Thursday, March 02, 2017

Innovation failing to deliver

In what should come as no surprise to many of us working in the innovation space, a McKinsey study revealed in October 2016 that 84% of CEOs think innovation is important for their growth.  This is not new news and is actually a substantial increase from previous surveys conducted by BCG and others, where the numbers routinely suggested that anywhere from 66% to 75% of CEOs thought innovation was important.  The real news that McKinsey released has to do with results.  In the same survey McKinsey found that 6% of CEOs felt that their innovation efforts were satisfactory.  If the data is true this represents a complete and utter failure of innovation to deliver the value that the CEOs expected.  Even venture capital investors expect a 1 in 7 or at worst a 1 in 10 return. 

The 100 Meter High Hurdles

So, clearly we've overcome the first hurdle.  Everyone believes that innovation is important.  The challenge with this first hurdle is that, like the 100 meter high hurdle race in the Olympics, there are a number of other hurdles that need to be cleared before you reach the finish line and celebrate. 

The next hurdle, beyond believing innovation is important, is establishing the environment in which innovation can thrive.  Saying you want innovation and that it is an important component is valuable, but useless if we don't change perspectives, behaviors and rewards.  Corporate inertia is far more powerful that occasional pronouncements from on high.  The next hurdle executives must clear if they want more innovation is to change their culture and environment to encourage if not demand innovation.

There are, of course, other hurdles, including training people in new ways of thinking and providing tools that help them think differently, as well as changing compensation and reward structures so that doing innovation is less risky.  Defining what innovation is and what it means is also helpful.

Too often executives don't run the full race.  They clear a hurdle or two and think they've gone the distance.  Innovation is a real commitment not a one off activity.

Perceptions and Expectations

There's another problem, of course, that has to do with realistic expectations.  Everyone looks at Apple and wants to do what Steve Jobs achieved, the growth and profitability.  Yet few companies want to commit the kind of resources and maintain the kind of focus that Jobs had for over a decade.  In 1997 Apple was barely alive, but with the introduction of the iPod and iPhone and iPad he turned it around.  Now it's used as an example of innovation success, but few people really understand the depth of commitment and the lack of options that Apple had.  Executives may be unhappy with innovation, but do they have the right expectations about what innovation can deliver?  More importantly, do they have the right expectations about what their teams can deliver using innovation?  The answer is: probably not.

Reactive or Proactive

The biggest problem most larger companies face is that as they grow larger they become defensive, seeking to lock in market share and protect their customer base.  This leads them to constantly refine existing products and to compete by lowering costs rather than creating new products.  They become reactive and cost/efficiency conscious rather that proactive and innovative.  New entrants can either compete with what the incumbent does well or compete where the incumbent leaves them space.  So new entrants seek to innovate, create new solutions, new packaging, new channels, new experiences that have appeared risky to the incumbent, who is satisfied to let others experiment and believes they can move in after a new solution is proven.  In the old days of slow change that was a reasonable expectation, but not any more.  You can't innovate sometimes and in some places and hold fast in others.  Innovation, once you decide to do it, is a constant, 24x7 exercise where you are expected to lead the pack, not fiddle around the margins.  Too much innovation activity is haphazard and half-hearted, doing something for the sake of saying that they are doing innovation.  It lacks engagement and commitment, which is another reason it often fails to deliver.

Old news, new tribulations

So, the fact that CEOs are unhappy with the results of their innovation activities is old news.  Was true a decade ago and seems to be getting worse.  The real challenge is that the pace of change has actually accelerated.  Autonomous vehicles, AI, robotics and many other factors are becoming realities far more quickly than we anticipated. These and other technology introductions are creating sweeping change.  Add to that increasing globalization and societal shifts and every company faces a rapidly changing market with heightened demands and short attention spans.  Those dissatisfied with their innovation outputs may soon be those who are no longer in business.  Innovation failure may simply become the first sign of a faltering company, rather than a mistake in an otherwise reasonably profitable company.
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posted by Jeffrey Phillips at 6:31 AM


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