Sustained innovation in a business is a rare thing. When large corporations such as IBM and AT&T were virtual monopolies, they could lavishly fund innovation at places like “Yorktown Heights” or “Bell Labs” which did not contribute to immediate profitability. When push comes to shove in tough economic times, that funding is the first to go. In a smaller business, a culture of innovation can be the result of the influence of the founding entrepreneur whose passion for innovation becomes the corporate culture. Or it can be the rare manager who sees the long term value in innovation and has the power within the company to create an environment for it. 

My former company, Texwipe, was one of those rare companies where constant innovation was not only our culture, but was the key to our success. Texwipe’s culture of innovation came from its founder, Edward Paley. Innovation was in his DNA so to speak; it was never a conscious, rational or planned decision to be “innovative”. It was just the way he was. This is true with many entrepreneurs.  Their success is a product of their innate desire and ability to create something new. The trick is to keep this going as the company matures. Texwipe was an innovative company from its beginnings in 1963 to its sale in 2001. That was a span of 38 years. How did we do it? Looking back, here are some of my thoughts:

It was who we were. Well, what can I say: We didn’t know any better. Innovation was the way we thought and worked. It was as if the business was solely a platform that enabled us to create.

We controlled the company. We had complete say in what the company did. After all, we were the owners. There were no outsiders to insist that we stay within standard business orthodoxies.

The marketplace. We served the high tech marketplace as it was rapidly developing during the 1970s through the end of the century. The need for better products was a constant.

We didn’t focus on profitability. This is a key idea. Profit is the result of creating something that someone sees value in and will therefore pay sufficient money to have. It should be an output, a result – not an input. In other words, we did not run our business to make a profit per se; we ran our business to create significant value in the mind of our customers. As a result, we made a profit. If, on the other hand, a business focuses solely on profit; it can readily be achieved in the short term, but often at the sacrifice of the longer term health of the company. You can cut cost to the bone or even past that until the company just disappears.

We did not have rigid time horizons for product development. To be truly innovative (or inventive) you often don’t know where you are going or what you are doing. There is no clear-cut path to go down; you have to feel your way. This is usually the case for great leaps forward. You get there when you get there. The upside to this is that once you get there, what you have created is usually something great.

We built our reputation as the industry leader in technology and innovation. We had a reputation as the industry leader for innovative new products. The marketplace expected this from us and it was closely identified with our brand. This, of course, is a chicken and egg problem. We simply did what we liked best, and it became an expectation in the marketplace. This in turn drove further innovation.

With a nod to Tolstoy, “Innovative companies are all innovative in their own way”. But what they share in common is a culture that enables them to continuously venture into uncharted territory. They are driven by a compulsion to create.

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.

Here’s why.

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.