Top 10 Innovation Myths
Software vendors seeking success need to push past the excuses, find differentiation and swallow this dose of business reality.
By Geoffrey A, Moore, TCG Advisors
Feb. 03, 2006
If you are worrying about innovation, take heart. Only successful companies do. By contrast, unsuccessful companies either aren't around to do any worrying or are consumed with more pressing concerns, like meeting payroll or paying their bills. At the other end of the spectrum, venture-backed start-ups have lots of worries, but innovating isn't one of them - they actually worry more about not innovating, as in let's not waste our scarce resources reinventing wheels that others have already developed.
But you are not a start-up. You have some success, some momentum, and therefore some inertia, and it is the inertia that has you worried. By design inertia resists change. This is a good thing, as long as you are headed in a direction you want to go. But when the market changes, inertia acts against your future interests. Now you are right to be worried.
So you raise the topic of innovation in hopes of getting some insight. Good luck. My recent research leads me to believe that innovation, as a topic, leads the business writing industry in twaddle per page. With that in mind, let me dispel what, in David Letterman tradition, we might call the Top Ten Myths about Business Innovation:
10. We don't innovate around here any more. Baloney. Your people are innovating all the time. The problem is, your innovations are no longer differentiating your company. Your innovations, in other words, parallel your competitors' innovations, with the result that you all look more or less alike. Customers, seeing little to no difference, put more and more emphasis on price. Unable to distinguish your offer, you have no bargaining power, and most capitulate to their pressure. On weekends you complain about commoditization, but during the week you do nothing to address the problem.
9. Product life cycles are getting shorter and shorter. And whose fault is that? If you do not differentiate in hard-to-copy ways, you cannot expect what differentiation you do create to be long-lived. iPod's product life cycles are longer than its competitors, not because it has a way-cool form factor but because iTunes is part of the iPod experience that Apple's rivals are still struggling duplicate. And as cars make their dashboards iPod compatible, the competitors run around catching up to Apple instead of making their offerings distinctive in some other dimension. Sustainable differentiation requires barriers to entry and barriers to exit.
8. We need a Chief Innovation Officer. Like a hole in the head. Think about what your true goal is: you want innovation that creates differentiation that leads to customer preference during buying decisions. That sounds about as close to a core business strategy as you can get. It has to be grounded in the realities of operational capabilities, customer feedback, competitor investments, and capital constraints. So your chief innovation officer by default must be your P&L owner. If that person isn't stepping up to the innovation task, replace them with someone who will.
7. We need to be more like Google. Not on your life. Google is a once-in-a-decade phenomenon, a company riding a wave of adoption so powerful that not only is the first derivative of its growth curve positive, but so is the second derivative. If that describes your market, we doubt you are worrying about innovation. If it does not, and you want outside help, seek it from someone who has had recent experience with markets like yours.
6. R&D investment is a good indicator of innovation commitment. No, it is not. In the first half of this decade, HP invested 15% in R&D and Dell invested 5% and cleaned their clock. How? They out-innovated them in process innovations led primarily by their operations folks. Innovation that leads to sustainable competitive advantage can be initiated and led by any organization in the company. R&D represents the engineering department's lead, and in general pays off well in double-digit growth markets and increasingly poorly in single-digit growth markets. Continuing major investments in R&D in slow-growth markets is a good measure of lack of innovative thinking.
But you are not a start-up. You have some success, some momentum, and therefore some inertia, and it is the inertia that has you worried. By design inertia resists change. This is a good thing, as long as you are headed in a direction you want to go. But when the market changes, inertia acts against your future interests. Now you are right to be worried.
So you raise the topic of innovation in hopes of getting some insight. Good luck. My recent research leads me to believe that innovation, as a topic, leads the business writing industry in twaddle per page. With that in mind, let me dispel what, in David Letterman tradition, we might call the Top Ten Myths about Business Innovation:
10. We don't innovate around here any more. Baloney. Your people are innovating all the time. The problem is, your innovations are no longer differentiating your company. Your innovations, in other words, parallel your competitors' innovations, with the result that you all look more or less alike. Customers, seeing little to no difference, put more and more emphasis on price. Unable to distinguish your offer, you have no bargaining power, and most capitulate to their pressure. On weekends you complain about commoditization, but during the week you do nothing to address the problem.
9. Product life cycles are getting shorter and shorter. And whose fault is that? If you do not differentiate in hard-to-copy ways, you cannot expect what differentiation you do create to be long-lived. iPod's product life cycles are longer than its competitors, not because it has a way-cool form factor but because iTunes is part of the iPod experience that Apple's rivals are still struggling duplicate. And as cars make their dashboards iPod compatible, the competitors run around catching up to Apple instead of making their offerings distinctive in some other dimension. Sustainable differentiation requires barriers to entry and barriers to exit.
8. We need a Chief Innovation Officer. Like a hole in the head. Think about what your true goal is: you want innovation that creates differentiation that leads to customer preference during buying decisions. That sounds about as close to a core business strategy as you can get. It has to be grounded in the realities of operational capabilities, customer feedback, competitor investments, and capital constraints. So your chief innovation officer by default must be your P&L owner. If that person isn't stepping up to the innovation task, replace them with someone who will.
7. We need to be more like Google. Not on your life. Google is a once-in-a-decade phenomenon, a company riding a wave of adoption so powerful that not only is the first derivative of its growth curve positive, but so is the second derivative. If that describes your market, we doubt you are worrying about innovation. If it does not, and you want outside help, seek it from someone who has had recent experience with markets like yours.
6. R&D investment is a good indicator of innovation commitment. No, it is not. In the first half of this decade, HP invested 15% in R&D and Dell invested 5% and cleaned their clock. How? They out-innovated them in process innovations led primarily by their operations folks. Innovation that leads to sustainable competitive advantage can be initiated and led by any organization in the company. R&D represents the engineering department's lead, and in general pays off well in double-digit growth markets and increasingly poorly in single-digit growth markets. Continuing major investments in R&D in slow-growth markets is a good measure of lack of innovative thinking.
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