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.
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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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I agree with you! “A productive tension Between continuity and change” is a dogma for innovative companies to follow! Excellent post! Best regards.
Congratulations on the clean cut post on innovation and management practices. I strongly believe companies are able to drive continuous and sometimes imperceptible changes in the way they operate. These changes do not capture the headlines but add money units to the bottom line.
It is up to management to incentivate the whole organization to change although it is not broken, to look for value in the most unusual places, and, from time to time, sponsor “that crazy idea from sector 27-B”: it may turn the company into another one … for some time.
Hope to read from you soon around here.
Great job…Congratulations for the post…regards…José Renato
You’re right, innovation is important for every company, but it’s not a garantee for the company to survive. Improvement, costreduction and – in Collins words – a little bit paranoia towards concurrents is evident too. Great example: Philips invented the first video-system (Video 2000). A great innovation, but JVC introduced the VHS-system by supplying new movies on this system. The VHS system was not as good as Video 2000, but was from that moment world standard.
This arrogance of the big companies is a limited vision of business and could be one of the factors to the “fall of the mighty”. The search to innovation and continuous improvement must be a focus to big, medium, small or startup companies to create competitive advantages.
It´s a great challenge to change this approach in established and mature markets and business but this is crucial for the sustainability of the business.
Innovate or Die!
I couldn’t agree with you more. Working as an advertsing partner in
strategic planning for AB InBev, I believe that there core corporate
culture is all about reinventing their business model through constant innovation. Great
Great article. I entirely agree with your view. It is also my own view that in mature markets, innovation in products may have less impact than innovation in business models.
In situations where “market is new or blooming”, just incremental innovation will not give a company long life and I agree that there is a huge need to constantly create the tension between improvement and transformation.
My experience with innovation in companies with mature markets is that it needs to be focused on business models and processes. Along with that, commitment and sponsorship from senior leadership is fundamental, otherwise bottom-up innovation get smashed by mid level managers and bureaucracy.
I fully agree with you. I have worked in different energy companies and in all of them, innovation is doing the difference. I can say that in utilities, without innovation would be impossible improve the electrical grid to achieve the new customer requirements, to say only one example. Innovation will allow that in a short future our grids will be smart, independent if the utility is the biggest or the smallest of the market.