The cost of delaying innovation

 Right now, as we (hopefully) emerge from the COVID pandemic in late summer 2021, there is a real debate underway in a lot of corporations.  The debate is about whether or not to fund innovation work, and if the decision is positive, how much to spend or invest in innovation.

The debate is fueled by the fact that during COVID few really new or interesting products were created, and by the sense that customers are beginning to demand something new and different from the same old products and services.  In this regard, there is clear demand for innovation, for new products, new services and experiences and consumers have the funds to spend on new things.  On the other hand, as my economist friends like to say, is the issue of potential inflation, the issues with clogged supply chains, the sense that many people have that wages or benefits must increase to attract people back to work.  In other words, there is a sense that costs are increasing and will increase.

This means that innovation is caught in an age old quandary:  executives recognize that they need innovation, which should lead to new products and on to new revenue and profit streams, but they also recognize that costs are likely to increase in the short run.  Since innovation almost always pays off only in the longer run, and cost management can be controlled in the short run, the dilemma is obvious.  When you get evaluated in 90 day increments by the stock market, cutting or controlling costs is always an easier decision than investing in innovation.

But we are asking the wrong question.

The question management teams are asking and answering is:  how can we manage our near term costs to keep the investors happy in the short run?  Note that this is NOT a bad question to ask, because investors are constantly watching the effectiveness of the management team and want to see companies hitting their numbers.

Perhaps the question we should be asking is:  what is the cost of delaying innovation?

This is a question that is much more difficult to answer, but in this environment is at least as important as the previous question.  

Our economies are improving and growth is returning as we emerge from the COVID scare.  Growth in the US economy is evident and we anticipate growth in the economy in future quarters. Consumers are returning to the markets at a record pace, and thanks to the government's largess we have more funds to spend.

Yet there are few really interesting or new products on the market and the products and services that exist are becoming commoditized.  If companies choose to manage costs and stay the course with existing products or at best minor improvements to existing products, they can manage costs effectively but will see little change in their revenue and profit outlook.

What do companies that fail to invest in innovation miss?

What the companies that make the decision to maintain cost containment will miss is the opportunity to put new products and services into the product development funnel.  What they are doing in effect is robbing their future revenues and profits to sustain a slow growth model now.

The difficulty in this tradeoff is in understanding what the cost of delaying or postponing innovation is.  If the company isn't all that good at innovation, and what they delay for a few quarters is only incremental innovation that does not radically change the product portfolio, then I think it's reasonable to suggest that delaying isn't all that risky.  Unless their customers and markets are changing quickly, and their products are rapidly commoditizing.

On the other hand, if the company believes in its innovation process or capability, or has exciting new ideas that could be realized as new products and services, the cost of delaying or postponing innovation could be quite high.

What work can be done to improve innovation and shorten time to market?

It's far easier to control cost and postpone investments in the short run, and much more difficult to predict exactly what innovation and new product development will achieve in the long run. There are methods to improve this trade off, but they too require investment:

• Better innovation skills throughout the organization
• Defined innovation processes
• A strategic framework for anticipating innovation across three horizons
• The ability to bring new products and services to market more quickly - using agile development, MVPs and rapid prototyping
• The willingness to kill off older products to free up resources for new ideas

The cost of delaying innovation isn't just the potential loss of future revenue and profits, it is also the doubling down on the existing way of doing things, locking the company into more of the same for the next planning cycle.  The gains from doing innovation aren't just new products, but the gains reveal themselves in new ways of thinking, expanded market definition, capabilities to accelerate ideas and products.

What's the real cost of delaying or postponing innovation?

We've got to stop thinking about innovation and new product development as a one off activity that skips across the surface of a company, and start thinking about it as a capability that improves how a company operates and functions.  That's the real cost of delaying innovation - your company never makes the leap to become more strategic, more innovative and more adaptive.

Red pill or Blue pill innovation

 As readers of this blog (and you know who you are) are bound to know by now, I am a movie fanatic.  I love good movies, average movies, older movies and so forth.  I like movies that I can quote, and also like movies that are based on my favorite books.  I am one of those people who is constantly astounded when I say "African or European swallow" and people give me a blank look.

