Here’s to open competition and a new paradigm for innovation

Want a great cuppa but don’t like the hassle of grinding the beans, loading the portafilter (that’s the cup with the handle where you put the coffee powder), twist loading it onto the machine, waiting for the water to heat up to the right temperature and pressure, opening the tap, and then waiting for the coffee to drip into your cup? Well, Nestle thought so too and developed the totally fuss-free Nespresso that does everything much faster with a drop of a pod and a press of a button. But they thought to themselves: “How do we ensure long-term value (LTV) for our product? After all, you buy it once, and you don’t have to buy it again!” The answer – sell them cheap but load up on the price of the capsules – the pods containing the ground coffee. With the price per pod going for about 90 Singapore cents, it makes for one of the most expensive home brews per cup; and ring the till for Nespresso. This of course attracted the pod knock-off market, and in an effort to keep them at bay, Nespresso loads warranty warnings against the use of non-Nespresso pods, and changes the design of their machines every so often to throw the third-party suppliers off their game.

All that ended last week when Paris courts ruled Nespresso’s actions of trying to lock out knock-off pods as anti-competitive. (Read article here). They ruled that it was not legal to load any warranty warnings against their use, and that Nespresso had to give 4 months’ warning, and turn over the designs, of new machines.

Patents are detrimental

For years, innovation had always had twin goals – to benefit the customer, and to benefit the company – with a larger tilt for the company. Look at the expensive drugs that pharmaceutical companies wrap patents around to lock out the competition and to lock in the patient. They have manipulated the legal system to justify spending huge amounts of money to develop new drugs that virtually enslave people to their product. And all this to the detriment of the entire system because cost of medicines increases; the cost of treatment increases; the cost of medical insurance increases. If the courts had more courage, they should go after the big pharma companies and tear down their use of the legal system to protect themselves; forcing them to discover new drugs cheaply and for the benefit of society. But that’s not going to happen, especially when big pharma companies lobby strong political allies.

So the courts go after the lesser industries like fast-moving consumer goods (FMCG). And Nespresso is a good target. But this post is not a tirade against large companies and the shady world of patent protection. Instead, it aims to paint the new paradigm for innovation: if you have a new idea, make sure it benefits the ecosystem. If you lock people out, they will start taking action.

Making Ecosystem Innovation work

Here are 4 ideas that will help move you onto this new paradigm:

1. Customer co-creation

Instead of keeping your customers in the dark and then pouncing on them with the new product a la Apple, (Steve Jobs famously said, “People don’t know what they want until you show it to them”), take the easier, and admittedly cheaper, route by including your customer in the development phase, co-creating the new future. Of course it means letting go of the “Paranoia of Property” – that my idea is mine to reap.

2. Leading your value chain

Many corporations aim to control their value chain; keeping the parts of the chain in the dark, micro-managing each partner’s contributions, and multi-sourcing materials to lower risks (but at a cost, of course!). This has been the modus operandi of many value chain managers. But the new innovation paradigm, with its focus on developing the ecosystem, requires that we step up and lead the value chain. We want to develop the partners within the chain to ensure that the new product is delivered to the customer through the leanest system possible. The idea is not to beggar thy neighbor, but grow and let grow.

3. Grow and let grow

The innovative company embraces the growth mindset. It has to, because there are just too many variables out in the market to control. By forming hypotheses and going out to the market and testing them, they are making a statement to the whole ecosystem that they have skin in the game, and they are committed to making the new idea grow. And as they grow, so too must the other ecosystem partners. If the company hopes to curtail the growth opportunities of the ecosystem to position itself at the pinnacle, they will soon isolate all the rest of the players, which attracts counter-actions. This will not be good for the ecosystem and ultimately, for the company itself; as we see with Nespresso. Time to change tactics: grow and let grow.

4. Constant systemic improvement

“Let’s see how we can make it better together.” This has to be the mantra of the ecosystem leader. If we have a design improvement, how can we impact all the members of the system positively? By constantly making the system leaner, by taking interest in all the members of the ecosystem, by leading ecosystem co-creation, we not only make it better for our customers, we also make it better for ourselves, and for our ecosystem partners. A win-win-win solution.

The least risky solution for innovation

As Nespresso has discovered, if you play an isolationist game in the ecosystem, members within it will seek out ways to dismantle that; and what was once an unassailable growth engine, sputters to a grinding halt. To be successful in innovation in the next decade, there is a need to discard the “go it alone” mentality, and embrace the ecosystem co-creation mentality. It is the least risky route for all new innovations!

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