The Innovation Backlash

A chorus of voices is calling for an end to the hype—and a focus on the fundamentals that drive real bottom-line-boosting innovation

by Reena Jana

In one 30-second TV spot, former Ford Motor Chairman and Chief Executive Bill Ford used the word "innovation" almost once every eight seconds. "If you look at the Ford Motor Company, innovation has driven everything we've done," Ford said in the opening of the ad, which ran from late 2005 into 2006. The repetitions came to feel like a mantra as he concluded, "Innovation will be the compass that guides this company going forward." That campaign has by now been abandoned.

Perhaps because in 2006, the year that followed the launch of these spots declaring innovation to be a core brand value, Ford (F) saw an unprecedented loss of $12.7 billion—surpassing its previous record of $7.39 billion set in 1992. The unfortunate timing of the TV spot before Ford's worst year ever illustrates how companies are increasingly flying the innovation banner, hoping if they say the magic word loud enough, the public will see their brand as inventive and forward-thinking.

But the overuse of the term is now leading to an innovation backlash, or at least to an attempt to define and measure what "innovation" really means and how it can be measured.

Spending Doesn't Guarantee Success

In recent months, a wave of books, articles, and studies from major consulting firms, business-school professors, and design experts have surfaced that aim to get beyond the hype. They analyze real-world examples, taking away concrete lessons about innovation ROI, the conditions that lead to success, and the most common reasons for failure, especially in new product design. At the end of 2006, for example, Harvard Business School professor Rosabeth Moss Kanter published an article, Innovation Traps, in the Harvard Business Review.

Also in late 2006, consulting firm Booz Allen Hamilton published its annual Global Innovation 1,000 Survey of the world's biggest R& D spenders—a list topped, in fact, by Ford (see BusinessWeek.com, 11/14/06, "How to Turn Money into Innovation").

The survey concluded that throwing billions of dollars at R&D to produce more patents—a common measure of innovation success—doesn't translate into innovations that affect a company's bottom line. Apple (AAPL), for instance, has one of the lowest ratios of R&D spending to revenues (see BusinessWeek.com, 1/17/07, "Don't Look to New Ideas for Growth").

"Innovation Platitudes"

In late January, Harvard Business School Press published Payback, by the Boston Consulting Group's James Andrew and Harold Sirkin (see BusinessWeek.com, 1/12/07, Podcast: "Win by Growing"). The authors emphasize what should be, but isn't, obvious: that the "only worthwhile innovation is profitable innovation." Among its many lessons, the book advises ditching unprofitable ideas early even if they are brilliant and revolutionary—think Motorola's (MOT) Iridium satellite phone initiative—and moving on to the next big and profitable thing.

"Companies use a lot of innovation platitudes. The question is, how do they overcome the platitudes?" says Sirkin, who with Andrews has studied corporate innovation for 20 years. "Payback was born from frustration. Companies get [innovation] wrong, and so many people misunderstand the topic."

Sirkin urges companies to focus on the return on their innovation investments, rather than on innovation itself. "There's a belief that innovation is about great ideas," Sirkin says. "But in the business context, it's also about bringing a great idea to market, and how to maximize the payback on the investment made in the idea."