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The Third Way: Decision 2-Complementary Products

Posted by Chip Block on October 16, 2018 10:20 AM EDT
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The second critical decision when following the methodology of The Third Way to develop effective innovations is.... focus innovation efforts on complementary products and services that add value and make the core product more vital, profitable, valuable and competitively-advantaged in a sustainable way.

I know that last statement is more than a mouthful.  But the big idea in Decision 2 for applying The Third Way methodology lies in the fact that the innovation is focused on the development of new products and services whose strategic purpose isn't in their strategic advantage but rather it lies in their adding value to the core product by helping create a better value proposition for existing and new customers than the core product would have done for itself. 

This line of thinking is new for many folks when it comes to them thinking about how to apply innovation to existing incumbent companies and their products and services offerings.  However, it is an attractive idea to many managers who are trained and compensated for keeping core products alive and well...and finding new ways to grow the core products.  Many of these managers think they are good at applying disruptive innovation but in fact are more comfortable with sustaining innovations to the core product or service itself.  The idea of applying innovation to create new products and services whose primary advantage is to complement and make the existing core product more relevant as a part of a bigger product offering is new to them.  But most will not see it as being as risky as abandoning the core product or service and focusing on a "good enough", cheap and unproven disruptive product or service idea. 

The "pragmaticism gene" that all good managers have developed makes them much more amenable to innovation to the core or innovation to complementary products and services that augment the core and create a more complete and more valuable and profitable product and/or service bundled offering.

So, where are there examples of such things?  

Here is a short list of just a few examples where this approach and this type of focus has proved to be successful:

1.  When Intel realized that its core product-the computer chip- was being commoditized, it developed more complete complementary components which changed the product, and the company's product focus, from computer chips to microprocessors and more complete integrated solution.

2. When IBM realized that customers wanted a more complete solution than simply buying computers and having to integrate them to the other critical aspects of a completely integrated technology platform, the company transitioned to a systems integrator by providing enterprise software, computers, servers and routers, training and integration services.  This became a more valuable and more complete solution.

3. When Disney wanted to provide more entertainment options for its famous characters and grab a larger share of the family entertainment budget, it developed theme parks, television shows, merchandise offerings, and even stores to sell the merchandise.  And don't forget about the partnerships with fast food retailers and other distributors for Disney merchandise and entertainment.

4.  Lego products became a bit of a commodity when computer games began to proliferate.  The company realized that it needed to make the toy product itself more valuable and desirable among its young children target market and their parents.  So, the company began to create videos and other stories around its core product offering thus making the core product more relevant and meaningful to its market.

Many readers of this blog post will think to themselves that this idea really isn't completely new.  Rather, they will think that the idea is just another form of vertical or horizontal integration or of integrated solutions or of bundled offerings.  And to some extent, there is some truth to this line of logic.  What makes the notion a bit different, however, is that its focus is on the development of innovative complementary products that purposefully aim at establishing or re-establishing more value to the core product itself.

A final note:  would such an idea like this be a potential solution for traditional media companies who have been dramatically and adversely impacted by all the new digital platforms?  If so, then how would this idea's execution be different and better than the branded websites and other things that newspapers, television stations, radio stations and magazines have been doing for years?

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