The document discusses balancing a company's focus on current customers and products with new areas of growth. It argues that incremental innovation, which improves existing offerings, requires a different structure and culture than radical innovation, which creates new categories. Incremental innovation is easier to manage within traditional operations, while radical innovation that creates new markets benefits from different leadership, collaborators, and cultural approaches. The document suggests separating these two growth areas within a company to reconcile short-term needs with long-term transformation.

1. Thoughts on balancing current customers and the company
product or service portfolio with new areas of growth: can
these be reconciled - and what does it require to balance
them in terms of structure and culture?
27 October 2011

2. Everything we do in marketing is to:
• Attract more customers.
• Retain existing customers with the right profile.
• Grow the revenue of existing customers.
• Grow the profit margin/ customer.
• Grow the asset value of the business. This is a function of the number, value and
profit margin of customers and the strength of the brand/ cost structure of the
business.
All the marketing metrics we put in place are diagnostic tools we use to
understand why we are growing - or not growing - relative to the above
objectives - and thereby align our operations with our strategy.

3. It is true that:
• Outside of size, the only ways to achieve superior performance are:
– By having a niche focus;
– By creating exceptional products and services;
– By being different enough so that consumers will pay for it;
– By changing the competitive paradigm.
• Whilst the first three makes a company competitive, the last one makes a
company leapfrog competitors:
• The top 20 companies in the Fortune 2010 list of fastest growing companies
received $3,40 in incremental market capitalisation for every $1 of revenue
growth.
• For the companies that created new categories, this was $5,60!

4. Let us look at the traditional Ansoff matrix to balance growth: companies
balance attracting new customers with launching new products and services.
Increasing technological
new-ness
Markets
Sell new products to
Aim to saturate
existing markets
the market Market Product
(or all segments) (or segments)
penetration development
Products
Extend Market Sell new products to
Diversification
existing products new markets
extension
to new markets
and/ or segments (or segments)
Increasing market new-ness

5. Let us introduce category creation as a major new area of growth. This requires
radical thinking, not easy to reconcile with traditional thinking and operations.
Increasing technological
new-ness
Markets
Market Product
penetration development
Sell new
products to
Most companies try and manage Market new markets
Products
existing customer and product/ Diversification
and create
service revenue with new extension
revenue from new customers new markets
and products: the operational altogether
requirements for these are very
Incremental innovation
different. It is unlikely they will
both co-exist with ease. Category
creation
Increasing market new-ness

6. Levels of profitability by type of innovation: if you compare where the exponential
benefit to profitability is largest, it is within niche markets, products with regular
incremental innovation and revolutionary new products or services.
Profitability
New categories
High
Low margin Revolutionary new products margin
spaces, only spaces
competitive
Niche markets
advantage
volume Differentiated offers,
i.e. better service
Commoditised –
most airlines
Moderate to fair
Low – commoditised margin spaces Highly
differentiated
Degree of competitiveness

7. Profitability growth should be exponential. If we compare Ansoff with what
we learn about incremental profitability, we can hypothesize:
Increasing technological
new-ness
Markets
Market Product
penetration development
Market
Products
Exponential increases in profit margin: Diversification
more customers at the sameextension
rate of
profitability and resource utilization will
increase revenue and the magnitude of
profit, whilst incremental and radical
innovation will lead to an exponential
growth in profit margin.Incremental innovation
Category
creation
Increasing market new-ness

8. One growth area focus on resource optimisation(processes & control), the
other on brand value proposition optimisation(vision, innovation &
collaboration).
Increasing technological
The same or more customers with new-ness
incremental or radically different Markets
new products and services, at higher
margins and most likely with
increases in the cost structure of the
company. In the instances of radical Market Product
products, these will be new business Brand value proposition
units. penetration development renewal
Better capacity
utilisation: more
Market
Products
customers at the same Diversification
or a slightly higher
cost-base.
extension
Incremental innovation
Resource optimisation Category
creation
Increasing market new-ness

9. The different areas have different organisational requirements. It is important
to acknowledge that and structure accordingly. This will also have cultural
implications.
Increasing technological
new-ness
Markets
A lean operational Incremental
innovation
“machine” produces Market Product collaboration &
Greater requires
standardised technocratic focus, less adherence to the
products and services penetration development
autocracy, a commitment to core customer
using standardised ongoing improvement and business
structures, processes
and trained staff. Clear management
Deviation leads to
Visionary leadership, networks
Market
structures, processes &
Products
inefficiencies and a Diversification of influencers and
controls; internal
breakdown in quality. extension degree of collaborators, collaborative
focus, even
Cost control management
imperative. autocracy
approach, working with small
independents
Incremental innovation
Category
Radical innovation requires new
people & approaches. Traditional
creation
structures can kill such innovation.
Often these needs to be in different
Increasing market new-ness companies.

10. How do we balance current growth with potential growth?
• Separate incremental innovation: making existing products better, with radical
innovation: creating new categories.
• The first one uses new technology to “update” features and benefits of
products and services for consumers (i.e. a new Gillette razor blade).
• The latter uses existing or new technology to design new categories.
• These two areas are hardly ever able to sit side-by-side, the latter requires
different ways of thinking and doing. That is why companies like P&G uses
small companies to do this, or Apple uses applications designers that do not
work for them. Verganti says that companies that are very successful at this
use influencers and collaborators extensively. Consumer research using
traditional approaches are not that useful here.
• Incremental innovation is easier: it is updating existing products and services
to make the delivery better for consumers. Here the secret is to be first, not
second or last. Traditional consumer research is more useful here.
• Generally, experiential and experimental research is great for radical
innovation.