Five types of innovation failure
Giving it some thought, however, I felt it was appropriate perhaps not to define what innovation failure is, but to think about the root causes of innovation "failure". If we understand the root causes or types of failure, we can enter projects with appropriate expectations and awareness. Herewith, my attempt to define at least five significant types or causes of innovation failure.
Things you don't notice
In the first category of innovation failure are the opportunities or markets you simply don't notice. In hindsight these opportunities or markets are fairly evident, but at the time perhaps the competitive nature of a market or business simply blinds many people to an opportunity. Take, for instance, Sony, one of the leaders in portable music equipment and in recording. Why didn't Sony create an iTunes concept? It would seem they had all the pieces, but they failed to notice the opportunity. These failures often occur when firms or even industries assume that business will continue much the same as it has for years. A small oligarchy implicitly agrees on the rules for the market and new entrants eventually overthrow the existing order. This failure is based on a firm's complacency, inertia and fear of change, and is based on the assumption that markets and customers will demand much the same products and services year on year.
Things you notice but reject or choose to ignore
It is a failure to notice a new market or opportunity and choose to ignore the opportunity, waiting for someone else to take the lead, or so locked into a specific business model that you can't exploit an opportunity or market when it presents itself. The "we aren't innovative" argument isn't a strategic, it is the abdication of strategy and initiative, and in itself is a failure. Noticing a market or opportunity and ignoring it is perhaps a worse failure than not noticing at all. This failure is based on a lack of strategy and initiative. Noticing opportunities yet looking away, being reactive rather than proactive, is quite possibly the worst failure of all.
Talking but not doing
Currently, many firms are talking a good game about innovation but aren't actually doing anything. This is a failure of dramatic proportions. Surveys typically show that CEOs rank innovation as one of their top three priorities, yet a recent NSF survey found that only 25% of manufacturing firms and 8% of services firms reported creating a new product or service in 2006-2008. There's a significant gap between the talk about innovation and the actual output. Talking about innovation is not doing innovation. This merely creates a significant amount of cynicism inside the firm and outside the firm, and makes doing real innovation even more difficult. This is a failure of transparency and goal setting.
Trying to create something new but failing in the attempt
Many, many firms will engage an innovation project and generate new ideas. Often these ideas "die on the vine" or simply aren't implemented effectively. This is an innovation project failure, often caused by poor planning or poor understanding of customer needs, or little commitment to actual change. Doing real innovation work is hard, requires discipline and a willing sponsor at the end of the line. Many barriers will prevent even a committed team from moving an idea from concept to product. This failure is a failure of commitment and process, typically resulting from a lack of resources, inadequate staffing, and a poor understanding of an innovation process.
Products or services that fail in the marketplace
Every year thousands of new products are introduced and pulled from the shelves only a few months after they were released. Look at the Microsoft Kin phone as a really compelling example. These are new ideas that made the transition from concept to new product but were rejected in the marketplace. This kind of failure is damaging and expensive. After all, these ideas were developed, new products were created and launched, and the products were met with at best a collective yawn. Doesn't say much for innovation when that happens. These failures are a failure of timing (right product, too early or too late) or a failure of understanding the needs and wants of the marketplace (poor customer insight). When most people talk about innovation failure, this is what they mean.
Perhaps the most important question, then, is which kind of innovation failure is most important or most dangerous. I think the knee jerk response will be "products or services that fail in the marketplace" since they are the most visible and most expensive from an investment perspective. I'd argue that the worst kinds of innovation failures are those that you don't notice, or do notice and ignore, since those are the ones that will disrupt the industry. The challenge is in the cost structures. The failures of products in the marketplace show up on the books today, while failures to act on new opportunities or markets don't show up as costs for years.