Knowledge@Wharton reports on a new book by Wharton Professor David Robertson. (The Power of Little Ideas). In the author interview, Robertson describes his focus on innovation associated with complementary products and services. In short, he's not focused on simple incremental innovations to existing products. However, he's also not focused on breakthrough innovations or products in entire new categories. Instead, Robertson looks at how companies can drive profitable growth through the development of complementary products and services. In pursuing such innovation, companies can not only drive growth, but deepen their competitive advantage. Many companies see slowing growth in their core market and look for the next big thing. Many of these firms should focus on complementary growth first, but they miss those opportunities. LEGO is a good example of a firm that looked for the next big thing, and nearly went bankrupt. They recovered by thinking about how to grow "around the brick" and "around the box" as he explains:
My previous book was about Lego, and that was a story about a company that figured out that you didnât want to innovate inside the box â that wasnât going to get them anywhere â and you didnât want to innovate outside the box because that almost put them out of business, but rather, around the box. Complementary innovations around a core product â the brick for Lego â was what really led them to their recent success.
I got my house painted a couple of summers ago, and the contractor I hired put together a proposal. He helped me choose colors and helped me decide what kind of paint, what things needed painting the most, and how Iâd manage on a limited budget. He put together a proposal, and he picked Sherwin Williams paint.
I looked at my favorite consumer ratings magazine, and Sherwin-Williams paint is good, but itâs twice as expensive as another paint thatâs equally good. So I talked to him, and I said, âCanât we use this other paint?â And he said, âWell, yes, we could, but itâs going to raise your price.â I said, âI donât understand, the other paint is half the price.â And he said, âYeah, but paint is only about 15% of the total cost of your project. I have to think about all the supplies; Iâve got to line up the labor; thereâs the overhead of running a company, etc..â
He said, âWhat Sherwin-Williams does is help me though the entire process of working with you, from helping you choose your colors â thereâs a Sherwin-Williams color consultant â to figuring out how much paint is needed for the primer, and for the paint itself, brushes, tarps, all the other supplies. Then, during the project, it is keeping me supplied â I can return extra primer if I donât need it. If I run out of something, that Sherwin-Williams rep will be over at the site, delivering what I need. Then, at the end, he helps me put together that next proposal. Because thereâs always a next proposal, as any homeowner knows.
I looked, and it turns out within a five or 10-minute drive of my house, there are more Sherwin-Williams stores than there are Starbucks, and thatâs because they realized who their customer is. Itâs not me. Iâm the end consumer, of course, and Iâm the one that has Sherwin-Williams paint on the house. But itâs that small business, the painting contractor, [that they focus on]. Sherwin-Williams, like Lego, realized itâs not so much about the product â their product is a can of paint â itâs about their innovations around the product that make that product more valuable.