Conventional business models will never help CEOs to recognize world-changing ideas. Instead, they need to understand how Experience Deltas work. Senior Research Fellow Kumar Mehta explains in a new column.
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By Kumar Mehta
Business leaders want to bring transformative and world changing innovation to their customers. They want to bring new and novel value to the world, and in doing so reap the vast rewards that come with being trailblazing innovators. They often have multiple ideas and plans in front of them that show promise or sound good on paper, but they don’t know which ones to support and which ones to pass on. CEOs need a consistent and systematic approach to determine which ideas to pursue.
They need a tool to make effective innovation bets.
Typically, business leaders invest in the plans that look best for their financial models. They build out long-range models for every initiative they are considering. These models, often referred to as discounted cash flow (DCF) models, show managers, in a stepwise manner, how each investment will play out.
While these models may be useful for a lot of things, they are futile for predicting the outcomes of groundbreaking innovation. Instead, they are likely to lead you down the wrong path and prompt you to make a bad decision.
Why is this?
There is simply no concrete knowledge on who will buy an innovation, how it will be used, or how it will make money. Too many unknowns and assumptions can lead you astray.
Imagine being presented with the idea of a printing press: a machine designed to ease the process of printing books at a time when the vast majority of the population was unable to read. Most business leaders would laugh this idea out of the conference room.
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Innovation creates societal value either by creating new experiences or by delivering a remarkable change in old experiences. And in just about every case, when innovators release their experience-altering innovations in to the world, the world figures out a way to reward the innovators handsomely.
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At the time Gutenberg invented his press, the total addressable market of book readers was virtually zero, and it would remain nonexistent for a long time (during the years it would take each user to become literate).
No financial model would have predicted the success of Gutenberg’s press. The same is true with just about every great innovation in history.
Few people know that shortly after its creation, the founders of Google were ready to sell their company to Excite (a leading search engine at the time) for under a million dollars. Luckily for Larry Page and Sergei Brin, Excite declined. There was simply no way any analysis could have shown either Excite or the Google founders how the company would grow to change the world.
What is innovation?
The only thing common across all great innovations is that they remarkably alter experiences. The printing press did it. Google did it. Every innovation throughout history has done it.
Innovation creates societal value either by creating new experiences or by delivering a remarkable change in old experiences. And in just about every case, when innovators release their experience-altering innovations in to the world, the world figures out a way to reward the innovators handsomely.
Measuring innovation
There is a consistent and valuable way to determine which ideas to invest in and which to pass on: measure the Experience Delta.
The Experience Delta describes the change in experience between a) how something is done today, and b) how it could be done through a new idea or innovation
Instead of focusing on product features and benefits, the Experience Delta zeroes in on user experience.
The bigger the change in experience, the larger the Experience Delta, the more impact an innovation is likely to have, regardless of what the financial models might show today. If CEOs are clear about how every idea in front of them alters experiences, they can invest in the ones providing the largest Experience Delta. This is a simple, repeatable, and efficient way to judge the value of an innovation.
For the CEOs who are able to alter experiences, even at a small scale, the impact they can have and the rewards they can achieve are extraordinary.
Innovation changes experiences. Understanding and articulating these changes is the key to innovating consistently. Focusing on the Experience Delta helps separate the winning ideas from the rest.
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Kumar Mehta, a Senior Research Fellow at the Center, is the author of The Innovation Biome. Mehta is the founder of Bridges Insight, an innovation think tank.
See all columns from the Center.
January 17, 2019