Note: Every month we post an article inspired by a book on the RT reading list, with takeaways plus tips for applying the ideas in our daily lives transforming complex systems. You can find all of the reading lists, books, and links to the related articles here.
When business metrics stagnate, many companies focus on improving an existing product. Or they might decide to be “disruptive” and completely change their core products or business model.
In their book “The Power of Little Ideas,” David Robertson and Kent Lineback offer a third option, which they call “the Third Way.”
The power lies in creating a portfolio of innovations around a core product. That all serve a customer’s broader need and your brand’s promise.
This looks like:
- Sherwin-Williams offering a range of tools and services to help painters run and expand their painting business.
- Guinness supporting the creation of authentic Irish Pubs across the globe to pair their product with an authentic and welcoming Irish experience.
- Gatorade creating a collection of products that serve the needs of athletes, embedding one sports drink into a comprehensive performance plan.
Pursuing the Third Way involves looking at not just products, but also services, business models, partnerships, financing, marketing, and supporting technology. Sometimes making a product more appealing doesn’t actually require improving that product. If you improve the systems around it.
What’s the business value?
The Third Way can lead to more sales than incremental improvement, with lower risk than a disruptive change.
A business can end up selling more of its core product because the ecosystem around the product reinforces the value. It provides an integrated solution for customers.
Think about the Mac vs. Windows divide. All of the products, services, partnerships, and branding around those products create a pull that’s stronger than any computer model alone.
But you don’t need to build a technical ecosystem to take advantage of the Third Way. You can influence the overall experience by aligning your marketing, customer service, and product portfolio with the customer’s broader goals (ex. running a successful painting business) instead of narrow goals related to your core product (ex. buying paint).
By moving beyond the typical transaction-based relationship, customers start seeing the company as a partner in their pursuit of life or business goals. So customers turn to a Third Way company over others because they get more value out of the experience overall. Even if there are higher quality or cheaper alternatives to the core product itself.
Consider GoPro and the Sherwin-Williams example above. Cameras and paint are also sold by other companies. But the integrated experience designed for the needs of their customers makes those brands stand out.
A Third Way strategy can also be lower risk than a disruptive approach. Because you’re not hurting your existing customer base by dropping what you’re known for and moving into a completely new space. If one add-on is less successful, you still have a foundation to support cash flow while you explore other ways to add value to the experience.
What does the Third Way look like inside companies practicing it?
Robertson and Lineback identify three features of the Third Way:
“Multiple, diverse innovations around a central product or service that makes the product more appealing and competitive.”
“Complementary innovations operate together as a system or family to satisfy a compelling promise to the customer.”
“The family of complementary innovations must be closely and centrally managed.”
– Robertson & Lineback
They also outline and discuss four decisions that companies have to make to implement the Third Way:
- What is your key product? Pick a product or service that will help your company achieve its goals. And that will stay relatively stable for a few years. ex. CarMax selling used cars.
- What is your business promise? The higher-level problem that your complete solution (beyond the key product) solves for your customer. ex. A stress-free used-car-buying experience.
- How will you innovate? The specific parts of the experience you’ll improve and how. Such as the business models, products, and initiatives in your portfolio. ex. IT systems that standardize and constrain the buying process so there’s no more haggling with salespeople.
- How will you deliver your innovation? Who will be involved and how you’ll get these changes out the door. ex. a cross-functional team that impacts acquisitions, business operations, and IT.
The role of a portfolio team
The authors call the main role championing and coordinating work related to the Third Way a “solution integrator.” However, the scope of this role maps well to what we call portfolio teams here at Recharted Territory.
Effectively executing this approach will require a cross-functional team that explores the current experience, defines potential future states, and helps the rest of the enterprise execute changes and bring the future state to life while managing the existing business.
Shifting to this model can be difficult
The authors outline a few reasons why shifting to the Third Way isn’t easy.
Picking a key product to focus your efforts around can be tough. Especially if your company has gone through scope creep over the years. Existing products and divisions may need to be cut, restructured, or deemphasized to refocus the enterprise.
Identifying a compelling brand promise means really understanding your customers. How they buy and use your key product, the alternatives they have, how your product fits into their life, and their broader needs and desires. The context around your product. Which may be a new type of research for your company.
Creating a vision with a diverse set of solutions requires collaboration across the enterprise, not just in product teams. It means innovating in all aspects of the business. Paying attention to how the components integrate. Or don’t integrate well, in the case of acquisitions that don’t mesh with the overall brand promise. The Third Way requires a combination of distributed innovation and discipline that many organizations aren’t structured to handle well.
Building the solutions means both coming up with integrated plans and executing them. It requires working through details like who does what by when, how it will be paid for and how you’ll handle the profits. This may be a big shift from how projects are currently run.
The Third Way is an intriguing option for companies and a great fit for a portfolio team to tackle. I encourage you to check out the book if you haven’t already for more examples and tips.
If you’d like someone to brainstorm with, Recharted Territory helps clients blend the what and the how of enterprise transformation. To both refine their company vision and create the internal change management systems to get them there. Check out our services to learn more and book a free session to discuss the specifics of your project.
How will you apply insights from this book into your own work?