Tuesday, September 14, 2021

Why innovation must become the new core competency

 I've been thinking a lot lately about innovation in corporations, first, because that's what I've been doing for close to twenty years, and second, because I kept wondering when the switch would flip and we'd see more consistent innovation from large corporations on a continuing basis.  After all, innovation isn't really all that hard - good ideas will pop up all the time.  But recognizing, validating and implementing new ideas IS hard, and this is why innovation will always be the strange uncle corporations keep in the attic.

Don't get me wrong.  Every company wants more innovation, to drive better revenue, profits and market share.  But what most companies get wrong is that they want to create an innovation and then make it palatable and safe, to fit within the standards and norms of the existing business, like capturing lightning in a bottle.  New ideas that are at first radical become profitable, then draw competition, and then become mainstream ideas.  So the cycle must repeat if a company is going to stay ahead or even abreast of the competition.

Here's where the issues start.

It's difficult to create a process, a culture and a trained set of people who can create innovations, migrate them into current product or service portfolios, and then return to start new innovative ideas all over again.  Once a company finds and implements a good idea, they are far more concerned with driving as much revenue and profit from that idea, rather than sending the team back for new ideas, or sending a new team off for an entirely new opportunity or market space.  Innovating once is easy, innovating consistently over time is difficult.

The reason innovating over time is difficult is because companies are engineered for efficiency, not for change, not for flexibility or variability.  When good new ideas emerge, they will typically have one of several impacts:

  • They replace an existing, profitable product, which creates resistance from the team managing the existing product
  • They target an adjacent market or segment, which requires new marketing and launch investment, drawing marketing dollars away from other existing products
  • They are so interesting or revolutionary that they could threaten the very business model of the company.

If one good idea can meet this much resistance, what will a stream of good ideas encounter?

Cultural, strategic and process imperative

After 20 years of working in innovation, I can say that it will be difficult to create a sustaining innovation capability, one that constantly creates new ideas and brings them to market, unless innovation is a cultural imperative (the culture believes and desires innovation), a strategic imperative (the strategy of the business, reinforced with funding and governance, encourages innovation) and a process imperative (there are methods and processes ingrained in how the company works).  In other words, innovation must become a core competency.

This means that companies that are innovative now are likely to become less innovative over time (think entropy) unless new energy is added to the company.  Companies that don't have a deep investment in innovation will talk about innovation and will attempt a few innovation projects but will never master the idea of continuous innovation.

Innovation is more important than ever before

All the talk of agile, nimble organizations powered by data and operating in new, flat hierarchies with excellent communication means nothing if companies cannot remain relevant to customers.  With so many new competitors and new entrants, older firms that cannot adapt to new innovative models will become rapidly obsolete.  Even newer, agile companies, while fast, will falter if they cannot create new  and meaningful ideas and bring them to market.

We need to stop evaluating companies based on size, or cash hoard, or patents, and start evaluating them on how they can identify, evaluate and bring new ideas to market quickly, even ideas that may disrupt themselves or their industries.  For years, great companies like IBM promoted stability and longevity, and when the pace of change was slower that model was useful.  Now, companies need to demonstrate agility, speed and adaptability to be able to compete and to stay relevant.  

Creating an innovation core competency

We need a new way of thinking and organizing our businesses to ensure that the core capability of a business is to create interesting ideas and bring them to market quickly, and to be able to repeat that process. 

Instead of operating in siloes, which create barriers to innovation, businesses could organize around customers or processes.  Instead of focusing only on product innovation, companies could expand their innovation definitions to consider services, processes and business models.  Instead of rigidity in structure and operations, companies need to become much more nimble and adaptable to changing market conditions.

Starting with the idea that the purpose of a company is to create a customer, then the organizing principles should be to understand what the customer wants and needs (marketing/research), the ability to develop interesting and valuable ideas (innovation) and the ability to develop ideas and bring them to market (product/service development and launch).  But don't take this from me - Peter Drucker had this idea decades ago.

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posted by Jeffrey Phillips at 5:21 AM


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