply new ways of thinking. To innovate without boundaries, we need to beware of the mental models that limit us. To discover those high-profit blue oceans, we must avoid mental traps – we must question, challenge and reframe the assumptions and models we’re using. W,e must also have the courage to be risk takers and fast decision-makers.
Elba Pareja-Gallagher is Director of Finance Global B2C Strategy at UPS.
Reprinted with permission of Longitudes, the UPS blog devoted to the trends shaping the global economy.