As a movie buff, I fell in love with The Matrix, because it feels like something William Gibson wrote and it introduced an entirely new concept into the sci-fi realm - that we are living in a cyber reality and we need to be removed from the machine in order to see the real reality.  In the movie, in case (again astounded) that you haven't seen it, Lawrence Fishburne offers Neo, played by John Wick, I mean Keanu Reeves, a choice of two pills.  Very Alice in Wonderland-esque.

Take the blue pill and you will go back to your cyber reality, where computers are generating your experiences and your life and decisions are governed by a machine, where you are actually (and this is where the movie lost me just a bit) an energy source for the computers.

Take the red pill and you will be released from your cyber reality, and enter an entirely new existence that is more real, more personal and more dangerous than your cyber reality.  Oh, and the machines that you were once powering will seek you down to either reincorporate you in the machine or kill you.

Innovation choices are like the Matrix choices

When we talk about innovation in corporations, many of the choices individuals make and that innovation teams make are like the red pill / blue pill choice.  Take the blue pill and go back to your regular job, toiling away on the TPS reports (hint:  movie reference) and supporting the overall machine.  Take the red pill and enter a new reality where disruptive innovation and business model change is possible, but corporate culture, decision making, existing infrastructure, budgeting processes and risk all threaten your project.

You may think that this is a good thought analogy, but that life in a corporation is not so clear cut.  That it is never a binary choice to go back to the safe day to day job and avoid innovation, or to risk it all to do really interesting, game changing innovation.  But in some ways the choices are starker on innovation teams than what Neo was faced with.  At least when Neo took the blue pill, he would forget he was ever tempted to leave his sedentary, safe existence for one with a hint of danger.

All superhero movies involve side kicks

Taking the red pill introduced Neo to others who had also made the risky choice.  They, like a lot of innovation team members, were a rag tag group of misfits who had made the choice to leave the borg and try to create something new.  What Neo did not know, and what happens in many innovation teams, is that several of his counterparts longed to go back into the borg, to take their safe and comfortable place back in the hum drum day to day, and would sacrifice Neo and Morpheus to the computer systems in order to do so.

Most innovation teams are made up of one of two types of people:  those who were assigned to the team, who had no choice (and these are often exceptionally strong people who did not want the assignment) and those who choose the red pill.  The people who choose the red pill are often corporate misfits, who are constantly questioning why the company does things a certain way, or who are always looking for a better way to do things.  

Regardless of how you or Neo get on the team, you've made a choice, and the people around you have either been assigned or made the same choice.  Now, what you have to do is determine if your team has the skills it needs in order to succeed, the sponsorship and investment it needs, and the ability to stick to the work, and ignore the desire to go back to the hum drum.

In The Matrix, Joe Pantoliano's character plays the villain, the one who sells out the team in order to go back to the hum drum existence.  Others, like Trinity, play the characters who choose the red pill and never looked back.

Work with the folks who choose the blue pill

No matter where they come from, no matter what their reputation or skill set, no matter who they are, if you are doing innovation work, find the people who chose the red pill.  Those people who desire change, who want to do new things, who are dissatisfied with the status quo.

This is almost a "burn the boats on the beach" kind of commitment.  Too much looking back at the status quo can lead to a realization that innovation is difficult, unusual, risky, often underfunded.  And that can lead to the decision that the old life, no matter how hum drum, was at least comfortable.  Or, it can lead to a narrowing of the scope or outcome, so that the individual can be over and done with the project as quickly as possible.  You'll want to identify these people as quickly as possible, because they will constantly shrink the scope of the project until what you deliver is undifferentiated from existing products.

So, the choice when you are presented with it is relatively easy.  If you want an easy life, take the blue pill and keep plugging away at the day job, comfortable if slightly bored.  If you want change, risk and an opportunity to create something new, take the red pill.  Just understand what it entails.