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
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").
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."
Payback, a good read with straightforward advice, offers a helpful tool for managers: the cash curve. The simple S curve plots the ROI of an innovative product, measuring the size and timing of a company's investment in developing a new offering, the speed with which the product is brought to market, and the product's scale—or time it takes to achieve projected market volume. The graphic forces a company to confront risk in a disciplined fashion and, ideally, move on if an innovation's curve is heavy on the cost and potentially low on the return.
Andrew and Sirkin present the cash curve of Apple's iPod, no surprise, to illustrate maximum innovation payback. The graphic shows the company's low startup costs (because Apple didn't invent the portable digital music player, it simply redesigned it), speed to market, and ability to quickly achieve a large volume of sales. The iPod cash curve features a nearly flat line on the x-axis before the device's launch and a skyrocketing upward swing postlaunch.
Like Andrew and Sirkin, Harvard's Kanter has observed innovation practices for decades. In her Harvard Business Review article, Kanter makes clear that innovation is nothing new, despite its recent trendiness, and that this long history makes it very possible to pinpoint, and steer clear of, recurring innovation traps.
The Old Yardstick
Kanter says that the most common mistake companies make is to focus on so-called practicality, or the application of traditional corporate processes to adventurous new projects. The problem, Kanter writes in an e-mail, is that applying tried and true processes to "fledgling ideas that are still unfamiliar, undeveloped" is problematic because truly innovative pursuits are "hard to forecast or measure in traditional ways."
In other words, a company can't measure the success of a totally new product via metrics used for a previously launched item. A brand that traditionally makes and sells personal computers, for instance, shouldn't measure a radically new smartphone's progress directly against that of its previous PCs.
If there is one general nugget of advice that Kanter would distill from her essay it is that companies pursuing innovation strategies must be flexible. She writes via e-mail, "Flexibility in the treatment of ideas as they develop is certainly very important in any context. Applying one-size-fits-all thinking to new ideas is a big mistake; approaches should fit the nature of the idea."
Watch for Culture Clash
She offers BusinessWeek.com a set of basic questions that managers should ask before pursuing an adventurous new product: What kind of product is it? How familiar is it to the company, and does it call for finding partners or external alliances? And, echoing Andrew and Sirkin, will it bring returns quickly?
Kanter also advises managers to make sure there are no culture clashes between internal teams working on a company's traditional products and its new, innovative experiments. "It's important…that there are close personal connections between innovators and people involved in established activities—that they communicate often and understand one another," Kanter e-mails. "That helps innovators tap resources, including experience, that might already exist in the business. And it ensures that when it is time to fold the innovation into the flow of the mainstream business, people understand it and are ready for it."
Still, Kanter, like others tiring of the innovation buzzword, doesn't believe real business innovation will die, even if the word goes out of fashion. Indeed, the shift from innovation-speak to a focus on the principles and tools of innovation success was evident at last month's annual meeting of the World Economic Forum in Davos, Switzerland. Last year, an unprecedented 22 sessions focused on "Innovation, Creativity, and Design Strategy." This year, two series of chief executive workshops avoided the term, while focusing on inventively improving established products and processes or creating new ones.
Products and Profits
"The term has been over-used and abused of much of its meaning, with every lame brand-tweak and extension being hailed as an 'innovation,'" observes Kevin McCullagh, who recently wrote an essay, Beware the Backlash: A rising tide of disaffection towards design, as in innovative product design for the popular design Web site, Core77.
"Designers and 'innovators' have definitely been guilty of over-claiming," says McCullagh, a director of London-based product strategy consultancy Plan who has worked with Ford, Hewlett-Packard (HPQ), Nokia (NOK), Samsung, and Unilever (UL). "[But] I don't think there is much evidence of consumers getting tired of innovation. Look at the widespread hunger for a better cell-phone experience that the iPhone is tapping into."
Consumers, businesses, and designers alike might bemoan the constant repetition of "innovation" in advertising, marketing plans, boardroom meetings, and brainstorming sessions. But the quest for products designed with improved usability or fueled by fresh new technologies, true innovations, won't soon end. As experts are starting to prescribe, innovative products can continue to drive profits if pursued with ROI, rather than marketing, in mind.