Written by Roger La Salle
Abstract: Much like mathematical extrapolations used to anticipate the next data point on a graph, so too can a similar technique be applied to search for business insights to assist in strategy development and decision making. This is achieved by extrapolating a trend line referred to as the “innovation trajectory” that traces the evolution of your business or industry over time.
To survive and prosper in business, especially in these days of ever decreasing new product lead times and improved market intelligence, companies need ever more tools to stay in the game.
To this end, plotting your business or industries “Innovation Trajectory”, a new concept business tool, can create great insights that otherwise may be overlooked.
The word trajectory of course implies the course you are on, much like that of a bullet or rocket. In mathematics “extrapolation” or the extension of a known graph to a likely new point is a common technique and many mathematical extrapolation models exist. Trend modeling is a well developed science and there are many algorithms applied to predictions based on history. This technique is of course used extensively in inventory management where usage patterns as well as seasonal and financial data are used to try and anticipate appropriate stock holdings and forward ordering. Being accurate in making such predictions can mean the difference between profits and losses.
So too the same sort of predictive approach can often be made in the search for innovations or business insights.
The key to this technique lies in being able to first plot the “innovation trajectory” of your offering over time to see if you can identify the key “drivers” and “enablers” of this trajectory. Once such a graph is developed and understood, and moreover the gradient of this graph determined, it may be possible to make some accurate “what’s next” predictions or make some informed business decisions.
1. The Parcel Delivery Business
Take for example the parcel delivery business
If we were to plot the trajectory of both mail and parcel deliveries over the past 1000 years one thing would stand out as obvious. The speed at which deliveries are made has dramatically increased over time. Further, people value speed and will in fact pay a premium for speed. In many cases speed above all else is the driver with technology, ever faster pick up, processing and transport as the enabler.
Indeed it was the promise of speedy mail delivery that essentially underpinned the fledgling airline business and spawned the birth of the aviation industry. Had it not been for mail contracts the development of the airline industry would have been severely handicapped.
On observing the innovation trajectory and the value of speed of delivery, some clever entrepreneurs moved to fill the gap of the relatively slow mail services and implemented the overnight courier service. Such was the birth of companies such as DHL, FedEx and UPS etc. With the advent of these couriers, the postal service of course then had to respond and thus we now have express mail deliveries competing with the couriers.
1.1 Just how important is Speed of Delivery?
The answer depends on the particular circumstance, but the following graph and examples give some insight into cases where speed above all else seems to be the major consideration, with price almost inconsequential.
The following is a plot of the quoted delivery charge versus delivery time for a 670 gram parcel to be sent by Australia Post from Australia to London. Generally most companies offer similar pricing.
The following two case studies are real life examples that illustrate the importance of speed.
Case 1
Some years ago a Melbourne - Australia, based subsidiary of a large American multinational communications company urgently needed a set of radio crystals (smaller than a matchbox and used to set and stabilise the frequency of a radio transmitter) delivered from the Eastern part of the USA to Melbourne. Price of delivery was inconsequential, speed and certainty of the essence.
To this end a person with the crystals was despatched from the East of the USA on a passenger jet bound for Hawaii, whilst at the same time a person from Melbourne was despatched on a passenger jet bound for Hawaii. These two people met in Hawaii, the crystals were handed over and the Australian immediately returned to Melbourne on the next available aircraft.
(Undoubtedly the person ex the USA travelling straight to Australia via Hawaii – the only way in those days - would have been just as fast as the Hawaii meeting, but perhaps Visa or Customs delays may have discouraged this single ex USA passenger travelling all the way – none the less, the above is what actually occurred)
The deliver time effected was some 30 hours, the cost immense, several thousands of dollars not including the wages and overtime costs for labour.
An international courier may have achieved the delivery in perhaps three days, or four at the outside, but the American company was prepared to pay the extraordinary delivery fee to achieve two things:
Plotted on the above graph the data point for this delivery would not even be visible on the page, so exorbitant was the cost.
