For long-term, sustainable innovation success – innovate the business model.

In my humble opinion, innovation tends to be like sports where success is fairly elusive, ephemeral if you will. You may have a blockbuster this year but that does not guarantee a lifetime of success. But there are a few things that can be done to build sustainable innovation success.

Diversify your innovation

Although innovation is not a fad, it certainly comes in waves. With recessions, innovation groups tend to lose resources. Talent loss is one of the more serious issues because it means losing knowledge (technical know-how, consumer insights, etc.). Depending on the talent, they may be scooped up by the competition so you may be losing your innovation to them. Budget loss is another issue that needs to be managed. It all comes down to managing your innovation portfolio. Game-changing innovation is costly, fraught with failures, but success offers long-term profits. Product line extensions are relatively inexpensive, have a decent success rate, but only offer limited long-term profits – they are just short-term plays. You need a mixture of both.

The big problem with true innovation is that it is a long-term play. Sure, you have short-term, ROI-driven product line extensions or cost-cutting product reintroduction. They will provide short-term profits (great for the balance sheet and Wall Street), but they provide no long-term competitive value. But the business world (at least in the US) has become so blinded by short-term profits that we are squandering our competitive futures. One answer is innovation management – balancing the number of innovation projects between a few large ones and many smaller ones. It not allows you to stay competitive in the short-term, but earn profits that you can reinvest in the business (and the innovation portfolio). Innovation portfolio management is also about “filling the gaps” that make strategic sense and are profitable. This innovation diversification helps you develop an innovation reputation that you can take to the bank (Wall Street) and attract great talent. It’s a bit like baseball – a few good hits get you home (not as sexy as a homerun) but it gets you to a win in any case.

Innovation from the inside out

So far, all I have talked about is product or service innovation which in itself tends to be short-term. But innovation needs be so much more. Innovation should be both global and “global”. By global, I mean looking beyond the shores of one’s country. Innovation is everywhere. P&G sources innovation ideas from all over the world. They keep dedicated innovation experts in all five continents to keep a pulse on innovative ideas, technology, and talent. Need inspiration, travel and see what’s being done elsewhere. Can’t travel? Go to ethnic stores/areas and get a flavor! As I will discuss in another post, we need to stop being myopic – the U.S. is not the innovation powerhouse that it has been built up to be.

Innovation from the outside in

Innovation should also be “global” in the sense of holistic. Product innovation is ultimately shackled by the supply chain and business model in place. If you want to be innovative, you have to look at everything inside the company. Ultimately, you create a “blue ocean” by changing (or expanding) your business model – a long term profitable space with no competition at least in the short-term, if not for the long-term. Cirque du Soleil did not innovate the product (a trapeze artist is a trapeze artist), it innovated the business model – so much so that no one has been able to replicate it because their supply chain, their business model is holding them back.

Apple is another prime example. Its iPod was NOT the first MP3 player on the market. Sure, the design was different, but design alone does not make for a sustainable business. Apple brought the combination of the iPod and iTunes that revolutionized music usage and Apple. That is what makes Apple so successful today. Apple builds innovative platforms and business models with well-designed products.

So we need to move beyond the short-term, beyond local innovation and innovate your business model to get a more sustainable, long-term innovation success.

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