Friday, December 16, 2011

Innovation and Efficiency: Opposing Forces

I'm big on irony, so it's always exasperating yet amusing when my clients realize that attributes or characteristics they've thought of as strengths are revealed as barriers or weaknesses.  As organizations grow and mature, they stop trying to evaluate their business models and the factors that sustain those models, and begin to take factors within the business model for granted - or argue in their defense.  While older, mainline firms are comforting themselves by talking about how unassailable their business models are, innovators and new entrants are working to make those factors unnecessary or obsolete.  So Blockbuster has all the valuable real estate for movie rental stores locked down.  Yep, that's a barrier to other firms who plan a real-estate based strategy, but perhaps not so important to an innovator who seeks to innovate through completely different channels, rendering an advantage in real estate obsolete. 

So it will come as no surprise to you that I come today both to praise Lean and Six Sigma, along with a number of other management methods, tools and mantras, as well as to bury them.  Nietzsche is supposed to have said that whatever doesn't kill you makes you stronger.  Perhaps the corollary is true as well - whatever makes you stronger makes you blind to your potential weaknesses and faults.  Like Blockbuster, which was fighting the real estate battle while NetFlix was shifting the competitive landscape to mail and then direct downloads, many firms in the US are still fighting the efficiency and cost cutting battle, while the battlefield is shifting imperceptibly toward innovation.  The tools and techniques used to further hone existing business models to ever higher effectiveness and productivity are exceptionally valuable in the short run, and are building ever increasing barriers to innovation.  In many firms innovation and efficiency aren't simply at odds, they are at war.  And efficiency is winning.

Efficiency is winning because, to continue the warfare analogy, all the troops have been trained in the cost cutting and efficiency models and methods.  We have ninjas stalking through the business reinforcing Six Sigma and Lean concepts. The coin of the realm is paid out to reward efficiency gains far more frequently than innovation outcomes.  Business models, processes and methods are much more attuned to efficiency. As these concepts are reinforced, they remind the rest of the troops to place emphasis on reducing risk, reducing variability, reducing costs.  When an officer (read executive) argues for a new battle plan, based on innovation, the majority of the organization looks on in horror.  No one is familiar with those tools and methods.  They introduce risk and uncertainty, with a very indefinite outcome.  And innovation doesn't reinforce the strengths of the existing business model and strategies - in fact it may weaken or destroy the very fortress the firm has worked so hard to build.  While I've written this in rather florid language, make no mistake, there's a battle underway in every firm between efficiency and innovation, and efficiency is poised to win in most organizations. 

It doesn't have to be this way.  Many of the Relentless Innovators I write about in Relentless Innovation are both innovative (recognized by consumers, customers and their industry competitors as leaders in developing valuable new products and services) and are also efficient (they use their inputs and their resources at least as effectively as their direct competitors).  So some firms seem to have bridged the gap, and are using both strategic capabilities in harmony, rather than seeing them in conflict.

To compete in the future, deep capabilities in both strategies will be vital.  A firm must be efficient to compete, and must be innovative to remain top of mind with customers.  Rather than allowing innovation to be constantly overwhelmed by the far more experienced and superior forces of efficiency, it may be time to call a truce between what are often unfortunately opposing forces:  innovation and efficiency. 
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posted by Jeffrey Phillips at 5:43 AM


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