How Real Innovation Moves the Needle

Up until a year ago, innovation was the toast of the business world. Companies around the world were investing heavily in design, launching new products, and even building virtual retail stores in Second Life. Then the financial crisis erupted, destroying shareholder value, corporate budgets, and family income alike. In the wake of that disaster, it's entirely legitimate to wonder: is innovation relevant anymore?

Well, it depends on how you think about it. If it means making a bunch of cool stuff that gets a lot of buzz but doesn't go anywhere, innovation is way out of season. But that's missing the point. Real innovation isn't about novelty, it's about how many million, or even billion, dollars you need to add to the top line next year. It's about asking new questions that your organization needs to answer. It's not that innovation isn't relevant, it's that stupid innovation isn't relevant anymore. Especially in tough times, companies need innovation that addresses one of three key strategic mandates: reinventing the core business, expanding beyond the core, or facing down an existential threat. That's what this blog is all about: innovation that actually has a business impact. And here's how to create that kind of innovation.

dev patnaikReinvent the core business. No matter how much an industry, product, or sector is booming today, it will either be transformed or demolished tomorrow. Every single company needs to constantly innovate and experiment just to deliver steady results in the face of an ever-shifting market and overwhelming price competition. Such market serenity is an audacious mandate. Just as a graceful swan moving through a pond needs to paddle like hell underwater to maintain momentum, corporations need to do wild stuff below the surface to remain calm above the water line. Five years ago, making mobile phones was a fantastic business to be in. Now margins have eroded, growth is slowing for the first time ever, and only Apple and RIM are making any money. That's why Tero Ojanpera's efforts to transform Nokia into an entertainment company actually matter. He knows Nokia won't remain great by coming up with one or even fifty new phones--it needs to fundamentally reinvent itself.

Expand beyond the core. As any good farmer will tell you, diverse systems are significantly more productive and resilient than homogenous ones. If you grow only corn, the arrival of a single pest can destroy your livelihood. Unfortunately, most industries are banking their future on one type of crop. When their existing markets flatten or slow, they have nowhere to go. Great companies figure out how to find new growth beyond their existing businesses that, in turn, reignites excitement about the core. Think about Disney starting out in animated films and expanding into theme parks and eventually cruise lines that reinforced its dominance in personal entertainment. Nike has also done remarkably well here. About a decade ago, its leaders realized that Nike wasn't just a shoe company, it was a sports company. And as a result of this strategic shift, it got into sunglasses, watches, and MP3 players with remarkable speed and success. Those adjacent businesses have, in turn, helped to increase demand for the core footwear business.

kindleFace down an existential threat. It's not that often that companies face obsolescence. The car doesn't replace the horse-and-buggy every day. But when such threats arise, it's time to innovate or die. Think about AT&T when long distance rates collapsed in the face of a deregulated market. Think of Sony when rising labor costs made their Japanese manufacturing base no longer cost-competitive. Think about the struggles of every newspaper in America today. These are the kind of issues that business leaders don't like to deal with but can't afford not to. When faced with such a threat, managers feel a very human need to be the one person who has the answer. It's far more important to frame the question to the rest of the organization and spur hundreds of new ideas and experiments to find a way out of the mess you're in. Amazon's remarkably unflashy Kindle was initially viewed as a dalliance with hardware for the world's biggest book store. It's actually a response to just such a big-picture threat. Newspapers, magazines, and book publishers are all vanishing right now. Wood pulp might be going away as the dominant medium for information, but Amazon's defining what comes next so it will be around as long as reading and writing are.

Get back to real innovation. Especially in tough times, innovation matters. Just remember: It's not about novelty. It's about creating new businesses that actually move the needle. It's about growth.

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Dev Patnaik is the CEO and founder of Jump Associates, a firm that helps companies create new businesses and reinvent existing ones. A trusted advisor to senior executives at some of America's most admired companies, including GE, Nike, Target and Hewlett-Packard, Dev is also an adjunct professor at Stanford University, teaching design-research methods.

His book Wired to Care: How Companies Prosper When They Create Widespread Empathy, making the audacious argument that the human power of empathy is the source of all innovation, was published in spring of 2009 by the Financial Times Press. A frequent speaker at marketing, design and innovation forums, Dev was recently featured as a guest on "The Business of Innovation," a series on CNBC. His articles on innovation and strategy have appeared in several publications including BusinessWeek, Brandweek and the Design Management Review.

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3 Comments

  • Claudiu Murgan

    Innovation or as I like to call it, Integrative Thinking. By now you must be familiar with the book called The Opposable Mind by Roger Martin, the dean of Rotman School of Management from Toronto.
    He gives real examples of leaders such as A.G Langley, Moses Znaimer which is a local brand in himself, on how they tackled challenges that in one way or another have threatened their companies, by integrating their tacit knowledge, market requirements and information. Mr. Martin also explains how he teaches the students to use the concept of Integrative Thinking.

    We are more and more involved into a Knowledge Economy where the intellect is the main and major force. Capturing, enhancing and applying the Integrative Thinking is the challenge the companies have these days. It is interesting to compare Integrative Thinking done in the business environment with the one developing in the research and development field. While the later uses exiting concepts, strategies, brands and management’s experience to solves various internal problems, the latest is more of a forward thinking approach, where new concepts & tools have to be developed from scratch, invented, to be more specific, to be ready for the continuum evolution of the society and its needs.

    We all heard or read about CEOs of big public companies visiting the premises of other successful counterparts in an effort to understand what is behind their smooth operation, what kept them ahead for such a long time, how they approach the R&D process, and how they keep the employees happy, which in the end is the factor that runs the show.
    Sometimes this line of action works, even if it is for a short time. Simply applying a strategy that works in one industry into another has serious implications that have to be tested and understood before a cross-company implementation takes place.
    This is where innovation comes into play.

    It's about innovation as we know it or it's about a new concept that will take the companies into a totally different direction?

    What a company should do to reinvent itself? What stops a company from doing it in the first place? It is too close to the object of activity? It is the complacency? Is the company part of a dying industry?

    It is a fact that an outsider, most of the time, will find the weak point, will look from a critical point of view, with no preconceptions.

    In the end what are the options:
    •Take an existing product, add more features, freshen up its market image and launch it; the same process can also apply to a service (less capital intensive);
    •Invest in R&D for a new product or service (high capital intensive); OR
    •Assess how either your products, the whole business model or your brand can use the Integrative Thinking model to create more value

    We have to design and implement sustainable cycles either they are financial, educational or production related.

    Innovation doesn’t happen overnight. One has to create the right environment that will involve human and financial resources, but also the channels to commercialize the innovation.

    So are we making our decisions based on the profit, the shareholders satisfaction, share price, media expectations? Are these short-term or long-term goals we have to consider? Is the 10-15 year growth strategy of a company less important than the immediate gratification of shareholders and the market? I am asking these questions because innovation, in certain industries, means consistent funding. So if the long term good of the company is what keeps up at night, then we should look at innovation and integration as a future currency that will take us ahead of the competition.

    Recently (July 2009), Jeff Bezos, in a video created to welcome Zappos’ employees to the Amazon family, mentioned that what they always have in mind is the Customer and the strategy is long-term and it is driven by Innovation. He used the word “Invent”, which is a synonym for Innovation.

  • V P

    Thanks Dev, but there is nothing new to look here - what is the big idea?
    I am not aware of too many companies spending $$ on stupid innovation in the manner that you seem to imply. In all probability, at least in their minds, they are doing one of the three things that you mentioned. If it works out, it fundamentally reinvents/expands whatever itself. If it does not it was of course stupid innovation to begin with.