Build a better mousetrap, the saying goes, and the world will beat a path to your door. The power of innovation in business is well known. It is axiomatic that no company will enjoy competitive success for long unless it innovates, in terms of its products and services, its production processes, its markets and/or its business model – or all of these things. Companies that do not innovate come to a standstill and cease to grow. On the other hand, those that make innovation a priority are more likely to survive and prosper. Morgen Witzel, FSN writer and honorary senior fellow at the University of Exeter Business School explains.
All of this is quite true, as the examples of successful businesses for the past thousand years demonstrate clearly. The Italian bankers of the Middle Ages who invented double-entry book-keeping and bills of exchange stole a march on the rest of the European financial community, and dominated European banking for centuries. In the 1850s Julius Reuter worked out that the newly-invented telegraph could be used to transmit vital financial information and news about current events; today the company he founded, ThomsonReuters, is one of the largest suppliers of data and information in the world. Robert Noyce, Gordon Moore and Andrew Grove leveraged their knowledge of physics and electronics to turn Intel into the dominant force in the global semiconductor industry. And so on, and on.
But for those tasked with the making and execution of strategy, a word of caution is in order. Innovation is vital. But while it is necessary, innovation on its own is not sufficient for success. The relationship between innovation and strategy is a complex one, and many companies never master it. The road to competitive success is littered with the wreckage of firms that tried to build a strategy based on innovation and failed. For every successful example like those cited above, there are many others that have vanished.
What goes wrong? The trap that companies and managers most commonly fall into is to assume that is enough to be innovative. ‘We are one of the most innovative firms in our sector’, is the often-heard boast. To which the answer should be: so what? What are you doing with this innovative potential? Where is it taking you? And even if you are one of the most innovative firms in your sector today, will you still be so tomorrow?
Clayton Christiansen, professor at Harvard Business School, believes that many companies become seduced by their own innovations and their apparent potential. In his 1997 book The Innovator’s Dilemma, Christiansen argues that companies often invest heavily - in terms of time, money and personal commitment - in a particular innovation. In the short-run they are successful, but this success creates a false sense of achievement and security. Believing that they are in possession of a superior technology, managers continue to invest in that technology and tie their corporate strategy to it.
An example of this is Polaroid, which spent two decades bringing its revolutionary SX-70 instant cameras to the market. The success of this product prompted Polaroid to invest further in instant cameras using film. Then along came digital photography, and the market for instant cameras was wiped out.
So-called ‘disruptive technologies’, like digital photography or mobile phones, can threaten not just a company’s plans for innovations, but its markets and its very existence. Again, it is not enough just to be an innovative company. The company must also have a clear vision of the future, an understanding of its goals and a plan for reaching those goals. That plan must be flexible, and allow the company to choose different options depending on circumstances and the changing business environment. Over-heavy commitment to innovating a particular product or process can actually close down other options and leave the company with less flexibility than it had before.
High-technology firms often start off with a particular innovation and then develop a strategy for its exploitation, and this has become the standard model used by many innovators. The innovation comes first; the strategy for exploiting it is developed afterwards. But there is plenty of evidence to suggest that this might be a case of putting the cart before the horse. First, the great majority – over 90 per cent in places like Silicon Valley – of these innovative high-tech firms fail. That suggests that quite a few of them are getting their strategies wrong, and therefore maybe this is not the best model to follow.
And second, as James Collins and Jerry Porras point out in their 1994 book Built to Last, some very successful firms start not with an innovation but with a strategic vision. At Hewlett-Packard the founders, Bill Hewlett and David Packard, began by assembling a team of motivated and committed people, then developed a vision of where the computer industry might go, and set out an initial strategy. Only after this did they get around to inventing things. The same happened at Sony, where Masaru Ibuka and Akio Morita began by pulling together a group of talented engineers who shared a particular vision of the future. Collins and Porras believe that companies that articulated their strategy first and saw innovation as a way of taking that strategy forward are more likely to succeed than are those that see the role of strategy as bringing innovation to market.
Innovation is a necessary feature in most, if not all, successful strategies. But, says Clayton Christiansen, it is not the whole story. He argues that strategists need to do two things. The first is to regard any innovation as a tool that enables the company to help it achieve competitive success. When times change and disruptive technologies make existing products and processes obsolete, then the company’s original products and processes must be abandoned ruthlessly and new ones developed. Part of the strategist’s job, says Christiansen, is to be on the lookout for the appearance of disruptive technologies and prepare for their arrival. In other words, the company needs to keep its strategic options open and not commit too heavily to any one technology.
Second, says Christiansen, companies need to make sure that innovations are focused on the market. Many high-technology companies ‘overshoot’ the market by providing features that customers do not want or are unwilling to pay for. Some makers of third-generation mobile phones fell into this trap, and provided expensive, over-designed phones that were not successful. Christiansen points out that putting more bells and whistles on a product does not necessarily make it better. Small, cheap Japanese compact cars made huge inroads into the North American car market in the 1970s and 1980s, at the expense of larger, faster and more powerful American models. Today, a new wave of even smaller and cheaper cars from the Far East and India poses a similar threat.
The sad truth is that the better mousetrap does not always win the competitive game. The one that wins is the one that people are willing to pay for, and use. For the strategist, then, the first rule must be that innovation supports strategy, not the other way around. Develop a business model, work out what the company’s goals are, determine who its customers are and what they want – and then invest in products, services and systems that will meet the needs and expectations of customers. And the second rule is even simpler: never back a losing horse. If your products are about to be superseded by ones that your customers regard as superior, do not continue doggedly to sell the original products on the grounds that ‘ours are still better’. Do so, and your products and very possibly your business itself will become as extinct as the dinosaurs.
