Why The Future Of Innovation Is In Ideas, Not Products

Sure, Apple tops most-innovative lists time and again. But the greatest innovations can't always be held in your hand, or slipped in a pocket.

The third-floor screening room in a hip Singaporean bar-lined neighborhood: black walls, tall ceilings, movie projector, and a roomful of globally minded entrepreneurs. This is the moment I will most remember from my last visit to Singapore. There is a shift underway in Asia, a bubbling up of self-made entrepreneurs. Asian commerce in the past five decades was dominated by larger-than-life conglomerate builders gathering assets under unofficial government protection. But this is changing. A new generation of entrepreneurs is emerging, outthinking the old guard.

Innovation has for years come from designers and marketers, from the creators of new products. The top innovation firms all come from the roots of building new products. Most innovative lists are populated by...well, Apple is always first...then comes a predictable list of companies that make cool products: Nike, Google, etc.

But this new generation of innovators knows that the greatest innovations are the ones you can’t see. I’ll explain.

As we kicked off the 18-hour flight home, I devoured a series of articles in the Singapore Times featuring the winners of the "Singapore Business Awards": a doctor, an insurance CEO, an advertising exec, and a coffee product seller. Each started careers with little and now leads huge, fast-growing, disruptive businesses.

Dissect the reasons they give for their success and you will see a series of what I call "fourth options": strategic choices that your customers love and that your competitors won’t copy.

Loo Choon Yong, for example, turned $20,000 and a freshly issued medical degree into a publically traded hospital and health provider giant. He did this by making five unorthodox choices over time:

  • When his fellow graduates joined practices, he borrowed money and bought one.
  • While competing practices assign patients to specific doctors, he and his partner "would cover for each other … we took turns."
  • Instead of sending their testing to labs, they built their own.
  • Instead of sending patients to X-ray specialists, they created their own X-ray unit.
  • Though experts thought for-profit hospitals could not put patients’ interests first, his Raffles Hospital went public because it would create "external discipline."

We can similarly dissect each of the other Singapore Business Awards winners. Indeed we could do the same with nearly any company that produces abnormally fast growth over an extended period of time. They introduce a set of "fourth options" that competitors resist copying and, as Loo Choon Yong’s example illustrates, a small minority of these "fourth options" are products or product features.

Creating a multi-million-dollar fourth option for your business is not difficult to do once you understand the process through which they emerge. Let’s take a look at another Singaporean innovator to break the process down.

Tan Suee Chieh grew NTUC Income into Singapore’s leading insurance company with $3.7 billion in revenue, growing at over 20% year. One of the key "fourth options" he introduced to disrupt the competition is "honest insurance"—a policy that honors the intent of the agreement instead of creating and finding detailed clauses to avoid making payments. This is a business principal or concept, not a new product, yet it creates enormous disruptive power.

Here is how it works: Someone buys travel insurance that specifies a payout if their flight is delayed more than six hours. That person’s flight is delayed four hours. But because this delay causes them to miss their connection, they end up arriving at their destination 10 hours later. Following the letter of the policy, as any other insurer would, means the insurer does not have to pay. The policy clearly specifies a six-hour delay and the flight was only delayed four hours. But Income will pay the claim because the intent of the policy was to cover against a six-hour inconvenience and the insured missed 10 hours of his vacation.

This innovation works and so competitors naturally want to copy it, but they are chained from doing so by at least three anchors:

  • Key performance indicators (KPIs): Competitors’ KPIs center around maximizing profitability, but to execute this innovation you need to pursue KPIs like Income’s, which measure running a prudent and sustainable business.
  • Review processes: To adopt "honest insurance," you need a review committee like Income’s, which painstakingly considers new claims and debates how they should be paid, with an eye to setting precedent to inform future decisions. Competitors don’t want to change their streamlined review process.
  • Investor base: Offering "honest insurance" reduces profit margins because you pay out in instances that you otherwise would not have to. Income has attracted investors who get this, who value the long-term and social benefits of this concept. Competitors’ investor bases, however, want to maximize short-term profitability so will pressure competitors away from copying.

Because competitors are anchored away from reacting, Income can grow and grow as the only large player to offer "honest insurance."

Income points to what it takes to introduce a "fourth option." First, you introduce a new concept or distinction (e.g., "honest insurance"). This new term is a language tool that helps people reshape how you do things. It is not a new product, but something else—a concept or narrative or category. Second, this new concept starts changing behavior (people change their KPIs, shift their processes). Third, this new set of behaviors allows you to do something different and new (e.g., pay out where others won’t). Finally, competitors want to copy you but decide that to do so requires too much behavioral change to be worth it.

In that dark screening room with the group of entrepreneurs, we brainstormed new "fourth options" for two fascinating businesses—one an ecommerce company that just raised half a million in start-up funding, the other a family-owned company that sells packaged nuts. Each walked away with concepts they thought might evolve into multi-million-dollar fourth options. In a few years hopefully we will see one of those companies accepting a Singapore Business Award.

[Image: Flickr user Ryan Kitko]

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2 Comments

  • Renita Kalhorn

    "Finally, competitors want to copy you but decide that to do so requires too much behavioral change to be worth it."
    Interesting -- so the ability to not only identify but execute on behavioral change becomes a barrier to entry. I like it!

  • Alan

    Interesting business case study examples.  However, I have 2 questions:

    1.) What are the initial three options?  I assume that you're referring to Porter's 3 generic strategies: low cost, high-end mass market, and niche.

    2.) How is your "fourth option" concept different from Porter's basic definition of strategy?  Porter suggests that the "activity" is the basic unit of strategy, and that competitive advantage comes from creating a set of interlocking activities in such a way that it produces a different outcome from those of competitors - many of these strategic choices on activities would not produce any meaningful results by themselves.  His example of Southwest Airlines' initial strategy includes a lot of choices that are unpalatable to competitors (which you call fourth options), such as selecting 2nd tier airports on the outskirts of cities, operating only one model of airplane (Boeing 737), and having their staff show their natural sense of humor and being silly while still doing their jobs very professionally.