The two types of innovation

Innovation gets gets so much hype in just about every industry, that you would realistically think that more people understood the basics… I don’t see it. Am i an expert? I’d like to think i’ve at least done enough to understand the basics, so here is some wisdom.

The first type of innovation is incremental innovation. The is the stuff that most companies are built to deliver (in some cases not!). The tweaks and product improvements that we expect. In fact, any enhancement that increases performance of the current business (using Druckers definition) would fall into that category.  Its the stuff that gets talked about in universities a lot with the theoretical ‘when we hit the maturity phase we’ll keep growing by adding features or selling to a new segment’ type stuff.

You need this type of innovation when you are a mature company. In fact without this kind of constant evolution, you will in the end become obsolete (Red Queen‘s hypothesis )

“It takes all the running you can do, to keep in the same place.”

As a senior manager, your job is to truthfully evaluate the companies performance. There are sign’s when you are doing this kind of innovation well enough, and when you aren’t.

Clearly those peer organisations on the right aren’t keeping up. I have no doubt they are expending lots of energy trying, but clearly its not working. And senior people should be seriously asking why its not working, what can be done differently and how can they get better returns on their effort (see my previous post on translating strategy into reality)

“Faced with the choice between changing the way we do things or finding facts to refute the strategy, most people get busy finding facts.” My take on a quote by John Kenneth Galbraith

The second type of innovation is disruptive innovation. Nirvana, the one big hit everyone strives for. This is way harder to do (this blog is littered with posts about it).  Essentially you are trying to launch a new product category (walkman’s, cloud computing) or targeting new segments of consumers (mobile phones).

In doing this inside a mature business you are battling everything.

  • The culture “the way we do things”,
  • Process’s – we build things this way…
  • The resource allocation process ” must make the same margins, must hit the investment hurdles”
  • The skills of the company ” we’ve lost the skill innovation ” ahem Google / Cisco
  • Priority – the rule of large numbers always wins
  • Personal agenda’s – mid-managers putting forward risky bets

And don’t forget, you still have to battle the market! Actually build and launch that product, convince customers to buy it, recommend it…  Like is said, this is tough,

And it takes time.  My observations of senior leaders is that they treat innovation like kids treat Xmas toys, they are over the excitement of the idea by day 2.  Want to know how much time? And for that matter, want to know WHY you would even bother given its sooooo hard… check this  graph out

Yeah i know, its Apple. But here are some other companies that have done this. Nokia (when they went from pulp to phones), Lego (themes!), Amazon (books to cloud!), Caterpillar (shoes)….

“We also found that business model innovation tended to generate bigger gains than product or process innovation”

Jens-Olaf Berwig, Nathan Marston, Lauri Pukkinen, and Lothar Stein – McKinsey & Co

In other words, if you are the CEO and want to seriously change the total shareholder returns, you need a disruptive growth plan.

Also, if you are shareholder, and you don’t hear the CEO talking about this, don’t have decent visibility of what the company is investing in…then you are investing with the herd…  maybe keeping up, maybe (Sony, Google, Cisco???)

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