Innovation: The Straw That Stirs The Drink

“Build a better mousetrap and the world will beat a path to your door.”

Ralph Waldo Emerson

Innovation comes in waves, nourished by advances in technology. That was true in 1450, when Johannes Gutenberg invented the printing press. The advent of personal computers set off a similar wave in the 1970’s, ushering in the information age. In the 1980’s it was software and in the 1990’s, the internet and all things digital. The digital revolution continues, but today’s urge to innovate also looks inward as firms turn to their own competencies in search of the new.

Many experts say that the only sources of competitive advantage are price and differentiation. Therefore, innovation is the most powerful differentiator, though history shows that it doesn’t always lead to greater profitability. The most practical and valuable use of innovation for a company is to use it as a way of entering new markets and generating organic growth without having to resort to acquisition.

A common mistake is that people equate innovation with invention. An invention has to be marketable to innovate. Innovation must change the way people do something. Innovation is the successful implementation of creative ideas within an organization. Creativity, which includes invention, is a starting point for innovation, a necessary condition but not sufficient on its own. Talented executives manage innovation from creative inspiration through to a marketable product or service. Remember when people would go through neighborhoods knocking on doors to read the meter (usually in the basement)? This was not only inefficient, but was also quite dangerous as sometimes criminals could pose as your local meter man to gain access to your home. Today this is all done electronically and remotely. When was the last time you used a fold-up map? Now you have GPS (Global Positioning Systems) that track your movements and give you directions, in your car or on your phone. They fulfilled needs.

What companies face today is the choice of going with incremental innovation “small” or transformational innovation “big”. “Small” innovation is usually done through continuous improvement but doesn’t make firms notably more competitive or profitable. “Big” innovation projects can contribute significantly to profits, but they require greater R&D and upfront capital. Innovativeness is made, not born, but many large companies are simply not very effective at managing the process. Is there an adaptive medium between the “big” and “small”? Consider two strategies that have been used as a best practice for innovation, the “ambidextrous organization” and “creative destruction.”

The “ambidextrous organization” balances inconsistent structures and cultures so that it can exploit the old ways and explore the new ways simultaneously. This strategy picks winners in technologies and markets by staying close to its customers, responding swiftly to market signals and knowing just when to kill a product or project that isn’t working out.

“Creative Destruction” was coined by the economist Joseph Schumpeter in the first half of the 20th century. His idea was that waves of innovation crash down on the established enterprises, washing them away and leaving new ones in their place, which is particularly appropriate in the digital age. Many people feel that the economy of the future as one with creative destruction and innovation leading the way. Unfortunately, the end of Schumpeter’s vision is one of corporatist socialism, mechanized innovation and the eradication of the entrepreneur.

The take-away from both the “ambidextrous organization” and “creative destruction” for our uncertain times is not one where people should be shocked that some of the blue chip companies are tanking. It’s supposed to happen. The fear really is the uncertainty in the market of what will replace them. Companies need to understand not what worked in the past, but why, from a root cause perspective. Then, they need to look to innovate those best practices for a competitive advantage and greater profitability.

It is paramount that an entrepreneurial vision is implanted in both large and small corporations as it is entrepreneurs who drive innovation, and innovation that drives capitalism.