How Much Innovation?
Some time ago I participated in an event where Jim Collins spoke about his book “How the Mighty Fall”. During his lecture he made an interesting point about how much an organization should innovate. To his opinion, every industry has a baseline of innovation which a company needs to surpass to be able to compete in that industry. Also, during his study he discovered, when comparing “great” companies with “mediocre” companies that innovation above the baseline did not make the difference, it did not separate the good from the great. What separated the good from the great was a certain search for continuous improvement, cost discipline and certain “paranoia” about what the future might bring. Companies that stayed with their core values, did not become too arrogant (thinking: “we can do anything we want or nobody can touch us”) and are continuously worried that they might fail, are the ones that survive. As one of his interviewees said: “I predicted the last 11 out of 3 recessions”.
I can do nothing but agree with Jim Collin´s arguments for strong management skills, focus and discipline, especially in companies in mature industries. But to my opinion there are certainly two exceptions to his theory about the innovation baseline, and they are related. First of all, his argument does not fit that well in nascent and immature industries, especially when talking about radical innovations. In these industries, speed to market, differentiation and new business models are a distinctive advantage, especially for the newcomers. Clayton Christensen shows this argument in his various books, where incumbents have a higher possibility of success when innovations are breakthrough. This argument also stands when complete new business models are introduced that create new markets (example Apple with I-tunes or IBM with Global Services). Here, competitors might be taking off guard and although competitors might not be blown away, they will feel the hit for quite some time. Research in the Dutch Retail Market, undertaken by Andrew Burke, André van Stel and Roy Thurik (Harvard Business Review, May 2010) shows that Blue Ocean Strategies can be very effective over a longer period of time (up until 15 years).
Concluding, strong management skills and a focus on exploiting and improving current business to the utmost need to go hand in hand with a never ending search for innovation. Or as Jim says, “a productive tension between continuity and change”. Innovation above the “baseline” does work when one is looking for extraordinary profits in the long run. A good example of this is Ryanair, the European budget airline company, with its highly innovative business model in a mature industry, which was making profits while its European counterparts were having problems.
Caspar van Rijnbach is a specialist in innovation management and partner at TerraForum Consulting in Brazil – English language website: www.terraforum.ca. Co-author of “Innovation: Breaking Paradigms” and “Management 2.0’’ (in Portuguese).
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