The business of innovation (part 1)
Business and innovation. Now there are two words that seem to go together. You would be hard-pressed to find a business that doesn’t preach innovation to its employees, customers, and shareholders. There is, however, a much different reality. While most businesses preach innovation, their actions belie their words. In truth, most well established businesses run away from innovation.
Change is needed when someone or some entity wants to move from one place to another. In that case, there is a desire for the new which leads to creative or “innovative” approaches in order to effect that change. But what happens once you arrive there? Most established companies have arrived and their job is stay there. In other words, their job is to manage their current situation in a predictable manner. Innovative approaches are generally unpredictable. Another way of looking at this is minimizing risk. Innovation most often has significant risk associated with it. Stockholders understandably thrive on predictability and want their investment to be “risk free” or at least “risk managed”, and it is management’s job to ensure that predictability. This often becomes the culture of a corporation and permeates throughout the company. Cost reduction, for instance is a controlled and predictable way to increase profitability. Innovating new products is a much more expensive gamble which might or might not succeed. Managers are not rewarded for taking risks but for achieving goals. There is a big difference. Often those goals are financial and wild innovation is not first on the list of techniques for achieving the financial goals of an established company. Now I’m not saying that large companies never innovate. Of course they do! But I am saying that the innovation is often mitigated by larger constraints. I am also saying that innovation plays a relatively small role in the management of most companies.
Companies often resort to innovation when they are in trouble. They might be in a downward spiral, or face an overwhelming competitive threat and they don’t know what to do. As a last resort they innovate. An example of this (which I discuss in my book) is the invention of the dry copying process known as Xerography. The company, Haloid, was in deep trouble and needed a wild-card innovation to be able to sustain themselves into the future. They took a huge risk and bet the farm on the unproven technology of dry copying. The opposite can also be true. Businesses will innovate when there is little risk in doing so. They will reason that their “core” business is successful and going along nicely and that perhaps they can dabble in an innovative venture. If it fails, the risk is minimal to the overall health of the company, so they can experiment a little.
Businesses preach innovation but worship predictability. Most of the time these two things take you in opposite directions. It is a rare business where innovation is its core value, its raison d’être. Not only is innovation unpredictable but it is hard to sustain over time. The primary graduate degree granted if you want to study business is the M.B.A. or Master’s in Business Administration. The last word, Administration, is key. The job of management is to administrate. The goal of administration is to reduce both risk and volatility, not produce it. Innovation at its heart is venturing into the unknown with unpredictable results. “On time and under budget” is a canon of management. It is also the killer of innovation.