4) The prerequisites of profitable adjacent growth: Innovating outside the core is challenging, but essential. Innovative leaders on BCG’s list have long succeeded by developing new products in nearby markets that lead to incremental profitable growth. Adjacent growth can be challenging for mature companies to achieve, which is where start-ups and new market entrants have an advantage. World-class innovators are moving from industry- or demographic-based segmentation (ex: millennials vs. baby boomers) to demand centric growth. This identifies the drivers of decision-making by looking at the intersection of context (who the customer is, how she thinks, what she does), and emotional or functional needs. Hilton Hotels, for example, diverged from traditional hospitality grouping of clients (long stay versus short stay, or business versus pleasure travelers). Instead, they asked people to describe what they want in a hotel, and when and why they want it. Based on the results, Hilton was able to construct a demand map of what really matters to consumers. Its market was now separated into multiple categories - those who demanded a space that was “cool and hip,” or one that would facilitate “recharge and refresh,” for example. Hilton allocated each of its brands to one or more of them, to dramatic success.
Importantly, this year’s BCG survey showed that innovation seems to be increasingly valued by senior executives. Seventy-nine percent replied that innovation was either their company’s top priority or among the top three - the highest percentage since the survey began in 2005. As our state moves into some challenging economic times, I am continually encouraged by the innovative spirit of the many changemakers floating in and out of The Boardroom.
Happy innovating,
- The Boardroom