Innovation is the one and only way to secure long term sustainable profits. So why do so many large companies fail at it?
There are really only three reasons.
And like a delicious summertime treat, they will melt away your business if you don't deal with them head on.
1. The Scattershot Approach: Companies are undisciplined in the type of innovation to specialize in and attempt to innovate in too many places.
"Scattershotting" is like ordering a mint chocolate chip ice cream cone and then loading it up with every single topping known to man. Mint chocolate chip tastes good because its core flavors are specifically designed to work with each other. It can even taste better with chocolate syrup but will turn into a jumbled mess when you add gummy bears and Butterfinger dust.
2. The New-Product-Or-Die Approach: Believing that creating a new product or a novel re-application of a product is the only one way to innovate.
This is a super attractive approach, as the big headlines (and revenues) often come with market-changing products - just ask Apple, Amazon, and Netflix. But most companies force innovation here, even when the market won't support it and their competitive strength is elsewhere. Setting up an ice cream stand in the middle of winter in Fargo or inventing sour ice cream will (probably) find atleast one new customer. But for most, it's probably better to improve your customer's experience at your counter or market your ice cream differently.
3. The Hope-As-A-Strategy Approach: The most practical reason of the three, companies don't have an internal strategy to systematically create, test, invest in, and then graduate an innovation.
Innovation that might've worked dies on the vine as it is cannibalized by the demands of a company's incumbent revenue generating products. Resources are diverted to the cash cows and the B-Team is deployed to work on new ideas in a Road to Nowhere lab. Even if the A-Team can be freed up to work on new ideas, their knowledge of what they're already working on cannot be transferred to others in a short enough time. There is no process to manage the incubation of innovative ideas until they're ready to grow without being stomped on by more mature products. If you keep investing in incremental gains and marketing your vanilla ice cream, your Dipping Dots will never see the light of day.
The great news? All three of these problems can be eliminated with a little planning, decision making, and focus. Geoffrey Moore's "Dealing with Darwin" offers what I consider the most complete solution, so I highly recommend a read. The solution can be summarized as:
First, pick the type of innovation you will be the best in the world at, which fits your company's strength and your market's maturity. There are 16 (yes, 16) different types of innovation you can major in -- the important thing is to choose only ONE you will commit your focus to, per market you're competing in. These types are visually depicted in relation to the product adoption lifecycle below (source: Moore, Dealing with Darwin).
Second, develop an intentional investment strategy that incubates and graduates innovations into the broader organization while also allowing your highest performers to spend most of their time innovating. As it turns out, the most important resource for innovation is your people with company, product, and market knowledge.
The best companies in the world recognize that it is innovation that created their success. They also realize that it's the only thing that will sustain their success.
Don't let innovation slip through your hands into a sticky puddle on the floor. Focus on it, care for it, and use it to increase your already-established competitive advantage.
Your success will be both satisfying and sweet.
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