This piece is adapted from the new book PIVOTAL: Creating Stability in an Uncertain World.
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As innovators, we’re always on the hunt for what’s next or new. However, sometimes, we need to reflect and take stock of what’s now. Instead of constantly worrying about what needs to change, it can be useful to take a step back and ask ourselves: what shouldn’t change? What do we do better than anyone else that creates the greatest value and will stand the test of time? In an age of uncertainty and chaos, we must create stability and clarity.
The Power of the Planted Foot
Imagine a basketball player performing a pivot. All eyes are focused on the foot moving in circles. It’s about the change in direction, the movement. Just like in basketball, when we think of a pivot in business, we focus on the changes we must make. What shifts do we need to undertake?
But most people don’t realize that when executing a pivot in basketball, there is a foot firmly planted on the ground—one that doesn’t move—one that provides a solid foundation for the necessary change.
Although all eyes are on the foot that is moving, the unsung hero is the planted foot. It provides a solid foundation and the stability needed for effective pivots in both basketball and business.
Most organizations pivot without having stability. Consequently, changes are built on quicksand.
In a world of uncertainty, chaos, and bright shiny objects, knowing where to plant your foot is critical to providing stability, clarity, and sanity in an ever-changing environment. Understanding where to deepen your investments will give you leverage.
The key is to innovate where you differentiate.
Targeting Your Innovation Efforts
The challenge for most organizations is to determine what’s most important. If you try to be the best at everything, you will be great at nothing. Therefore, knowing where to double down and when to cut back your investment is crucial.
To help you decide on the appropriate strategies for your activities, consider the Innovation Targeting Matrix (ITM). This framework categorizes business activities into three levels: support, core, and differentiating. What constitutes support, core, and differentiating varies from company to company.
Support Activities
Support activities may be essential for running a business, yet they do not create direct customer value. Because of this, you ideally want to find ways to eliminate, minimize, delegate, or outsource these tasks. Unless you are a payroll processing company, it would unlikely be prudent to build custom solutions for this support activity. Meetings are also often support in nature, and therefore should be eliminated, reduced, or optimized.
Core Activities
Core activities create direct customer value but are not your key source of competitive advantage. They are, to use a gambling term, only table stakes — the cost of entry. Although they are not the reason customers do business with you, getting them wrong might be why they leave you for a competitor.
If you run a hotel, providing working Wi-Fi, a clean room, and a reliable reservation system are often core activities. No one chooses a hotel for these reasons. However, if there is a problem with any of these, the odds are your guests won’t stay with you again.
Core work needs to be cost-effective with high-quality levels. Although your approach to these activities doesn’t need to be unique or distinctive, you need to excel. Therefore, your primary strategies are to simplify, automate, use proven practices, and develop strategic partnerships.
Differentiating Activities
Differentiating activities are those that set you apart from your competition. They are why someone chooses to do business with you and not someone else. These are your most important capabilities and require the most attention. It’s important to note that differentiators are rarely a product or service.
You should make the greatest investment in differentiating work because this is what your customers value most about you.
Although Radio Flyer is known for its iconic “The Original Little Red Wagon,” their differentiator is a feeling. When Robert Pasin, the company’s CEO, asks customers about the brand rather than the product, people respond with smiles and stories of wagons as race cars, rockets, spaceships, submarines, motorboats, or magic carpets. What makes Radio Flyer special isn’t their wagon but their ability to, in their words, “bring smiles and create warm memories that last a lifetime.” This is an irreplaceable differentiator built on emotion. Every employee knows the company’s differentiator, and it drives every activity they do every day.
You should make the greatest investment in differentiating work because this is what your customers value most about you. Ensure you get this right and focus on these areas. Empower workers to deliver non-cookie-cutter results that will continually set you apart from your competitors.
It’s important to note that your differentiator is not a department, function, or role. Every person in every department can and should contribute to it. Equally important is that your differentiator is not a product, service, or offering. It is a set of capabilities that helps you distinguish yourself in a crowded market and will stand the test of time.
Your main strategy is to leverage your differentiating capabilities to create unique and valuable solutions while using other strategies for support and core business.
Avoid Investing Too Much in Core
I worked with a major consumer goods company, assisting their IT department in evaluating their technology investments. Although they believed they were investing wisely in the most valuable projects, 80 percent of their funds were going into core technologies that didn’t differentiate them.
Marketing, product development, and their unique innovation procurement method were their true differentiators. Core areas like manufacturing, inventory management, and supply chain were important but not unique. As a result of this awareness, they decided to partner, automate, or optimize these processes instead of custom-building solutions.
