Top Ten Myths about Business Innovation

NOTE; I wrote this piece for Sandhill.com.  I am reprinting it here a) for your convenience, and b) because Tom Forenski is taking issue with a key point I am making, and I want to be able to reference that in my next blog.

If you are worrying about innovation, take heart.  Only successful companies do.  By contrast, unsuccessful companies either aren’t around to do any worrying or have more pressing concerns, like meeting payroll or paying their bills.  At the other end of the spectrum, venture-backed start-ups have lots of worries, but innovating isn’t one of them—they actually worry more about not innovating, as in why are making up a whole lot of procedures that others have standardized before us?

But you are not a start-up.  You have some success, some momentum, and therefore some inertia, and it is the inertia that has you worried.  By design inertia resists change.  This is a good thing, as long as you are headed in a direction you want to go.  But when the market changes, inertia acts against your future interests.  Now you are right to be worried.

So you raise the topic of innovation in hopes of getting some insight.  Good luck.  My recent research leads me to believe that innovation, as a topic, leads the business writing industry in twaddle per page.  With that in mind, let me dispel what, in David Letterman tradition, we might call the Top Ten Myths about Business Innovation:

10. We don’t innovate around here any more.    Baloney.  You are innovating all the time.  The problem is, you are no longer differentiating your offers in distinctive ways.  Your innovations, in other words, parallel your competitors’ innovations, with the result that you all look more or less alike.  Customers, seeing little to no difference, put more and more emphasis on price.  Unable to distinguish your offer, you have no bargaining power, and most capitulate to their pressure.  On weekends you complain about commoditization, but during the week you do nothing to address the problem.

9. Product life cycles are getting shorter and shorter.  And whose fault is that?  If you do not differentiate in hard-to-copy ways, you cannot expect what differentiation you do create to be long-lived.  iPod’s product life cycles are longer than its competitors, not because it has a way-cool form factor but because iTunes is part of the iPod experience that Apple’s rivals are still struggling duplicate.  And as cars make their dashboards iPod compatible, then once again the competitors have to run around catching up to Apple instead of making their offers distinctive in some other dimension.  Sustainable differentiation requires barriers to entry and barriers to exit.

8. We need a Chief Innovation Officer.  Like a hold in the head.  Think about what your true goal is:  you want innovation that creates differentiation that leads to customer preference during buying decisions.  That sounds about as close to a core business strategy as you can get.  It has to be grounded in the realities of operational capabilities, customer feedback, competitor investments, and capital constraints.  So your chief innovation officer by default must be your P&L owner.  If that person isn’t stepping up to the innovation task, replace them with someone who will.

7. We need to be more like Google.  Not on your life.  Google is a once-in-a-decade phenomenon, a company riding a wave of adoption so powerful that not only is the first derivative of its growth curve positive, but so is the second derivative as well.  If that describes your market, we doubt you are worrying about innovation.  If it does not, and you want outside help, seek it from someone who has had recent experience with markets like yours.

6. R&D investment is a good indicator of innovation commitment.  No, it is not.  In the first half of this decade, HP invested 15% in R&D and Dell invested 5% and cleaned their clock.  How?  They out-innovated them in process innovations led primarily by their operations folks.  Innovation that leads to sustainable competitive advantage can be initiated and led by any organization in the company.  R&D represents the engineering department’s lead, and in general pays off well in double-digit growth markets and increasingly poorly in single-digit growth markets.  Continuing major investments in R&D in slow-growth markets is a good measure of lack of innovative thinking.

5. Great innovators are usually egotistical mavericks.  Not any more (although there is no shortage of egotistical mavericks that would have you think otherwise).  In the current decade there is more competitive differentiation to be gained through collaboration than through busting out on your own.  That’s because our extended supply chains reward each company for focusing on its core and outsourcing the rest of the offer to someone else in the chain.  But actually orchestrating these chains to perform effectively in real time requires enormous innovation.  And that is a job for people who listen well, empathize deeply, and make the differentiated performance of the chain as a whole as important as their own local success.

4. Great innovation is inherently disruptive.  Not necessarily.  To be sure, authors like Clay Christensen and myself have spent much of our life’s work chronicling the impact of disruptive innovation, but it is only one type among many.  And the more established your company, the less likely it is a type for you to specialize in.  Alternatives include application innovation, product innovation, platform innovation, line extension innovation, design innovation, marketing innovation, experiential innovation, value engineering innovation, integration innovation, process innovation, value migration innovation, and acquisition innovation.  This last one, in particular, is usually an established enterprise’s best bet for dealing with disruption.