Case 2
In another case, in the outback mining territory of Australia a multi-million dollar mining dump truck was disabled for the want of a small axle component, only then in stock in the USA. These dump trucks work non stop around the clock and can deliver revenues of up to a $100k per day, so any downtime is costly. To this end, more than $20k was spent in expediting a delivery of the axle component from the USA, all to save precious downtime, perhaps even half a day. Obviously the cost benefit of this exercise is clear and any competent manager would immediately authorise such expenditure, all in the name of speed.
Clearly speed has some considerable value in many cases.
Further, when the Concord supersonic aircraft was flying, super fast deliveries were available, of course at a premium price.
“In fact BA accepted limited freight at 25 Pounds Sterling per kilogram and the Russian TU-144 did in fact fly airmail after withdrawing from PAX services.”
The innovation trajectory graph for speed of delivery provides an interesting insight.
Speed has essentially plateaued, limited largely by the speed of present day jet aircraft, especially since the demise of Concord. Presently transport and passenger aircraft fly at close to the speed of sound, but no faster.
Thus we see that price in real terms has fallen as companies compete with little else to offer but similar speed across all providers.
Since speed of delivery has plateaued it would appear that there are presently only three options available to any courier company wishing to gain a competitive advantage:
In a typical London to Australia parcel delivery which involves some 22 hours of actual aircraft transit time, there may be close to a day of delay at each end due to ground processing time. Indeed a pick up that misses its Australia bound flight by just five minutes may effectively mean an extra 24 hours delay whilst awaiting the next flight. Clearly there is an opportunity for hungry and aggressive market entrants to expedite ground processing at each end in order to gain some market edge, though the cost benefit may be limited to too few cases to warrant such a service. Doubtless in some cases, as in the above examples, this would be valued. Unfortunately, if this initiative did work you can be sure competitors would soon follow. Indeed this is the very reason why constant innovation is necessary, to keep moving to forever stay ahead of the competition.
“… very serious plans were looked at in the 70’s and 80’s, as a use for unsold Concordes and also for a few of the ones in service that were not being fully used.
British aerospace did drawings for the mods required including a full side loading cargo door ….
…. Nothing came of this as the market for PAX flights picked up ……”
The example cited above of the crystal delivery shows an occasional need for safe hand delivery, but in such cases an “in-house” staff member many be the chosen safe hand, no doubt at a lower price than hiring a separate person for the journey. Thus this may not present itself as a useful courier business offering.
What is interesting is the market elasticity for speed, ie) the price versus speed trade off. Would some people pay for supersonic speed? Maybe a fighter jet aircraft making the delivery at enormous cost, but at three time the speed of sound. Would people pay for “safe hand” delivery at such a speed? In some cases there is no doubt they would the only issue being the frequency of use of this offering and thus the cost justification of having such a service on standby.
1.2 Price of Delivery
Competition and the plateaued speed trajectory have been the drivers of lower prices, and it would seem this trajectory will ever be on a downward slope.
Based on this trajectory and the fact that clearly clients value speed, it becomes clear the process innovation, that is improving the processing speed and cost is the surest way to have an immediate impact on the business of parcel delivery.
With this inevitably downwards trajectory, one must question the long terms benefits of being in this business unless some breakthrough innovation is undertaken. This scenario is typical of most businesses that may have initially been highly profitable, but with no protection in the form of intellectual property, trade secrets or regulation, profits always fall as competitors enter the market.
2.0 The Telecommunications Industry
A similar scenario is played out in the telecommunications business where speed was initially also a great driver, with technology the enabler.
In Roman times information was delivered by a runner or on horseback, an innovation on this was perhaps smoke signals, or the semaphore. Speed of reliable information delivery has always been of great value.
The telegraph was the first move into electronic signalling and a great innovation, but still there was always a greater need to be first to know. It was this driver that spawned Reuters as an information source of “first with the latest information”.
The trajectory of speed of delivery for information has also plateaued but what is now being valued in addition to speed, is volume of data.
