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The Basics of Innovation

I’ve been talking about “Innovation” a lot recently, and I realized that people have aren’t totally clear about what I am referring to. I think people often assume that “innovation” refers to creating brand-new ideas, markets, or products. Although I would love to do that regularly, that type of activity is difficult, and beyond what I’m focusing on. Here’s a bit more on innovation the way I look at it.

The first key concept to know is that “Innovation” is not the same as “Invention”. Summarizing Merriam-Webster’s definition, Invention is the process of producing something for the very first time, ever. This differs from Innovation, which can be thought of as the process of introducing improvements to existing ideas or products.

By necessity, “inventions” are rare, and commercially they often take decades from invention to mass-adoption. The resource needs and timelines for invention are large, and beyond the reach of many firms. “Innovation” instead focuses on the more achievable methods used to identify improvements to make, and then how to validate, develop, and launch them. Even small changes can be considered innovative, such as changing a business process to reduce errors!

The second key concept to know about is the different types of innovation. At the highest level, I use the concepts of “sustainable” and “disruptive” innovation pioneered by Clayton Christensen, which I believe anyone in technology or business should be aware of. In his definition, “sustainable” innovations are improvements of existing products and services, within existing markets. These are often for current, high-demand, and high-margin customers. For example, Amazon adding Same Day Package Delivery. Same Day Delivery was an existing service in the existing logistics market, and Amazon innovated by adding this as a capability to their Prime membership program. Both Amazon and their customers have benefited by this change.

Conversely, “disruptive” innovations create a different value network and market than available

previously, and are supported by new technology and business models. These often start at the bottom of the market—low margin customers—and move upward as more capabilities are developed and the product/market fit refined. For example, Amazon created the Alexa Digital Assistant. When Alexa came out her features were fairly few compared to today, and Amazon had to popularize the digital assistant and smart home market.

That was over 7 years ago, and since then Amazon has now created an entire market (Digital Assistant) and value-network (Alexa Skills and Third-Party devices). As a first mover and the largest innovator in the space, Alexa should continue to own definition of that market until another product comes in to disrupt it.

Ideally, every company would be ability to effectively innovate, and would have a great portfolio of sustainable and disruptive innovations, all aligned perfectly toward the company strategy. Of course, that rarely happens, and innovation most often occurs unreliably. Here are some research statistics:

  • 96% of innovation projects fail to provide a return on investment (Deloitte, 2019)

  • 54% of companies struggle to align innovation and business strategy, and just over one-quarter of respondents believe they lead their competitors in innovation. (PWC, 2017)

  • 90% of firms believe COVID-19 will fundamentally change the way they do business, but only 21% have the expertise, the resources, and the internal commitment to successfully approach new growth (McKinsey, 2020)

We also know that many companies wait until too late to improve how they innovate. The S-Curve of Growth (see image) is a useful theory of how business, product, and market maturity occur: eventually, new customers are exhausted, competitor offerings launch and drive down margin, and growth plateaus. If a company waits too long to identify and offset the slowing growth with new innovations, eventually it will decline and fail. There are many companies who are at risk of this—sitting content with little ongoing growth, or pursuing “big bet” strategies to win growth at significant organizational risk.

This is the subject I’m now working on full time: how to help organizations understand innovation and create organizational processes and mechanisms to enhance it. I believe that any company can improve how it innovates, and create a culture of continuous, successful innovation. As I’ve shared separately, I believe Amazon is the best example of a company that does this, and I use Amazon’s best-practice methods as part of the foundation of accomplishing it. If you are interested in seeing how your company can better innovate, or curious about this at all, reach out!

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