3. It is good to innovate.  No, it is good to differentiate on an attribute that drives customer preference during buying decisions.  Innovating elsewhere costs money and entails risk but does not create competitive advantage.  It might still be worth doing, either to neutralize another company’s competitive advantage or to improve your own productivity, but you would be surprised about the amount of innovation going on in your company right now that serves no economic purpose.  Rather it is being undertaken as a form of corporate entertainment, creating the illusion of purpose and meaning while carefully skirting the need to be economically accountable.

2. Innovation is hard.  Actually, it is not.  What is hard is deploying innovation, especially in an established enterprise.  That’s because the critical deployment resources are all engaged trying to make the quarter on the back of the existing offer set in the existing market categories.  They cannot be bothered with next-generation responsibilities when their current ones are hanging by a thread.  The net result: Too often, when a genuinely innovative offer is ready to go to market, there is simply no one there to sponsor it, and it dies on the vine.

1. When innovation dies, it’s because the antibodies kill it.  Yes, but not how you think.  The murder takes place in the customer’s world, not in yours.  Here’s how.   As a management team you hope to leverage the current relationships managed by your sales force to introduce the next-generation innovation.  But the synergies implied by this tactic are revealed over time to be false—the current team does not have any relationships of merit with the new target customer.  Instead it has legacy commitments to the old target customer who in turn is threatened by and resents the intrusion of the new innovation.  Thus your own sales force finds itself more or less honor-bound to sabotage your next-generation effort.  Whether they actually do or not, they are in no position to lead the kind of charge required, and it is no wonder when some piddly little start-up beats your finely tuned sales machine to the punch.

Comments

[Mark Rosneck]

My previous lifes involved lots of high-tech products in both hardware and software. I’ve also been a part of two startups. Now I’m a marketing guy for a company that makes small plastic bits for medical products.

My first culture shock was learning that the major innovation of the company was to institute an actual lights out manufacturing process. And it really works! The end result is much better profit margins than anyone else in the industry. Probably as important, you can’t be lights out without having your processes completely in control. These innovations brought about the highest quality products in the industry. Taken together, they truly differentiate the company in the market without being disruptive in the least. They are also very difficult for competitors to match without fundamentally changing how they do business.

At the end of the day, our customers clearly indicate a buying preference for what is truly a commodity product. What they normally say is “we buy from you and pay a premium because we don’t have to worry that you’ll ship us bad stuff.” Admittedly, the reason this works is that we’re in a segment (medical) that will gladly pay a premium for ‘assurance’ that bad things don’t happen. You might find the same plastic bits we make holding the vacuum lines together in your car. However, these are made by other companies that compete almost entirely on price.

I suppose the bottom line is innovation doesn’t have to be disruptive when there is sustainable value delivered to a market segment that values the results of the innovation.

[Mateu]

Hi,

I only just found your blog today after watching your video on Darwin & the Demon for the 3rd time and wondering when the book was coming out. These 10 myths of innovation do a better job than most executives seem to do of explaining how a company should act after it sees success at technology innovation and "grows up." Thanks, and I look forward to your future posts.

[Old_al]

Although I live far away from your country (in Russia) I feel the powerful influence of greedy Americam consultant agencies. They try to capture minds of "simple" Russian entrepreneurs. Without success, though...I believe, the myths outlined became a kind of a new religion.

[simple_ai]

Note to author:
how can you allow this on a moderated blog? from old_al: april 12,2006:

"...powerful influence of greedy Americam consultant agencies. They try to capture minds of "simple" Russian..."

this is wicked and hateful propoganda. There's no reason to allow this to be published on your blog.

[Carmen]

你好！Greetings from Beijing! Hope I am the first Chinese reader to leave a message on your blog.
I' am a journalist for DIGITimes Magazine, a Chinese magazine watching closely business trends and activities in IT industry. We are quite enlightened by your thoughts about how to manage innovation with inertia. This month we are writing a cover story about some big companies who failed to do so. The cases we picked include Intel, Dell, Kodak and Haier(one of the biggest Chinese hi-tech company). They are not completely defeated, I mean, but facing different and crucial problems. Another thing they all have in common is that they were quite good at innovation, years or decades ago. But as they become bigger, the inertia grows stronger.
We are expecting you to give us some comments on this topic upon your interest. Thanks a lot in advance.

[Ray]

Innovation & History are confused untill they meet.