Referring to a graphical representations of this we see:
Notice that speed of delivery has plateaued, and of course this speed is close to the speed of light. The speed at which a single bit of data is sent cannot be made any faster, and technology has been the enabler.
Today volume of data is the game and this seems to be increasing at an almost unstoppable rate, again with technology as the enabler. But notice, even as data volume increases, with speed plateaued, price is falling.
As with the courier business, a way needs to be identified to “innovate” the communications offering to break the mould of price competition. Armed with the knowledge that they are now locked in a “no win” price/volume game traditional telephony carriers are now moving into the content business. Assuming they have acquired protected content (copyright) such as access to film libraries and music they have a means to remain in the game and perhaps mitigate the price/volume fight.
Without doubt, intellectual property protection is possibly one of the best foils against the inevitable competitive downward price spiral.
3.0 The Fast Food Industry
In the fast food industry the trajectory is towards low price, a healthy offering, speed of service and convenient “eat on the run” products. The major fast food stores that are franchised have attempted to avoid the price competition with each other by carefully allocating regions for individual shops, but this has not stopped other fast food chains from moving in right next door.
The McDonalds chain has certainly adopted speed and convenience and experiments conducted have indicated that it is often faster to drive through a McDonalds outlet than to enter the premises and queue for food.
In this case speed and convenience are the drivers, with access as the enabler.
Most major fast food outlets have now replicated this model and also offer a drive through service, the only thing differentiating them being their menus, and often even these are very similar.
4.0 The Convenience Stores
Convenience stores also have quite a predictable trajectory.
One of their key drivers is product diversity, ease of parking and access. Price is of lesser importance. Since convenience is what these shops are about perhaps an extrapolation of the convenience curve may suggest even greater convenience, ie) faster service.
Perhaps a drive through service may be offered with greater speed and convenience as the driver, and access as the enabler.
5.0 Tangible Products
The same sort of trajectory plot can also be applied to many tangible products.
The author recently plotted the innovation trajectory for the simple art of wrapping “take out” fish and chips, an almost weekly item on the menu of many Australian families.
Plotting the development trajectory of this art shows the following evolution:
If one takes the view, as the author does, that there is always scope for improvement or innovation then developing a trajectory graph may give an insight as to - what’s next?
Clearly from the above it would seem that price is not a major disabler but presentation and crispness maybe the great driver. Indeed one way to find the driver of the next point on the innovation trajectory curve is to look for frustrations.
Most products and services exist for a single reason, because they meet a need. Needs in many cases are expressed as a frustration or a curse. Capture the curse.
In Australia one of the single biggest curses is that when the fish and chips arrive home they are in fact somewhat soggy. We love our fish and chips to be hot and crisp. Since we have seen that price is not a huge disabler, and hot and crisp a great driver, the clear date point on the trajectory graph for the next generation of fish and chip wrappers is a “guaranteed hot and crisp” fish and chip pack. To this end the author has actually patented such a pack. The potential market volume in Australia alone for this product is some 12 million units per week!
The following is the graphical representation with freshness as the driver and technology (of the wrapper) as the enabler.
It is an extremely valuable exercise to try and understand and plot the innovation trajectory for various aspects of your business, or indeed your entire industry. The aim of this is to see if this evolutionary trend line can provide a window to the future by allowing you to extrapolate to the next data point.
Use this trajectory plot to assist in understanding your business, its “drivers” and “enablers” and use it to see if you are heading towards the no win game of price driven competition, from which there is little room to escape.
Roger La Salle, is the creator of the "Matrix Thinking"™ technique and is widely sought after as an international speaker on Innovation, Opportunity and business development. He is the author of three books, Director and former CEO of the Innovation Centre of Victoria (INNOVIC) as well as a number of companies both in Australian and overseas. He has been responsible for a number of successful technology start-ups and in 2004 was a regular panellist on the ABC New Inventors TV program. In 2005 he was appointed to the "Chair of Innovation" at “The Queens University" in Belfast. Matrix Thinking is now used in more than 26 countries. www.matrixthinking.com
