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Talk about innovation often centres on companies such as Google, Tesla, Uber and Amazon – awe-inspiring firms in turbulent, hi-tech industries that have invented and built something new.
However, there are ample stable and homogeneous industries that are not hi-tech, fast-changing and turbulent without new business models that appear and dissolve rapidly.
Take the consulting industry. Decades ago, top firms such as McKinsey, the Boston Consulting Group and Bain dominated the industry, and they still do. Moreover, these firms still do pretty much the same thing as they did 30 years ago (although they now place their bullet points on PowerPoint instead of overhead slides). Similarly, the hotel industry is remarkably stable and homogeneous – deciphering whether you’re staying in a hotel chain (such as a Westin) or a similarly priced other (such as a Hyatt) is really hard from inside a hotel room. And the hospitality industry too wasn’t much different 30 years ago.
Even the difference between the main competitors in industries that have seen change over the decades – retail banking, for example – are minimal. Those industries are often wonderful places for you to innovate – or otherwise witness someone else eventually disrupt you.
Customers are often more heterogeneous than the companies that serve them. Trying to be a one-stop shop and attempting to appeal to a wide spectrum of customers, isn’t necessarily a smart strategy.
Consider the innovative hotel chain, citizenM, which was founded in the Netherlands in 2008. It offers affordable luxury in some of the most exciting cities in the world and focuses on just one particular group of customers: mobile citizens. The segment is made up of travel-savvy individuals seeking luxury they can afford. As such, citizenM does not offer corporate contracts or rent out rooms for conferences. Instead, it focuses solely on people travelling to London, Paris, Amsterdam or New York multiple times a year, for shopping, business, leisure and just for the fun of it.
The chain realised that mobile citizens would be willing to make trade-offs: no separate hotel bar, restaurant, spa facilities or concierge service, not even a front desk. So citizenM offers one very funky comfortable open space downstairs, where you can hang out, eat sushi or sip on a cappuccino, and a rather small but comfortable hi-tech bedroom upstairs. And all that comes at a reasonable price in the world’s most dynamic cities.
citizenM is aware that its small rooms and lack of traditional facilities are not for everyone, but, in the words of the co-founder Michael Levie, “We are perfectly fine with that”. By deliberately appealing to one particular group, the chain is perfectly geared towards its customers.
As I describe in my new book – “Breaking Bad Habits” (Harvard Business Review Press, 2017) –
this is an example of a business opportunity from breaking the mould of similarity.
If you are in an industry where most firms are alike, and the norm is to offer value to a wide spectrum of customers, I predict that at some point – maybe not too far into your future – someone will disrupt your industry by developing a superior value proposition for a very particular customer segment. It’s in those industries where innovation is most feasible and plausible.
South African consumer bank Capitec (ranked ‘Best Bank in the World’ for two years running by the Lafferty Group) offers another example. It initially targeted the “financially illiterate” – people neglected by traditional banks – by offering one simple account, for saving, transactions and lending – and nothing else. Yet, after it had firmly established itself with a strong brand and network, it gradually but decidedly worked its way up higher customer segments.
Another case comes from the London-based consulting firm Eden McCallum, which developed an innovative business model aimed at recruiting experienced consultants who wanted more control over their time. By signing them up as freelancers, Eden McCallum allows them to specify the frequency, location and variety of their work. Again, this does not appeal to all consultants in the industry – some prefer the arrangements of traditional firms – but a sufficiently large group of seasoned advisors value it.
Focusing your value proposition – whether it is the one for customers or the one for employees – on a specific group of people can empower you to make innovative trade-offs. It can enable you to eliminate traditional trappings that are no longer to everyone’s liking and do a better job across different dimensions.
In this way, homogeneity in your industry allows you to stop doing certain things that have become outdated. It frees you up to stop offering services and products that target everyone. This opportunity for innovation is not about emulating the awe-inspiring, hi-tech Silicon Valley firms, instead, it’s about making smarter use of the heterogeneity in your business.
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