The case for self-cannibalization

Self-cannibalization is often understood as something normal in business when you have to jump to the new version of an old best-seller. In innovation? It’s not that simple…

The term “self-cannibalization” appears when a company launches a new product line, competing with one of its own. It is mostly a classic strategic move, implying that said company is phasing out some products to update their offer. In some cases, like in the fashion industry and their seasonal cycles, this is theorized as a core value for the customers. (I will let you discuss the merits of slow fashion at this point.)

Self-cannibalization also means accepting a certain level of discomfort in your market. While trying to minimize the dissatisfaction of your ‘laggard’ customers clinging to the old offer, you need to embark as fast as possible a refreshed early majority on the new offer. (I will let you now discuss the merits of removing the iPhone’s headphone jack 🤗)

You may be surprised to know that in innovation, self-cannibalization is not taken for granted.

Although you’d think that when innovating, you’d have to replace even more aggressively the old for the new right? But remember that we’re talking about an internal process. Eating your own babies is admittedly frowned upon. Take the case of the current automotive industry and the agony of letting go of the combustion engine and jump to electric vehicles when you’re an incumbent automaker.

Worse, the simple fact of broadcasting the launch of an innovation to your market, can immediately impact you by provoking a wide order cancellation (or refrain) on the current offer. This is now known as the Osborne effect, in memory of the Osborne Computer corporation that enthusiastically pushed itself in bankruptcy by explaining how disruptive its next wave of innovations was going to be.

Let’s face it, self-cannibalization makes sense until you have to innovate (change the market). In which case, the level of uncertainty you’ll be facing will be too high to just shrug off. How do you let go of a successful market and change the fundamentals rules that made you a success?

The usual logic in innovation is to create a buffer, an innovation cell that will be prototyping the innovation and try to demonstre after a while, that there is a safe business ahead. This will then make it acceptable to phase out the old paradigm.

Fine.

Except it usually doesn’t work…

Understand that the larger your company is, the more risk adverse it is. So for instance, trying to sell internally the cannibalization opportunity with internal or external market research is a non-starter. It’s (justifiably so) deemed too wishful and still too uncertain to justify eating away your currently successful products!

Instead, to get a “go” on the cannibalization process, innovation teams are often asked to pretty much do as much business as the old one already, with only a fraction of the resources. Also, this is not requested like that. The politically correct version of the request is to ask for “significative traction”. Which is not only unrealistic to the extreme, but will also allow the veteran team in charge of the current business to more or less stealthily sabotage the would-be cannibals.

How to then get internal innovation right and raise fine cannibals?

My usual answer to this is “hedging”.

Hedging is a financial term describing an investment that is made to offset a risk. This is how you should consider your “cannibal” teams: you don’t have to decide that they’re going to actually eat away a currently successful product, on the contrary they are here to check how long this product can still survive. OK, this is semantics, but semantics are important here: you’re investing in pushing an early innovation to the market just enough to see if there will be significative positive feedback. And here “significative” doesn’t mean a financial ROI but a strategic ROI. Enough information to allow your incumbent business unit to understand how much runway it still has on the market before really needing to get away.

Innovation cells are mostly not there to create business. They are your insurance policy. The real thing they need to eat away is not your current business, but your current certitudes. And for this, there are practical rules that I will try to cover in a later article (stay tuned).

But for now, let’s think back about the automotive industry and electric vehicles. As it is too often the case, self-cannibalization has been seen as aiming for financial ROI, not a strategic “informational ROI”. And the paradox is that very successful companies such as Renault that is leading in electric vehicles sales all over Europe, still can’t move on. They treat the successful Zoé as a business that will never be big enough to eat away combustion engines; while it’s just a loud and clear positive signal that the market is ready.

Semantics? No, lack of vision and understanding that Zoé has positively prototyped a business. But this business has still to be invented and launched and the time do it was already in 2015 when the positive signals were recorded.

Self-cannibalization in innovation is anything but business planning as usual.

Tagged Hedging, innovation cells, Self-cannibalization
Philippe Méda

Philippe Méda

Philippe has been training about 200 startups a year since 2007, consulted for dozens of multinationals on rupture innovation or corporate incubation. He also teaches innovation in key MBA programs in Paris and Shanghai.
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