As expected, third-party developers had already developed solutions to their most complex core issues. Buying existing solutions made more financial sense and allowed them to focus on differentiating work. Although some of the solutions didn’t fully meet their needs, the compromise was worth it to avoid costly custom development and maintenance. They realized that for core capabilities, compromising slightly in the name of expediency and quality was worth the shift. Why should they try to create a one-off solution that would take a ton of money to develop and maintain?
When evaluating your investments, ask, “Where am I investing my energies?” Most companies intuitively know that you don’t want to invest heavily in developing custom solutions for support capabilities. However, the waters get muddy when considering core versus differentiating.
Based on twenty years of using the Innovation Targeting Matrix, on average, most organizations spend 20 to 30 percent on differentiating investments and 70 to 80 percent on core
Based on twenty years of using the Innovation Targeting Matrix, on average, most organizations spend 20 to 30 percent on differentiating investments and 70 to 80 percent on core.
To double your impact in critical business areas, use different strategies for core activities and focus on differentiating investments.
Shift from 80 percent core and 20 percent differentiating to 60 percent core and 40 percent differentiating. Reallocating twenty percentage points from core to differentiating will double your investments in differentiators.
An example of leveraging someone else’s differentiator to improve your core can be seen in CCC, which develops and manages insurance claim processing technology for many major automotive insurance companies. Although these systems need to work flawlessly, it wouldn’t be economical for insurance companies to develop their own custom systems in-house. In most cases, claims processing is not the reason customers do business with insurance companies; it’s only a core activity.
However, this automotive claim processing technology is differentiating for CCC. Their premium software is used in over 25,000 of the 40,000 collision repair shops in the United States. To focus on their own differentiators, the large insurance companies realized that they needed to partner with CCC for this core work. Handling these tasks internally could distract them from their unique value propositions. By concentrating on what sets them apart, they gain both leverage and stability.
Artificial Intelligence and the Innovation Targeting Matrix
Over the past couple of years, the allure and potential of artificial intelligence (AI) have stirred considerable excitement and apprehension in the innovation community. Organizations are grappling with AI’s dual nature: It represents a remarkable opportunity to redefine operational paradigms, yet it also poses the risk of obsolescence for those slow to adapt, potentially leading to job displacement or competitive disadvantage.
Given AI’s power, its influence on your organization cannot be overstated. However, a critical question to consider is where it fits within the ITM. Should AI become a centerpiece of your organization? Is it a differentiator? For most organizations, it is not. Unless your business specializes in AI as a distinguishing feature, AI is most likely core.
In today’s digital economy, integrating AI within your business operations is no longer optional; it’s a fundamental requirement. This is the definition of core. It’s table stakes. It’s the cost of entry. And the stakes will keep increasing over time. It is not about a one-time adoption of AI; it requires continuous enhancement of these capabilities.
AI technologies can be instrumental in improving all three levels of activities: support, core, and differentiation. Nevertheless, aspiring to be the leader in AI innovation can be misguided for non-AI-centric companies. This pursuit could distract you from focusing on areas where your organization can truly differentiate and deliver unique value.
What should you do?
If you use the Innovation Targeting Matrix properly and leverage third parties for core and support solutions, you gain an extra bonus. Instead of needing to integrate AI into your core and support solutions yourself, you partner with someone who has already done the difficult integration work. Use this as an evaluation criterion when selecting potential partners.
For your differentiating activities, the best strategy is often to partner with a company that specializes in AI. That is, AI is their differentiator. Utilize their expertise to integrate AI into your solutions. This isn’t abdicating responsibility but rather harnessing the skills of others.
While it’s important to address AI, ensure it doesn’t become a distracting bright, shiny object that diverts your focus from what truly matters.
Creating Stability in an Uncertain World
In a world overflowing with opportunities and distractions, distinguishing between the two is essential. Focusing on where you should concentrate, rather than chasing the next fleeting opportunity, is critical. This strategy enables you to build a solid foundation for innovation, keeping your planted foot firmly on the ground.
As an innovation leader, now is the time to take decisive action. Evaluate your current strategies and determine where to apply the Innovation Targeting Matrix (ITM) to make the most impactful changes. Start by identifying your support, core, and differentiating activities. Redirect resources from support and core activities to center on what truly sets your business apart.
Don’t wait for the next disruption to force a reactive pivot. Proactively innovate where you differentiate and secure your place as a market leader. Your planted foot will provide the stability needed for all future pivots, ensuring your business thrives in an era of uncertainty and change.
Adapted from PIVOTAL: Creating Stability in an Uncertain World by Stephen M. Shapiro, published by Amplify Publishing Group. Copyright © 2024 by Stephen M. Shapiro.
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