You don’t need to reinvent the wheel, just innovate around it.
Fundamentally, product managers should be driving success for their organization. We do that by providing customers value. The source of that value may be, and perhaps should be, closer to our core capabilities than is often thought. The toy company LEGO found this to be true, only after being on the brink of bankruptcy. Other companies have also discovered this principle, which is something my guest calls innovating near the core.
My guest this week, David Robertson, explored this in a book-long case study of LEGO, called Brick by Brick: How LEGO Rewrote the Rules of Innovation and Conquered the Global Toy Industry. In his recent book, The Power of Little Ideas: A Low-Risk, High-Reward Approach to Innovation, he studies other companies who have won their market using a similar approach.
David is a Senior Lecturer at the MIT Sloan School of Management, where he teaches Innovation and Product Design. He is also the host of the weekly radio show on SiriusXM called “Innovation Navigation,” where he interviews world-renowned thought leaders about the management of innovation.
In the discussion, you’ll learn:
- Why almost all of LEGO’s product innovation efforts resulted in millions of dollars lost.
- What action turned LEGO around and produced growth.
- How companies have innovated close to their core to create market success.
Summary of some concepts discussed for product managers
- [2:55] LEGO tried many different innovation approaches over the years, but none of them stuck. Why was that? LEGO saw 14% annual growth for 15 years by making new boxes of bricks with different themes. Things started to change in the 1990s as video games came online. LEGO kept trying to put out more boxes of bricks throughout the 90s, but it only increased their costs and not their sales. At the same time, the idea of disruption was sweeping the business world and LEGO tried just about every way they could think of to disrupt themselves and failed at all of them.
In the end, there’s a huge difference between sufficient and necessary. In LEGO’s case, it wasn’t sufficient to only sell boxes of bricks, but it was necessary and their business model couldn’t succeed without them.
- [6:35] How did LEGO finally turn things around and what did they learn from it? Their success came when they started innovating games, stories, and events around the bricks. They began opening LEGO stores and indoor playgrounds where they could charge admission. They also realized that adding digital games don’t disrupt the bricks, they complement them. When kids play LEGO Star Wars or see a LEGO movie, they want to buy more boxes of bricks, not less. When they tried going purely digital, they turned customers away and created a major loss of revenue from LEGO’s main product, which is the plastic brick.
- [8:45] Was there a catalyst that helped LEGO realize that they needed to keep plastic bricks at the core of their business model? The only significant success from LEGO’s period of disruption was something called Bionicle, which was the first buildable action figure. It didn’t look like anything else LEGO had ever done. It was still a box of plastic pieces that you snapped together, but it came with a rich story of heroes and villains that changed from year to year with a new set of action figures. The combination of the story, the action figures, and the scarcity from the collectibles made it hugely popular. Not only did Bionicle save LEGO from bankruptcy, it taught them how powerful stories were to excite kids. They’ve been focused on telling stories ever since. They’ve learned that stories don’t disrupt demand, they increase it.
- [12:20] You cover other valuable case studies in your recent book. What’s the main theme of that book? The book came about when an executive asked me how they could do what LEGO did. I challenged myself to write another book that didn’t use LEGO as an example. The approach starts with the question of where you are not going to innovate. What products or services do your customers count on you to deliver? What would the world miss if you were gone? Those are the things that a company should not disrupt but instead innovate around. The current thinking about innovation is too quick to pass that by.
- [14:10] How do companies react when you talk to them about this approach that might not seem as exciting to them? Everyone wants to do that big, risky new project but those can be difficult and prone to failure. If you look at your core product and understand what else you can do for your customers to help them get more value from it, that can lead to some very interesting innovations and collaborations. You might find that you need to partner with another company to get something you can’t source yourself. That can be difficult but ultimately very profitable. You profit from the new innovation and breaking into a new market, but also from increased sales of the core product.
- [15:37] What is another example of a company that took this approach? Apple is one of them — Steve Jobs was not a disruptor. When he came back to Apple in 1997, he got rid of everything that didn’t look like a Mac. In 2001, he came out with the iPod and iTunes. He didn’t want to disrupt the music industry, he wanted to sell more Macs by making iTunes something that you could only get on a Mac. iTunes and the iPod were innovations around the Mac. They were little ideas that became big ideas, which is one of the key concepts in the book.
- [20:30] Can you share another case study from your book that would be helpful to product managers? A case study of Sherwin Williams paint came to me when I was getting my house painted. My painter told me that Sherwin Williams helped him put the estimate together for the project at my house. They also help contractors with color selection and site management, and even let them return unused materials at the end of a job. Sherwin Williams realized that their real customers are painting contractors, not homeowners like me, and those contractors need support as much if not more than they need paint. They figured out a way to innovate around paint by creating a B2B offering through their stores that serve these small painting contractors.
- [25:40] Do you see the role of a product manager changing when it comes to these types of innovations? If you’re a product manager, you’re in danger of being set up to fail. A good product is only the beginning; you need to be thinking about complementary products and services, new marketing channels, and other things you can do to help make that product more valuable to your customers. One example of this is when Sony tried to create a camera to compete with GoPro, which had seen 5 years of 90 percent growth. Sony’s camera was better and cost less than GoPro, but it didn’t have the social media integration and the other tools people need to really get value out of creating and sharing videos, so it failed.
The product manager at Sony probably worked really hard and did everything that management asked but is still blamed for what went wrong. As a product manager, you need to be aware of this and never lose sight of what the core product is and how you can innovate around it.
“Date your customer, don’t fight the competition.” -Dave Robertson
Thank you for being an Everyday Innovator and learning with me from the successes and failures of product innovators, managers, and developers. If you enjoyed the discussion, help out a fellow product manager by sharing it using the social media buttons you see below.